Tax & Trade Blog

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.

When a corporation finds itself in the midst of huge potential tax liability, that is often not the end of the story for the various parties involved. Directors may find themselves pursued for civil director’s liability for any taxes, interest or penalties remaining unpaid by the corporation, and directors, officers, employees and other involved parties may also find themselves being pursued by the CRA for possible criminal offences, and being charged criminally pursuant to section 327(1)(c) of the Excise Tax Act (the “ETA”). Criminal charges will generally follow any situation where the CRA is of the view that the corporation by dishonest means, sought to evade payment or remittance of the GST/HST and/or repurposed the funds to serve its own uses. In these instances, the CRA will be looking to the operating minds of the corporation, and any other persons (e.g., directors, officers, employees, agents, aiding and abetting parties) having a hand in the criminal activities (the “Underlying Parties”).

If convicted, the Underlying Parties are subject to their own fines, and could also face both a fine and imprisonment.

While the CRA often has a very low threshold for what it considers “criminal activity”, a recent Nova Scotia Provincial Court (the “NSPC”) decision appears to confirm that a person’s “suspicious conduct” alone may be insufficient to ground a criminal conviction for “tax evasion”.

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.

A taxpayer who ceases to be GST/HST registrant can be hit with a hefty tax bill due to subsection 171(3) of the Excise Tax Act (the “ETA”), which in effect triggers a deemed disposition, which with other provisions in the ETA, forces the person ceasing to be a registrant to self-assess GST/HST on the fair market value of any remaining property.

This is an often over-looked consequence of the wind-up of commercial activities, and is aimed at putting such a business on the same footing as any other person acquiring property for non-commercial activities: to effectively have acquired that property on a fully GST/HST paid basis.

A recent case illustrates this concept, as well as the trouble that can come with pre-mature cancellation of one’s GST/HST registration number (which does not necessarily equate to ceasing to be a “registrant”).

In Excise and GST/HST News No. 101 the CRA clarified that in its view doctors/dentists and other medical practitioners must charge GST/HST on their on-call fees. 

The recent Tax Court decision in Les Ventes et Façonnage du Papier Reiss Inc. v The Queen (2016 TCC 289) (the “Reiss Case”) places new emphasis on the verification obligations of GST/HST and QST registrants claiming input tax credits (“ITCs”), confirming and expanding the “duty of verification” first asserted by the CRA in Salaison Lévesque Inc v The Queen (2014 TCC 36: at para 86).

The CRA has a mandate to improve compliance of GST/HST registrants and to encourage GST/HST registrants to meet their filing requirements.  As part of its commitment to this mandate, the CRA will be implementing changes to its current processes.

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.