P-112R "Assessment of Tax Payable where a Purchaser is Insolvent" 9 March 2000

Where a registrant which hads claimed ITCs for accounts payable goes bankrupt, and the supplier then claims a bad debt deduction in computing net tax, the ITC will not be denied, but the "the registrant may be assessed for the tax payable that was not paid to the supplier."

The CCRA will not generally intervene to assess the tax payable by the purchaser under section 165. However, in circumstances of potential revenue loss, the Minister may exercise its authority under paragraph 296(1)(b) of the ETA and assess a purchaser who is insolvent or bankrupt in respect of the GST/HST not paid to a supplier.

For example, an assessment of tax payable may be made where a purchaser has claimed an input tax credit (ITC) in respect of a taxable purchase, for which payment to the supplier remains outstanding, and the supplier is entitled to a bad debt deduction in calculating its net tax. Under these circumstances, an assessment of tax payable addresses the net revenue loss position that would occur if the supplier deducts the bad debt adjustment in its net tax calculation.