7 April 2022 CBA Roundtable, Q.4

A registered supplier files its outstanding HST returns for the last 8 years, reporting the HST that it failed to charge for those reporting periods, and claiming available ITCs. Will CRA issue notices of assessment (NOA) for all the reporting periods that are covered, even if they are shown as being in a refund rather than tax payable period, so that the period for the recipients of its supplies to claim ITCs for the HST now charged to them could be extended pursuant to s. 225(4)(c)?

CRA indicated that “[o]nce GST/HST returns are filed, the registrant will receive a notice of assessment if either …a refund or rebate is owed … [or] the amount owing is more than the payment made by the registrant” – but not if the amount owing on the return as filed equals the payment made on filing. However, if the returns are filed pursuant to a voluntary disclosure request, “a NOA will be issued once the voluntary disclosure has been accepted and finalized” – even though, to be accepted, the voluntary disclosure application must “include payment of the estimated tax owing.”

Furthermore, if an offset was available to CRA under s. 318, “subsection 315(1) of the ETA does not allow collection action under section 318 unless the amount has been assessed.”

A registered supplier files its outstanding HST returns for the last 8 years, reporting the HST that it failed to charge for those reporting periods, and claiming available ITCs. It would like to be reassessed, at the least, for the earlier of those reporting periods so that it can now charge HST on the supplies and tell its suppliers that they will benefit from the extended period under s. 225(4)(c) for claiming ITCs on the basis inter alia that it has only now been assessed for those periods.

CRA indicated that “[o]nce GST/HST returns are filed, the registrant will receive a notice of assessment if either …a refund or rebate is owed … [or] the amount owing is more than the payment made by the registrant” – but not if the amount owing on the return as filed equals the payment made on filing. Furthermore, if an offset was available to CRA under s. 318, “subsection 315(1) of the ETA does not allow collection action under section 318 unless the amount has been assessed.”

A registered supplier files its outstanding HST returns for the last 8 years, reporting the HST that it failed to charge for those reporting periods, and claiming available ITCs. It would like to be reassessed, at the least, for the earlier of those reporting periods so that it can now charge HST on the supplies and tell its suppliers that they will benefit from the extended period under s. 225(4)(c) for claiming ITCs on the basis inter alia that it has only now been assessed for those periods.

CRA indicated that “[o]nce GST/HST returns are filed, the registrant will receive a notice of assessment if either …a refund or rebate is owed … [or] the amount owing is more than the payment made by the registrant” – but not if the amount owing on the return as filed equals the payment made on filing. However, if the returns are filed pursuant to a voluntary disclosure request, CRA indicated that a notice of assessment “will be issued once the voluntary disclosure has been accepted and finalized” – even though, to be accepted, the voluntary disclosure application must “include payment of the estimated tax owing.”

A registered supplier files its outstanding HST returns for the last 8 years, reporting the HST that it failed to charge for those reporting periods, and claiming ITCs that were available but for the expiry of the normal period for claiming them. Regarding the availability of such ITCs to the supplier, CRA stated:

Subsection 296(2) allows input tax credits to be applied against the amount assessed for the same period even if they would otherwise be statute barred.

If there is an overpayment of net tax on the part of the registrant after the unclaimed ITCs are applied against the net tax of the reporting period, the CRA will apply this overpayment against any unpaid or unremitted amounts that arose before or after (up to four years) the reporting period, and that remain outstanding on the day the Notice of Assessment is issued. If there is still an overpayment, the CRA will refund the amount to the registrant with interest, provided that the Notice of Assessment is issued before the time limit for claiming the ITCs has expired and the person has filed all returns that are required to be filed.

Although a registrant typically will be required to file returns electronically, doing so in the context of a voluntary disclosure will create logistical difficulties given that the processing of the electronic returns would occur automatically and away from the purview of the VDP group. In this regard, CRA stated:

Section 281.1 of the ETA allows CRA (VDP) the discretion to waive or cancel penalties and interest on or before the day that is 10 calendar years after the end of a reporting period of a person. Where conditions of the section have been met, VDP can and will waive any electronic filing penalties, making a workaround unnecessary, as penalties and interest would be cancelled, when applicable.

CRA also summarized the distinction between Category 1 and 2 transactions.