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!

In King Road Paving and Landscaping Inc. v. Plati (2017 ONSC 557), the Ontario Superior Court of Justice (the “Ontario SCJ”) was asked to determine, among other things, whether GST/HST was included in the contract price.

The Plaintiffs were hired by the Defendants to complete extensive renovation of an old barn.  GST/HST was not specifically discussed during the contract negotiation and the contract was silent with respect to the application of the GST/HST.  The Plaintiffs sent the Defendants two invoices: the first invoice, which was for the original contract, stated it was for “HST included”; the second invoice, which was for the extra work, claimed costs “+HST”.

At the Ontario SCJ, the Plaintiffs submitted that as GST/HST was not referred to in the contract, GST/HST was not included in the price.  The Plaintiffs further submitted that there was an error in the first invoice and it should have stated “+HST” rather than “including HST”.

The Ontario SCJ accepted the Plaintiffs’ evidence and was of the view that when a sales contract was silent with respect to GST/HST, there was an inference that the contract price did not include GST/HST, and that GST/HST would be added to the quoted price.  TheOntario SCJ also found support for the proposition that where the supplier omits or incorrectly states the GST/HST on the contract, the recipient remains responsible for the full amount of the tax in other cases, includingLeong v. Princess Investments Ltd. (1999 CanLII 6391 (BC SC)) and Prospect Builders Ltd. v. Fraser ([1996] O.J. 119, (Ont. Gen. Div.)).

Accordingly, the Ontario SCJ held that the Defendants were liable for GST/HST on the contract price.

The decision underscores the importance of getting GST/HST advice when a sales contract is negotiated and prepared.  If the issue of GST/HST is completely ignored, both contracting parties may end up suffering “losses”: the recipient of taxable supplies could be sued by the supplier for the unpaid GST/HST even if the tax had not been charged by the supplier at the time of sales; the supplier could be held to be responsible for the penalties and interest which arise due to its failure in remitting the tax.  Again, prevention is better than cure!

Are you in a dispute as to whether GST/HST applies to a commercial contract or other arrangement?    Please contact us here for assistance.