Words and Phrases - "due diligence defence"

When the taxpayers, which were property-casualty insurers, received premiums from a customer before the policy took effect, they remitted the insurance premium tax (“IPT”) received by them on such collection on the basis of the month in which the policy came into effect rather than the earlier month of receipt. The relevant QSTA provisions, which were broadly similar in this regard to ETA ss. 225(1) – A(a), 228(2) and 222(1), required that a person receiving payment of a policy premium collect the tax thereon as agent for the Minister and remit such tax to the Minister. The Court found that these provisions clearly triggered an obligation to remit the tax collected when it was received rather than the later time when the policies took effect.

In going on to confirm the imposition of penalties on the taxpayers pursuant to s. 59.2 of the Tax Administration Act, (generally calculated as 15% of the amounts they had remitted one month late), the Court stated (at paras. 34, 36-37, TaxInterpretations translation):

The defence of due diligence allows for the avoidance of administrative penalties imposed by a statute where an error of fact is made in good faith, but not where there is an error of law. …

The tax system is based on the principle of self-assessment and therefore transparency on the part of the taxpayer. To allow the taxpayer to escape the consequences of failing to meet its obligations by proposing a different interpretation of the legislative provisions would open a loophole that is difficult to reconcile with this principle.

In fact, the respondents chose to cash the amounts transmitted without characterizing them as premiums and, by the same token, without remitting the IPT collected to the Minister. This decision, made without bad faith, by weighing various administrative and legal factors, remains contrary to the obligations imposed by the QSTA.