Tax & Trade Blog

Subsection 223(1)of the Excise Tax Act (ETA) requires registrants to disclose sufficient information to their customers in respect of their customers’ GST/HST liabilities by indicating on any invoices/receipts issued to customers the net-of-tax price and the GST/HST thereon or if prices are on a tax-included basis, noting this on invoices/receipts issued to customers. 

Where a sales contract is silent with respect to the obligation to pay the GST/HST, disputes often arise as to whether the quoted price is tax-extra or tax-included. 

A recent case is a good example of the general disposition of Courts to conclude that where contracts are silent, GST/HST will generally still be payable!

Section 224 of the Excise Tax Act (ETA) allows a supplier who has remitted GST/HST collectible from, but as yet unpaid by, a recipient, to sue the recipient for the tax remitted as if it were a debt owed to the supplier.  

There has been little case law or helpful interpretative materials from the CRA on this provision.

A recent case seems to clarify that where a supplier fails to charge and collect the GST/HST initially, the two-year limitation period on such a claim runs from the time that the supplier pays same to the CRA when assessed for the unremitted GST/HST.

In Canada, the CRA can often pursue a corporation’s directors for unpaid tax debts of the corporation.  But there are certain “pre-conditions” that must be met.

One of these, which rarely gets any attention at all is the requirement that “a certificate for the amount of the liability of the corporation [be] registered in the Federal Court… and execution for that amount [be] returned unsatisfied in whole or in part”:  see section 323(2)(a) of the Excise Tax Act (ETA) and section 227.1(2)(a) of the Income Tax Act (ITA).

Historically, the Courts have considered that these provisions do not impose an obligation upon the CRA to make reasonable efforts to search for assets of a corporate debtor; rather, all the CRA needs to do is “act in good faith”:  see Barrett (2012 FCA 33).

In Tjelta (2017 TCC 187), the Tax Court of Canada (TCC) was asked to determine what the FCA meant in respect of the CRA’s good faith requirement. 

Not much it seems!

The Tax Court of Canada (TCC) recently considered how the GST/HST works in situations where individuals and businesses buy and sell used motor vehicles, and the case is instructive.

In Brian & Deborah Dewan Enterprises Ltd. v. The Queen (2017 TCC 135), the TCC dismissed the appeal of the appellant which failed to collect and remit the GST/HST on disposition of vehicles used in its commercial activities on the mistaken belief that the GST/HST was paid by the purchaser to the Ministry of Transportation (MTO) on registration of the vehicles. 

Businesses which fail to understand the possible interaction of the federal GST/HST and provincial sales tax in certain circumstances, for example, in this case, the Ontario Motor Vehicle Tax (MVT) on disposition of used vehicles, would be put in a disadvantageous position and suffer losses.

A director can defeat personal liability for his/her corporation’s tax debt by establishing that the director’s assessment was made more than two years after he/she has ceased to be a director of the corporation (section 325(5) of the Excise Tax Act (“ETA”); section 227.1(4) of the Income Tax Act).  What a director needs to do in order to demonstrate that there was an effective resignation? As discussed in the following cases, an objectively verifiable communication of a resignation to the corporation is required and that any mess up in the requirements of Ontario’s Business Corporations Act (“OBCA”) will affect the efficacy of the resignation.  When in doubt, it is advisable for directors to seek legal advice. 

In Thangarajah v. Her Majesty the Queen (2017 TCC 72), the applicant and her corporation (collectively, the “applicants”) were issued Notices of Assessment in November 2014 for unreported income under the Income Tax Act.  When the corporate applicant was audited by the CRA in early 2014, the applicant retained the services of an agent who held himself out to be a lawyer (the “agent”).  It was the applicant’s understanding that the agent would do whatever was required to deal with the Notices of Assessment.  In the months that followed, the applicant received calls from CRA Collections and the agent was informed and asked to take action.  It was unclear what the agent had actually accomplished for the applicants except that he sent a letter to a CRA Collection Officer dated September 10, 2015 advising, among others, that he would initiate the “appeal process” soon (the “Letter”).  The Collection Officer responded the following day indicating that the collection files had been updated with a further notation that an appeal had to be done as soon as possible.  CRA Collections eventually seized the applicant’s bank accounts, leading to the firing of the agent.  The applicants then found out that the agent was, in fact, a paralegal and that they suffered as a result of the agent’s failure to file the notices of objection.

Registrants are required to keep adequate books and records that provide the information necessary to ensure taxes payable under the Excise Tax Act (“ETA”) can be determined. What may happen if a taxpayer has failed to file tax returns, filed patently deficient ones and/or a taxpayer’s books and records are not reliable or do not exist?  Subsection 299(1) of the ETA states that the Minister is not bound by the contents of the return, but may assess by alternative means including the use of estimates or net worth approach. (Parallel provisions can be found under subsection 152(7) of the Income Tax Act.)

Section 141.1(3) of the of Excise Tax Act (“ETA”) broadens the scope of what is considered to be in the course of commercial activities to activity done “in connection with” extraordinary transactions such as starting and winding-up commercial activities.  The Tax Court of Canada (“TCC”), in Onenergy Inc. v. The Queen (2016 TCC 230), discussed how the section should be interpreted.

In order to be successful in tax appeals, the rules of evidence can sometimes play a key role.

In Boroumand, the Appellant appealed assessments for unreported income under the Income Tax Act to the Tax Court of Canada (“TCC”) (2015 TCC 239).  The Appellant’s position was that the funds came from non-taxable sources, including primarily an inheritance from family in Iran. The Appellant sought to introduce documents from money exchange enterprises purporting to show that he received nearly $2 million from Iran. The Minister objected to admitting the documents as they were hearsay and under normal circumstances were inadmissible. 

New Brunswick is increasing its HST by 2%, effective July 1, 2016, resulting in an HST rate of 15%.

Businesses will need to consider which tax rate – the existing HST rate of 13% or the new HST rate of 15%, will apply to transactions that straddle July 1, 2016.

GST/HST rules provide that a notice of objection has to be filed with the Minister within 90 days of the mailing of an assessment (section 301(1.1) of the Excise Tax Act (the “ETA”); the parallel provision in the ITA is section 165(1)).  However, as established in Le sage au piano v. The Queen (2014 TCC 319), the clock may not start ticking on the 90 day period if the CRA has left out important details of the taxpayer’s address on the notice of assessment—extending the previous doctrine from income tax cases that it is insufficient for the CRA to mail a notice of assessment to an incorrect address (The Queen v. 236130 British Columbia Ltd., 2006 FCA 352). The fact that litigation continues in this area also highlights the fact that there is no electronic means of determining whether a notice of assessment has been issued.

Non-residents carrying on business in Canada must be cognizant of the potential to be involuntary registered for the GST/HST. 

Subsections 241(1.3) to (1.5) of the ETA (which came into effect in June 2014) empower the CRA to unilaterally register a person who has not registered for GST/HST but, in the CRA’s view, is required to do so. The budget states that these amendments will strengthen GST/HST registration compliance and help the CRA to combat the underground economy.