Villa Ste-Rose – Federal Court of Appeal finds that interest and penalties on a late-filed GST return should be computed after netting rebate claims against the gross GST payable

A company that was not registered for GST purposes was required to self-assess itself under ETA s. 191(3) for GST on the fair market value of an assisted-living facility constructed on its behalf. It filed the required return in this regard 9 months’ late. With that return, it also included rebate claims which were higher than the s. 191(3) tax. CRA accepted the GST payable and rebate amounts, but assessed interest and penalties under ss. 280 and 280.1, calculated on the gross GST amount, which it effectively treated as having been owing for the full 9-month period.

D’Auray J below had considered this approach to be unfair and anomalous, since if the company had instead lain in the grass and been assessed by CRA for the unreported GST, CRA would have been required under s. 296(2.1) to allow the (more than) offsetting unclaimed rebate amounts, so that no interest or late-filing penalties could have been assessed. Leblanc JA agreed, stating:

[I]t would be incongruous, to say the least, if provisions purporting to assist a taxpayer caused more harm to a well-meaning taxpayer than to a less well-meaning one … . This cannot be the result that Parliament intended … .

Accordingly, he found that the "amount" referred to in ss. 280 and 280.1 on which the interest or late-filing penalty was to be calculated “can only represent, in circumstances such as these, the amount of tax actually owed by the taxpayer” (i.e., the tax as reduced by the taxpayer’s rebate entitlement). He confirmed the reversal by D’Auray J of the interest and penalty assessment.

Neal Armstrong. Summaries of Canada v. Villa Ste-Rose Inc., 2021 CAF 35 under ETA s. 280(1), s. 228(6), s. 256.2(3) and Statutory Interpretation – Resolution of Ambiguity.