Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Whether a non-resident's failure to post security creates a liability to engage subsection 164(2) of the ITA to enable the Minister to apply an income tax refund to a GST/HST liability.
2. Whether the posting of security is a return required to be filed under the ETA so that subsection 164(2.01) of the ITA could be invoked, forbidding the Minister from issuing an income tax refund.
Position: 1. No. 2. No.
Reasons: 1. GST Form 114 facilitates the posting of security as subsection 240(6) of the ETA requires; however, subsection 240(6) of the ETA is not a charging provision, as it does not create a liability if the non-registrant does not comply. Subsection 164(2) of the ITA applies to a present or imminent liability, neither of which is created under subsection 240(6) of the ETA.
2. Subsection 164(2.01) of the ITA forbids the Minister from issuing an income tax refund unless all returns under a number of statutes are filed. GST Form 114 is not a return; therefore, subsection 164(2.01) of the ITA cannot be engaged to prevent the issuance of an income tax refund.
XXXXXXXXXX
2013-048303
Lindsay Frank
613-960-7919
July 18, 2013
Dear XXXXXXXXXX:
Re: Applying Income Tax Refund To Security Shortfall for GST/HST
We are writing in reply to your email of March 24, 2013. At issue, is whether an income tax refund can be applied to inadequate posting of security for GST/HST.
Specifically, you have asked:
(1) whether a non-resident's failure to post security under GST/HST legislation creates a liability so that subsection 164(2) of the Income Tax Act (the "ITA") would permit the Minister to apply an income tax refund to a GST/HST liability; and
(2) whether the posting of security is a return required to be filed under the Excise Tax Act (the "ETA"), so that subsection 164(2.01) of the ITA would permit the Minister to withhold an income tax refund due the non-resident.
1. The Effect of a Failure to Post Security
Absent a permanent establishment in Canada, subsection 240(6) of the ETA requires a non-registrant to post security, in satisfactory form and amount, with the Minister. Failure to do so permits the Minister to, pursuant to subsection 240(7) of the ETA, retain certain amounts as security from any amount that may be or may become payable to the non-resident under the ETA. Where subsection 240(7) of the ETA applies, the Minister will be deemed to have paid that amount to the non-resident, and the non-resident will be deemed to have given that amount as security to the Minister.
Subsection 164(2) of the ITA allows the Minister to forego issuing an income tax refund or a repayment, and, instead, apply it to an amount that the taxpayer is or is about to become liable to pay. Liability to pay such an amount is set out in a separate charging provision. While subsection 240(6) of the ETA requires a non-resident registrant to post security, which is done by completing and returning Form GST 114, Bond for Non-Resident Person Without a Permanent Establishment in Canada, together with the requisite amount, it is not a charging provision, as it does not create a liability in the event that the non-resident fails to comply. Therefore, where subsection 240(7) of the ETA is applied, and a shortfall in the amount of the required security remains, subsection 164(2) of the ITA would not apply. Accordingly, the Minister cannot apply subsection 164(2) of the ITA where a non-resident registrant has failed to post security as required by subsection 240(6) of the ETA, since the failure to do so does not create a liability.
2. Is the Posting of Security a Return?
Subsection 164(2.01) of the ITA forbids the Minister from refunding, repaying, applying to other debts, or setting off amounts under the ITA at any time, unless all returns, of which the Minister has knowledge, and that are required to be filed, have been filed. As set out above, in order to post security pursuant to 240(6) of the ETA, a non-registrant is required to complete and return Form GST 114 together with the requisite amount. However, Form GST 114 is not a return. Therefore subsection 164(2.01) of the ITA cannot operate to preclude the issuance of an income tax refund where a non-registrant fails to post security for GST.
Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
Yours truly,
Terry Young, CA, CPA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
c.c. Owen Newell
Manager, Excise and GST Rulings Section
General Operations and Border Issues Division
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