The province of Ontario has recently passed into law the Ontario Rebate for Electricity Consumers Act, 2016 (Act).
By virtue of this Act, electricity consumers are entitled to an 8% rebate on the cost of electricity related to consumption on or after January 1, 2017.
Although it is apparent this rebate is mostly meant to target individual consumers, due to the restrictions which include that the demand for electricity should be 50 kilowatts or less, some businesses have also been receiving the rebate.
This has led to questions about how the rebate should be treated for Harmonized Sales Tax (HST) purposes. These questions are especially relevant to HST registrants subject to Restricted Input Tax Credit (RITC) reporting because there are penalties associated with reporting incorrect amounts for RITC purposes.
The answer will depend on whether or not the rebate is considered to be a price reduction by the province. The Act is silent in respect of this question.
Based on regulations to the Act, there are specific requirements with respect to how the rebate should appear on a consumer’s invoice including the fact that it must be labeled “8% Provincial Rebate”. In addition there is a requirement that the following statement appear on the invoice:
“The Ontario government is providing a rebate on your electricity costs equal to the provincial portion of the HST”.
The regulations also set out how the rebate should be calculated. It is clear that it is to be calculated on the amount before sales tax. However, the regulations are silent in terms of how the rebate relates to the calculation of the HST.
One would expect that if this is an HST point‐of‐sale rebate like the ones introduced by the Province back in 2010 when HST was first brought in to Ontario, there would have to be legislation introduced into the Excise Tax Act or its regulations to address this topic. However, no such legislation has been introduced.
However, in reviewing the Act, it does address how the electricity vendors will be reimbursed by the Province for the credit extended to consumers. If this was indeed an HST rebate, then reimbursement would not be required by the province because the electricity vendors would simply need to reduce their HST remittance by the amount of the rebate provided.
According to private discussions we had with CRA on February 7, 2017, the Federal Government had received no communication from the province with respect to this rebate and its HST implications. The CRA spokesperson indicated, however, that some additional information has been provided by the province of Ontario. It looks like the province is treating the rebate as a refund of an amount equal to the provincial portion of the HST. However, this is not a refund of HST, nor is it a reduction of consideration paid for hydro services that is subject to HST. Therefore, the HST amount does not change and neither does the RITC amount. According to discussions with CRA we can expect an official announcement from CRA confirming CRA’s position with respect to this matter.
Based on our current understanding as to the nature of the rebate here are examples as to how it should be recorded ‐‐ dependent on your HST status.
In reviewing a sample invoice from Hydro Ottawa, HST has been applied to the full amount of the invoice without consideration of the 8% provincial rebate.
As an example:
|Net invoice amount|
It is at this point that the rebate appears on the statement as follows:
|8% Provincial Rebate||()|
|Net invoice amount|
Here are suggested entries based on the above invoice details:
Taxpayers not entitled to input tax credits (i.e. residential landlords)
Taxpayers entitled to input tax credits but not subject to RITCs
Taxpayers entitled to input tax credits and subject to RITC*
* The example assumes the transaction occurred between January 1, 2017 and June 30, 2017. After that date RITCs will be reduced from the current ratio of 50% to 25% of the provincial portion of the HST for the period of July 1, 2017 to June 30, 2018 after which the RITC rate will be reduced to zero.