This is in response to your July 4, 1994, fax to Larry Springstead, Policy Officer, Financial Institutions. I apologize for the delay in responding.
You ask for direction as to whether an assessment of tax payable should be raised against a debtor. As we understand it, the facts of the situation are as follows:
1. The creditors of this debtor have agreed to accep a reduced amount for the receivables due to them from the debtor.
2. The creditors have taken a bad debt adjustment in their net tax calculation with respect to the GST portion of the amount that is unrecoverable but there is no proivsion in the Excise Tax Act (ETA) to require the debtor to adjust its net tax upward to reflect the reduced amount of tax payable.
3. Section 232 will not be applicable in this situation since the documentary requirements will not be met.
4. The debtor has been compliant with its GST returns and remittances.
5. The proposal stage is still in operation.
As you are aware, para. 296(1)(b) of the ETA allows the Minister to assess the tax payable of the recipient.
The policy on assessing tax payable states that where circumstances warrant, the Minister may assess tax payable of the recipient. Circumstances that would warrant raising such an assessment would include situations where the supplier is unsuccessful in collecting the GST and revenue is at risk.
In the case at hand, revenues are at risk since there is a net loss of the amounts claimed as input tax credits on a apayable basis where the supplier has written those amounts off as bad debts and taken a deduction from net tax. The supplier has also clearly been unable to collect the amount from the recipient.
Since we would be stayed during the proposal period from collecting the amount of tax payable assessed, we have consulted with our colleagues in Collections at Headquarters, to determine whether it would be worthwhile from their point of view to raise the assessment. Their position is that it is worthwhile to assess the tax payable, even if collection action on that amount must be delayed due to the proposal. Raising the assessment will establish a debt that may be collectible in the future. The assessment also has merit if the Department must establish a debt in order to file a proof of claim in the event that bankruptcy occurs.
For additional information, please contact Alyson Trattner at (613) 952-9578 or Marcel Boivin at (613) 954-2488.
H.L. Jones
Director
General Tax Policy
XXXXX
Email this Content