Section 229

Subsection 229(1) - Payment of Net Tax Refund


Iris Technologies Inc. v. Canada (National Revenue), 2020 FCA 117

"with all due dispatch" entailed awaiting completion of 10-month audit

During an audit of the appellant (Iris), the Minister withheld GST/HST refunds for the reporting periods under examination and refused requests for release of such funds as Iris’ business operations suggested participation in a carousel scheme (i.e., under which GST/HST is never remitted at the other end of the chain). Iris appealed an order of the Federal Court dismissing its motion for an interim mandatory injunction to compel the payment of $62.3 million in GST/HST refunds. On April 9, 2020 (shortly prior to the hearing of the motion in the Federal Court, and before the completion of the audit, the Minister reassessed or assessed Iris’s January to November 2019 reporting periods, resulting in a large balance shown as owing in favour of the Minister.

Rennie JA agreed with the Federal Court below that Iris had not made out a strong prima facie case in its underlying application for mandamus to compel the Minister to pay the refund claims before the completion of the audit. He also endorsed the reasoning in Express Gold (which had been argued before the Court of Appeal) and, in particular, the findings that “the obligation to pay a refund with all due dispatch did not displace the Minister’s obligation to verify that the refund is in fact payable under the ETA” (para. 41) and that “’a reasonable interpretation of subsection 299(1) is that the Minister may choose to audit a claim for a net tax refund, in order to determine whether the amount is properly claimed’” (para. 42). Rennie JA also stated (at para. 44):

Only refunds that are "“payable”" under the ETA are required to be paid. This in turn means that the obligation to pay refunds is necessarily conditioned by the Minister’s obligation under section 275 of the ETA to confirm that they are in fact owing … .

Respecting the meaning of “with all due dispatch” he noted (at para. 46):

In what appears to be a relatively complex case, the CRA’s estimate that the audit would take ten months to complete is reasonable. Those ten months have not yet elapsed.

Rennie JA further stated (at paras 49 and 51):

… I do not wish to be taken as endorsing the Minister’s arguments that the issuing of the notices of assessment deprives the Federal Court of jurisdiction to consider the Minister’s exercise of discretion under the ETA.

…[T]he Federal Court retains jurisdiction to consider the application of administrative law principles and obligations to the exercise of discretion by the Minister in the application of the ETA. Examples of this include allegations of acting for an ulterior purpose or in bad faith, abuse of his or her powers or not proceeding in a reasonable time frame.

Words and Phrases
with all due dispatch
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 299 - Subsection 299(1) s. 299(1) consistent with auditing before paying net refund required to be made "with all due dispatch" 190
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 18.1 - Subsection 18.1(2) CRA’s assessing does not oust Federal Court jurisdiction to review exercises of CRA discretion 301

Express Gold Refining Ltd. v. Canada (National Revenue), 2020 FC 614

a taxpayer can bring a mandamus motion if CRA drags out an audit of GST/HST refund claims for ulterior or strategic reasons

The applicant (“Express Gold”), which made substantial zero-rated sales of refined gold but claimed input tax credits on its purchases, claimed a net refund of $9.13 million for its August 2018 reporting period and was informed by CRA on October 4, 2018 that an audit of the August return had started and that the net tax refund for that month was being withheld. The scope of the audit was later expanded to cover the period from June 1, 2016, to October 31, 2018, and CRA advised Express Gold hat it would not be receiving its August net tax refund or any refunds for subsequent months while the audit was underway.

On November 7, 2018, Express Gold’s representative wrote to demand that the net tax refund for the August 2018 return be paid, and on December 6, 2018 Express Gold launched this proceeding in the Federal Court for an order of mandamus (based on the Minister’s obligation to pay the net tax refund “with all due dispatch” as required by ETA s. 229(1)),

In dismissing Express Gold’s application, Pentney J first summarized the general principles respecting “with all due dispatch” (at paras. 55, 76):

[T]he context for the provisions makes it clear that finding that the obligation to pay the refund with all due dispatch was not intended to displace the Minister’s obligation to verify the claim is not unreasonable.

The Minister is under a statutory duty to determine the tax that is owing or a refund is due in relation to the August 2018 return of the Applicant, pursuant to section 275 … . The Minister must do this without delay. The Minister is not obliged to pay the refund simply because it was claimed in the return, nor is the Minister forbidden from conducting an assessment or audit of the return, as long as this is done in good faith for the purpose of ascertaining the taxes due or refund owing (Ficek and McNally), and as long as it is done with all due dispatch.

He went on to find that here there had not been “sufficient time to complete the audit” (para. 82) before this application had been launched (two months after receiving notice of the commencement of the audit) given inter alia “that the Applicant’s business involves a high volume of transactions with multiple third parties, which in itself can be expected to add a degree of complexity to the undertaking” (para. 83).

In his conclusions, he stated (at para. 104):

I have concluded that the Applicant brought its application before a reasonable time for the performance of the duty had elapsed, and so I am dismissing the application. In doing so, it is worth underlining that if the Applicant has or obtains evidence that the CRA is acting for an ulterior purpose, or that the audit is being continuously expanded in bad faith, or otherwise not proceeding in a reasonable time-frame, it can bring another motion.

Words and Phrases
with all due dispatch
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) "with all due dispatch" requires performance of audit in a reasonable time 258

Administrative Policy

May 2016 Alberta CPA Roundtable, GST Q.8

denial of initial ITC claims without opportunity for representation

The Refund Integrity Program (“RIP”) Group now is employing “screeners” prior to a file being assigned to an auditor. RIP examiners have denied ITCs without written explanation.

CRA commented:

RIP examiners are not required to propose when only disallowing ITCs. Proposal of examination results is only mandatory if GST/HST is assessed, a self-assessment is raised or when reassessing a prior period. However, RIP examiners are required to send a final letter to all registrants explaining their adjustments.

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 7

discretion to delay refund if pending audit

It appears that these refunds are being withheld when an audit is about to take place even if the returns have been filed and duly paid. Is this authorized? CRA responded:

Subsection 164(1) of the Income Tax Act and subsection 229(1) of the Excise Tax Act require that the Minister pay refunds with "all due dispatch" after the corresponding return is filed. This term allows for some discretion on the part of the Minister. When determining a refund amount, it is both fiscally responsible for the CRA to examine the potential liability of the claimant where other amounts may be due and payable and fair to both parties… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) discretion to delay refund if pending audit 116

Subsection 229(2)

Administrative Policy

Excise and GST/HST News - No. 102 July 2017

Non-compliance holds include SLFIs and deemed FIs that have not filed annual returns

[A] non-compliance hold… prevents any refunds or credits on the registrant’s account(s) from being issued until the registrant is compliant.

Beginning May 2017, the CRA has applied a non-compliance hold to all non-compliant GST/HST registrants including financial institutions that are GST/HST registrants that have outstanding annual information returns such as Form GST111…or RC7291… .

[W]here all other conditions are met, corporations that are deemed for GST/HST purposes to be financial institutions based on a section 150 election for exempt supplies that is in effect, are required to file Form GST111. …

Subsection 229(3) - Interest on Refund

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 5

interest on tax payment made prior to assessment and its successful appeal calculated from payment date

In some cases the payment of an alleged deficiency precedes the notice of assessment by a significant period of time. Respecting the calculation of interest if the assessment is successfully appealed, CRA stated:

Where a person has paid an amount on account of tax, net tax, penalty, interest or other amount assessed under section 296, and the amount paid exceeds the amount determined on reassessment to have been payable or remittable by the person, the Minister will refund the amount of the excess, together with interest on the amount, for the period beginning on the day the amount was paid and ending on the day the refund is paid.