18 September 2017 Interpretation 176502

A registrant is reassessed for GST/HST that it did not charge on an invoice to a customer which declared bankruptcy prior to the reassessment and is unable to pay the invoice. Can the GST/HST amount assessed under s. 296(1)(d) satisfy the requirements for a credit under s. 231(1), given the reporting requirement under s. 231(1.1)? CRA responded:

[T]he supplier would not be in a position to claim a deduction under subsection 231(1.1) if it only learned the amount of the tax after an audit, since it could not have already reported it on its return nor paid the amount of tax owed.

However, section 232 does appear to offer a solution where the consideration is reduced. Where the supplier issues a credit note to the customer (which is now bankrupt) to relieve it of that debt, the supplier would be entitled to claim a deduction if all conditions set out in paragraph 232(3)(b) are met.

A registrant is reassessed for GST/HST that it did not charge on an invoice to a customer which declared bankruptcy prior to the reassessment and is unable to pay the invoice. Can the GST/HST amount assessed under s. 296(1)(d) satisfy the requirements for a credit under s. 231(1), given the reporting requirement under s. 231(1.1)? After indicating that s. 231(1.1) effectively indicates that where a supplier is assessed on audit for failure to charge and remit the tax, no bad debt deduction is available for the uncollectible tax where, for example, the customer declared bankruptcy before the audit and resulting assessment, CRA stated:

[S]ection 232 does appear to offer a solution where the consideration is reduced. Where the supplier issues a credit note to the customer (which is now bankrupt) to relieve it of that debt, the supplier would be entitled to claim a deduction if all conditions set out in paragraph 232(3)(b) are met.