Section 175.1 — Excise Tax Act: Warrantee reimbursement

Where the beneficiary of a warranty (other than an insurance policy) in respect of the quality, fitness or performance of tangible property acquires or imports property or a service or brings it into a participating province and tax is payable by the beneficiary in respect of the acquisition, importation or bringing in, and a registrant pays to the beneficiary, under the terms of the warranty, an amount as a reimbursement in respect of the property or service and therewith provides written indication that a portion of the amount is on account of tax, the following rules apply: the registrant may claim an input tax credit, for the reporting period of the registrant in which the reimbursement is paid, equal to the amount (referred to in this section as the “tax reimbursed”) determined by the formula A × B/C where A is the tax payable by the beneficiary, B is the amount of the reimbursement, and C is the cost to the beneficiary of the property or service, and where the beneficiary is a registrant who was entitled to claim an input tax credit, or a rebate under Division VI, in respect of the property or service, the beneficiary is deemed, for the purposes of this Part, to have made a taxable supply and to have collected, at the time the reimbursement is paid, tax in respect of the supply equal to the amount determined by the formula A × B/C where A is the tax reimbursed, B is the total of the input tax credits and rebates under Division VI that the beneficiary was entitled to claim in respect of the property or service, and C is the tax payable by the beneficiary in respect of the supply to, or importation by, the beneficiary of the property or service.