Section 241

The Castros were assessed in 2016 for GST and QST on the fair market value of a property which they had transferred to their unregistered corporation (subsequently sold by them) on the basis that the transfer was a taxable supply. In the Castro case, they were unsuccessful in their claim for a bad debt deduction pursuant to ETA s. 231 equal to such GST assessment of them.

The ARQ refused the Castros' request (made in 2023) to retroactively register (pursuant to QSTA s. 405, similar to ETA s. 241(1)) the corporation effective the 2010 date of the transfer, on the basis (set out in the relevant ARQ interpretation bulletin) that the period sought for retroactive registration exceeded 30 days, and the applicants had not demonstrated that, on the transfer date, the corporation had been obligated to register for QST purposes (the "Decision").

The Castros now sought judicial review of this refusal (and sought review in the Federal Court of the corresponding CRA refusal). They considered that retroactive registration of the corporation would permit the cancellation of the above QST assessments, and would also permit the corporation to claim input tax refunds (ITRs) for the QST that had been payable by it (by virtue of its retroactive registration) on the transfer date.

Vaillancourt JCS, noted that s. 405 did not place limits as to the discretion of the ARQ as to what extent to retroactively register a taxpayer, referred (at para. 34, TaxInterpretations translation) to Stemijon as authority for the proposition that “[i]t is a well-established legal principle that a decision based solely on policy, and not on the law, cannot be considered reasonable” and stated (at para. 39):

For this reason alone, the Decision must be considered unreasonable. The Minister refused to exercise his discretion, while the decision-maker believed that the request could not be accepted due to a requirement that is not found in the statute. He improperly concluded that the Bulletin limited his discretionary power and, in doing so, he refused to exercise his discretion.

After noting various arguments of the ARQ suggesting that the Castros’ position “rested on fragile grounds” (para. 46), he stated (at para. 49):

These arguments are certainly appealing. However, once again, the defendant is confronted with the fact that they do not appear to have been considered by the decision-maker. As already mentioned, it is not for the reviewing court to address arguments that have not been considered by the decision-maker, especially when it seems, as is the case here, that the decision-maker did not consider arguments or additional elements because he erroneously concluded that he did not have jurisdiction to entertain the application.

Vaillancourt JCS concluded (at para. 53) and before remitting the Decision for reconsideration:

In summary, the decision to accept or refuse the retroactive registration of the Corporation in the QST register falls under the discretionary power of the Minister. However, by rejecting the request on the grounds that such registration could not be made because the requested retroactivity exceeded 30 days, even though the statute does not provide for such a time limit, the decision-maker rendered an unreasonable decision.

On February 7, 2014, the appellant made a taxable supply of real property (being the portion of a building that was rented to commercial tenants) to a purchaser which represented that it was registered for GST and QST purposes but, in fact, was not, so that the registration numbers it provided to the appellant were invalid. On November 16, 2016, the purchaser was re-registered with retroactive effect to February 7, 2014 with the same registration numbers that had been stated in the Agreement of Purchase and Sale.

In finding that the retroactive registration was effective for s. 221(2)(b) purposes, so that the appellant could not be reassessed for failure to have charged GST to the purchaser, Favreau J stated (at paras. 28-29):

Subsection 241(1) requires that the minister notify the person who applies for registration of the “effective date of the registration” which is the date on which the applicant becomes subject to the ETA. When the effective date of registration is backdated, the retroactive effect of the registration must be recognized for all purposes of the ETA unless there is a clear provision of the ETA to the contrary. No such provision seems to exist in respect of paragraph 221(2)(b).

In my view, a strong comparison can be drawn between paragraph 241(1) and paragraph 241(1.5). In paragraph 241(1), there is no limitation to the discretionary power of the Minister to backdate the effective date of registration of a person while in paragraph 241(1.5) the discretionary power imposed on the Minister is limited to a date that is not to be earlier than 60 days after the particular day on which a notice of intent was sent by the Minister to the person. Prior to this provision being introduced in the legislation of 2014, there was absolutely no time limit for the Minister to determine the effective date of registration of a person that is not registered but is required to be registered and has failed to apply for registration.