GST-370 – Employee and partner GST rebate

The taxpayer’s eligibility must be indicated by completing Form T777 or TL2, the line 21200 workchart, the line 22900 workchart, or section “GST/HST rebate for partners” of the partnership’s statement of income and expenses, as the case may be.

The program considers that amounts entered on Form T777 are eligible expenses except for the following:

• salary paid to a substitute or assistant;
• insurance costs for a musical instrument;
• automobile expenses:
• insurance
• licence and registration
• interest
• work-space-in-the home expenses:
• water
• insurance
• property taxes
• rent
• personal use portion of taxable expenses.

The taxpayer's eligibility must be indicated by completing the "Expenses of a partner" section of Form GST-370, or section “GST/HST rebate for partners” of the partnership’s statement of income and expenses.

The amount of GST rebate may be higher than the actual amount of GST paid due to the inclusion of QST in the amount of deducted expenses. However, the calculation does not have to be modified.

Excise Tax Act, section 253(1);

Québec Sales Tax Act, section 358.

Interpretation with regards to the GST and QST

Employee refunds

Ref.: 99-0112443

Case 1

1. An employee (with or without commission) receives a fixed monthly allowance (taxable) from his or her employer (as indicated on his T4 and Form T2200). The employer has signed Form GST 370 and does not recover the taxes on this allowance. Can the employee recover the taxes (GST/QST) on his or her automobile, cellular and entertainment expenses?
2. If the same situation as in 1a) and the employee receives a fixed allowance, for example, $0.10 per kilometre, can the employee recover the taxes on his or her automobile, cellular and entertainment expenses? And does the employee recover the taxes on the total amount of automobile expenses or on the total less the reimbursement received ($0.10 per km)?

Case 2

1. An employee (with or without commission) does not receive a fixed allowance, nor a reimbursement of expenses (/km). Can the employee recover the taxes on his or her automobile and other expenses (cellular and entertainment)? Is this valid for everyone? Including investment advisors?
2. If the same situation as in 2a) and the employee receives a reimbursement (e.g. $0.30/km), is he or she entitled to claim the taxes (GST/QST) on his or her tax return? And does the employee recover on the full amount of his or automobile expenses or on the total minus the reimbursement received ($0.30/km)?

Case 3

A transport driver uses the simplified method to deduct meal expenses. Can he or she claim GST/QST for these meals, while taking into account the 50% rule?

Note: All these GST/QST refunds (cases 1 to 3) take into account that these are eligible employment expenses, with GST/QST, that the employer is registered for GST/QST purposes and that the fixed allowance is deemed unreasonable, e.g. fixed for all employees and not based on km driven by the employee.

Case 4

Can an employee claim, as employment expenses, automobile expenses from which he or she has subtracted the fixed allowance deemed reasonable? As the allowance is reasonable, can the employee claim GST/QST on these expenses?

Case 1a)

The employee could claim the refund of the GST paid according to the calculation set out in subsection 253(1) of the Excise Tax Act with regards to his or her eligible employment expenses deducted in the calculation of income under the provisions of the Income Tax Act, as he or she received an allowance deemed unreasonable by the employer.

Case 1b)

The employee received an allowance based on kilometres driven ($0.10/km) as well as a fixed allowance. The situation described does not specify for what purpose(s) the allowance was given (automobile, cellular, entertainment expenses or other). Policy Paper P-113, Claiming a GST Rebate for Automobile Expenses Where an Individual has Received a Reasonable Allowance, provides that, in the case where an employee incurs expenses which exceed the amount of a reasonable allowance paid to him/her or if the employee receives both a reasonable allowance and an additional taxable allowance, he or she cannot claim a refund of GST paid with regards to the total of related expenses.

Case 2a)

As the employee received no allowance, he or she could claim the refund of GST paid for eligible employment expenses deducted in the calculation of income under the provisions of the Income Tax Act. Note, however, that subsection 253(1) of the Excise Tax Act provides that employees of a "designated financial institution" within the meaning of the Excise Tax Act are not entitled to the refund. Thus, investment counsellors employed by a "designated financial institution" are not entitled to the refund.

Case 2b)

The employee received an allowance for the use of his or motor vehicle based on kilometres driven ($0.30/km). As indicated in Policy Statement P-113, quoted previously, where an employee incurs expenses, which exceed the amount of a reasonable allowance received, he or she cannot claim a refund for the GST paid with regards to the total related expenses. Only the employer is entitled to the GST refund with regard to the reasonable allowance.

Case 3

As provided for in section 18 of Memorandum 500-4-6, Employee and Partner Expenses, published by the Canada Revenue Agency, if an employee of a transportation company elects to use the simplified method to calculate the deduction to which he or she is entitled for meal expenses, the federal authorities allow him or her to claim a fixed amount as a deduction for each meal without presenting a receipt or supporting document. The same amount, which is then deductible for tax purposes (i.e. 50% of the fixed cost), will also be used for the calculation of the GST refund.

Case 4

A fixed allowance for the use of a motor vehicle cannot be deemed reasonable for the purposes of the Income Tax Act. As a result, the fixed allowance paid for the use of a motor vehicle must be included in the employee's income and the employee will then be entitled to deduct, from the calculation of income, the expenses related to the use of the motor vehicle according to the terms of the Income Tax Act. The employee could claim the refund of the GST paid according to the calculation provided for under section 253(1) of the Excise Tax Act with respect to employment expenses eligible for deduction in the calculation of income under the terms of the ITA, insofar as the said fixed allowance is included in the employee's income. In effect, it is an allowance that should have been deemed unreasonable by the employer, the latter not being able to claim a GST refund for the allowance which he or she wrongfully deemed reasonable.

The answers are the same as given in the section dealing with the GST, except when dealing with investment counsellors (case 2a). In effect, the restriction concerning employees of a "designated financial institution" provided for in subsection 253(1) of the Excise Tax Act do not apply under section 358 of the Québec Sales Tax Act. This distinction applies due to the fact that, under the terms of the Québec Sales Tax Act, financial services constitute a tax-free supply, unlike the Excise Tax Act, under which such services constitute an exempt supply.