Elfe Juvenile Products – Quebec Superior Court finds that the rigid GST/QST policy of not cancelling interest below 4% on wash transactions is unlawful

The CRA published policy is that it “will consider” cancelling the interest in excess of 4% for a failure to collect and remit GST/HST in a “wash transaction,” i.e., one where the purchaser is entitled to full input tax credits. Moore JCS found that the equivalent ARQ policy was not good enough. In annulling a decision of the ARQ to only cancel interest down to the 4% level in a wash transaction (that was not covered under a voluntary disclosure), and in sending the decision back for reconsideration by the ARQ, he stated:

[T]he Agency felt unable to cancel more than the interest portion indicated in … the Interpretation Bulletin of 4% of the uncollected sales tax.

Based on the Interpretation Bulletin, the Agency has placed itself at odds with this direction from Stemijon: "A policy can help or guide the exercise of discretion under a statute, but it cannot compulsorily dictate how this discretion is exercised."

The Agency did not consider the possibility of limiting the interest to 3%, 2% or 1% of the uncollected sales tax, or of cancelling it completely, as authorized by section 94.1 of the Tax Administration Act.

This decision is … unreasonable.

Neal Armstrong. Summary of 1092072 Ontario Inc. (carrying on business as Elfe Juvenile Products) v. ARQ, 2017 QCCS 5369 under ETA s. 281.1(1).