Fadali – Tax Court of Canada finds that the s. 296(2.1) requirement on CRA to apply available rebates when assessing HST reduced a late-filing penalty

Derksen J. found that the taxpayer was not entitled to claim ITCs respecting his construction expenses of a new home that he had sold in December 2020 because they were incurred while he was not yet a registrant. However, he could (and, in fact, at a subsequent juncture, did) claim a rebate under s. 257 for the same expenses.

Derksen J. further found that if the taxpayer had filed a rebate application under s. 257 at the time he was assessed in June 2021 to deny those ITCs, he would have been entitled to it. Accordingly, s. 296(2.1) required the CRA to take such a rebate amount into account when assessing the taxpayer before the rebate application had in fact been made. Consequently, having regard to the similar issue in Villa Ste-Rose, the quantum of the late filing penalty assessed against the taxpayer under s. 280.1 (for filing his December 2020 return over a year late) should be reduced accordingly.

Neal Armstrong. Summary of Fadali v. The King, 2026 TCC 86 under ETA s. 123(1) – builder – (f) and s. 296(2.1).