CRA indicates that it will grant ITCs beyond the normal period for claiming them only if they are offsettable against 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 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 it would assess all the reporting periods for which it computed any amount of tax owing by the registrant or any refund or rebate owing by it – so that it was only reporting periods where the amount owing on the return as filed equaled the payment made on filing which it would not assess. (Thus, in this context, it would be a mistake to accompany the filing of the late returns with payment.) 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.” Thus, in the VDP context, it would not matter if the estimate of tax paid on filing the disclosure was precisely correct.
CRA further indicated that if an offset was available to CRA under s. 318 regarding amounts owing by it under other statutes, “subsection 315(1) of the ETA does not allow collection action under section 318 unless the amount has been assessed.” Thus, the presence of such other amounts would not stop CRA from assessing all the reporting periods as desired.
A somewhat separate issue was the availability of ITCs to the supplier on the above filings. After acknowledging that s. 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,” CRA stated:
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.
This statement that the ITC claims will be denied if they are out of time is contrary to the wording of s. 296(2), which lifts that time limit. However, s. 296(2) also on its face states that CRA must grant the ITC only if it has not already been claimed by the registrant. Does this mean that the registrant in this example should file the older returns without claiming ITCs then, following assessment of the tax, object on the basis that CRA should of its own accord on the assessment have granted it the ITC amounts pursuant to s. 296(2)?
Neal Armstrong. Summaries of 7 April 2022 CBA Roundtable, Q.4 under ETA s. 225(4)(c), s. 318, s. 296(2) and s. 281.1(2).