28 February 2019 CBA Roundtable, Q.14

Where there is a self-supply by a developer under s. 191 which entitles it to the new residential rental property rebates under ss. 256.2 and 256.21, the rebate claim will generally be filed with the developer’s regular GST/HST return for the reporting period that includes the self-supply. Although s. 228(6) deems the developer’s net tax remittance for the reporting period of the self-supply to have been paid to the extent of the rebate amount claimed, separate CRA offices assess the net tax amount (under s. 296) and the rebate amount (under s. 297), leading to problematic outcomes, e.g., if the rebate assessment is delayed, the developer’s account will show an underpayment of net tax, resulting in potential demands from CRA collection officers. Does CRA intend to modify these practices?

CRA responded:

In cases where a registrant that is required to self-assess under section 191 of the ETA files their new residential rental property rebate (NRRPR) claim with their regular GST/HST return, as noted above, subsection 228(6) of the ETA will apply and offset, on the day the return is filed, any tax remittable by the NRRPR claimed by the registrant. …

Current audit procedures require the auditor to verify the validity of the NRRPR and, if the NRRPR is valid, to send the rebate claim to be keyed into our system and processed with an effective date that is the same as the due date of the registrant’s return. As a result, interest should only apply to the difference between the amount of tax on the self-assessment and the valid NRRPR amount. Furthermore, the NRRPR should not be delayed as it would have been verified by the initial auditor and would not require a second review by our refund integrity or rebate processing programs. However, we are aware of some unintended results that may arise with our existing audit procedures and we will be reviewing these procedures to determine where improvements can be made.

Where there is a self-supply by a developer under s. 191 which entitles it to the new residential rental property rebates under ss. 256.2 and 256.21, s. 228(6) deems the developer’s net tax remittance for the reporting period of the self-supply to have been paid to the extent of the rebate amount claimed; and s. 296(2.1) requires CRA, in subsequently assessing net tax, to apply unclaimed rebate amounts against any net tax underpaid.

S. 296(2.1) is often misapplied so as to result in incorrect interest amount, i.e., 6% interest is imposed on alleged deficient net tax payments whereas rebates attract only 2% interest. Does CRA intend to modify these practices?

CRA responded:

Subsection 296(2.1) of the ETA cannot apply in this situation as the NRRPR was claimed by the registrant in an application filed with their GST/HST return.

In cases where it is discovered during a registrant’s audit that the registrant failed to self-assess the GST/HST as required under section 191 and may be eligible for a NRRPR, subsection 296(2.1) may apply, provided all the eligibility requirements were met, to offset the amount of the net tax assessment with the NRRPR amount.