Castle Building – Federal Court finds that it was not unreasonable of CRA to refuse a late ETA s. 156 election based on a corporation’s failing to file nil returns
A parent corporation (“Castle”) made some of its taxable supplies of building materials to its wholly-owned subsidiary (“CBS”), which on-sold the goods to retailers. There was a s. 171(1) billing election in place between them, so that Castle was responsible for the GST/HST reporting of CBS’s sales - and so that if CBS had bothered to register and file GST/HST returns (which it did not), they would have been nil returns (assuming that a s. 156 election applied to Castle’s sales to CBS – otherwise, Castle was required to charge GST/HST, with CBS effectively being required to claim ITCs).
New rules, effective January 1, 2015, required a fresh s. 156 election to be filed with CRA. Castle and CBS filed their election late. CRA refused to exercise its discretion to accept the late election on the basis of its Guidelines in Policy Statement P-255 which relevantly required that “both corporations must have filed all GST/HST returns as required.”
Walker J found that this refusal was not unreasonable. She noted that although Castle was responsible for reporting and remitting the GST/HST on CBS’s sales, this did not detract from CBS technically being a registrant who in fact was the supplier, so that it technically was still required to file (nil) returns.
Neal Armstrong. Summary of Castle Building Group Ltd. v. Canada (National Revenue), 2021 FC 947 under ETA s. 156(4)(b)(ii).