Section 182 of the Excise Tax Act (“ETA”) generally deems any payment made to a registrant as a consequence of a breach, modification, or cancellation of an agreement (other than as consideration for a supply), to be a taxable supply. This rule, in effect, means that where there is a breach of an agreement to supply property or services, a payment to the supplier by the recipient to compensate for that breach will generally be deemed to include GST/HST.
Unfortunately, section 182 is often overlooked by parties resolving legal disputes, as the recent Tax Court of Canada (“TCC”) decision in THD Inc. c. La Reine, 2018 CCI 147 demonstrates.
In a recent blog, we introduced the ongoing tax saga of Tony and Helen Samaroo, a husband and wife that owned and operated a restaurant, a nightclub and a motel, who were charged with 21 counts of tax evasion.
The Samaroos were acquitted of all charges in a 2010 criminal trial where the trial judge found the Crown’s case “weak” and supported by “unreliable” and “highly uncertain” evidence which contained “significant flaws” and “discrepancies”.
Following their acquittals, the Samaroos sued the prosecutor and CRA for malicious prosecution. The claim against the prosecutor was dismissed; however, in a scathing 70 page decision Justice Punnett of the British Columbia Supreme Court found the CRA guilty of malicious prosecution and ordered the CRA to pay approximately $1.7 million in damages to the Samaroos.
Disgruntled taxpayers have often attempted to seek remedies against tax authorities through civil actions – albeit with very limited success. A 2014 BC Supreme Court’s decision in Leroux v. CRA (2014 BCSC 720) did confirm that CRA owes a duty of care to the taxpayer, and has likely lead to an increase in these types of proceedings.
A recent motions decision in the BCSC case in Samaroo v. CRA et al. (2016 BCSC 531), deals with the extent to which a taxpayer in one of these types of suits against the Crown is able to rely on information produced by the Crown in that action during the Tax Court of Canada appeal – and the news was good for the taxpayer! But the case remains an interesting example of the “implied undertaking rule” – perhaps a little known rule to anyone other than a litigator – and the balance of this article explains the in’s and the out’s of that rule, with reference to the Samaroo decision.
