25 February 2016 CBA Roundtable, Q.11

A GST-registered person purchases a real estate property and, when it files its return, neglects to report the tax payable under s. 228(4) and claim the offsetting ITC. Does CRA still provide administrative tolerance in this situation? CRA responded:

The tax payable [under s. 228(4)] is not part of the registrant’s net tax calculation. …

The CRA…will generally exercise administrative tolerance if this issue is … reported by the registrant or discovered … on audit. In assessing the tax payable in respect of the supply, the CRA will generally also assess the registrant’s net tax. Pursuant to subsection 296(2) … the Minister must take into account an ITC for a particular reporting period when assessing the net tax for that reporting period even though the time limit for claiming the ITC may have expired.

In the case of a full ITC being offset against the GST/HST payable, there would not be any interest assessed on the assessment.

Administrative tolerance will not be granted where the purchaser is not entitled to claim a full ITC or where the purchaser has already claimed the ITC in a GST/HST return … [nor] where the purchaser was previously assessed under similar circumstances.

A GST-registered person purchases commercial real estate and, when it files its return for that month, neglects to report the tax payable under s. 228(4) on the purchase and to claim the offsetting input tax credit. CRA generally will assess the purchaser for its s. 228(4) tax, allow the off-setting ITC and not assess any interest - but it will not provide this “administrative relief” “where the purchaser was previously assessed under similar circumstances.” CRA considers its usual approach to be “administrative relief” because, as a technical matter, “the tax payable [under s. 228(4)] is not part of the registrant’s net tax calculation” – so that in CRA’s view it is in its discretion as to whether, in addition to assessing the purchaser’s s. 228(4) tax, it also assesses the purchaser’s negative net tax resulting from recognizing the unclaimed ITC.