Tax & Trade Blog

The issue of single versus multiple supplies in the context of the GST is the subject of frequent litigation.  This is likely attributable to the fairly fact-driven analysis employed by the courts in determining the existence of single or multiple supplies and the arguably subjective nature of the test applied to those facts. 

The recent Tele-Mobile decision (2015 TCC 197) will likely do little to reduce the frequency of this issue coming before the courts; however, it does provide some additional clarity on how the issue should be analyzed.

Litigating parties must consider cost implications at every stage in litigation, which generally requires a cost-benefit analysis of starting litigation in the first place, proceeding with litigation at any given stage, and negotiating towards settlement.  In tax litigation, the cost-benefit analysis is often the same, and can be a comparatively simple exercise, requiring an analysis of anticipated costs of litigation, chance of success at trial or on appeal, consideration of the assessed amount in dispute, and the effect of a judicial decision on the taxpayer’s position going forward.  Court costs have generally not factored into this analysis, since they have historically been negligible.

Things are changing.

CRA assessments can have devastating financial consequences that commonly push taxpayers into bankruptcy.  In considering bankruptcy, the taxpayer should take into account the extent to which the bankruptcy will impose limitations on the taxpayer’s ability to contest the assessment itself.  Section 71 of the Bankruptcy and Insolvency Act (BIA) specifies that a bankrupt ceases to have any capacity to deal with its “property”, which is a broadly defined term and has the effect of virtually eliminating the bankrupt’s ability to maintain legal actions.  The extent to which the BIA has a limiting effect on a bankrupt taxpayer’s ability to contest an assessment in the Tax Court of Canada (“TCC”) was at issue in the decision in Schnier (2015 TCC 160).

In order to maintain some level of taxpayer certainty, there are general time limits applied to CRA’s ability to assess taxpayers for previous periods. The normal assessment period is three years under ITA clause 152(3.1)(b) and four years under ETA subsection 298(1) and ITA clause 152(3.1)(a). However, CRA can assess a taxpayer in respect of a matter at any time where,inter alia, the taxpayer has made a misrepresentation attributable to neglect, carelessness or wilful default in respect of that matter (ITA subclause 152(4)(a)(i); ETA subsection 298(4)(a)). The recent Inwest decision (2015 BCSC 1375) considers what “misrepresentation” actually means in this context, and just when a misrepresentation will be “attributable to neglect or carelessness”.

Although section 323 of the Excise Tax Act imposes joint and several liability onto the corporate director for a corporation’s failure to remit GST/HST, this liability is negated if the director “exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.”  In order to establish this due diligence defence, a director has to meet a fairly high threshold according to current jurisprudence.  The recent decision of Cherniak (2015 TCC 53), suggests that this defence will be very difficult to meet where the corporation assessed was involved in “artificial” transactions.