Section 261


R. Kraklewetz, "Limiting the Usefulness of the Section 261 Rebate", Sales and Use Tax, Vol. III, No. 4, 1998, p. 169.

Subsection 261(1) - Rebate of Payment Made in Error


United Parcel Service Canada Ltd. v. Canada, 2009 SCC 20, [2009] 1 S.C.R. 657

refund obtained by supplier

The registrant, in its capacity as a licensed customs broker, overpaid GST on goods it brought into Canada on behalf of persons to whom it had delivered shipments from outside of Canada. It reported the overpayments in its monthly GST returns by deducting the amount of the overpayments from its own GST liability as a supplier of goods and services.

In finding that this approach to obtaining a refund of the overpaid GST was authorized under 261(1), Rothstein, J. rejected a submission that the only person entitled to a rebate is the person who is liable to pay the GST.

West Windsor Urgent Centre Inc v. Canada, 2008 FCA 11

supplier has no standing to seek rebate of tax collected and remitted by it

The appellant was a medical clinic which billed OHIP for the exempt services rendered by the physicians, who worked as independent contractors at the clinic. Of the sums collected, 40% were retained by it as the agreed consideration for its services, and the balance of 60% was paid to the physicians – except that the clinic deducted from this payment to an amount calculated as 7% GST on the (40%) value of its services. The clinic claimed a rebate of this GST amount under s. 261 on the basis that it represented an amount of net tax paid in error. In finding that the clinic did not have standing to bring the s. 261 rebate application, Desjardins JA stated (at para. 7):

The appellant, which collected the GST and was obliged to remit it, did not bear the burden of the payment of the tax. It is not the person described in section 261 as authorized to claim the rebate.

See Also

Gagnon v. Inc., 2019 QCCA 1166

class action to proceed against Amazon for “deceptively” collecting GST/QST on exempt product sales was permitted

The class-action plaintiffs sought damages equal to the GST and QST that had been erroneously charged to them on their purchases from the defendant (Amazon). The two year period for applying to the ARQ for a refund under ETA s. 261 (and under the Quebec equivalent) had expired. The plaintiffs alleged that the Amazon invoices were “deceptive,” and relied on s. 227.1 of the Consumer Protection Act (Quebec), which provided:

No person may, by any means whatever, make false or misleading representations concerning the existence, charge, amount or rate of duties payable under a federal or provincial statute.

The Superior Court Justice of first instance had found that the claim was in substance for the recovery of GST and QST, being matters exclusively within the jurisdiction of the Tax Court of Canada and the Court of Quebec, respectively, so that this part of the plaintiffs’ claim was struck.

In reversing this finding and restoring the plaintiffs’ pleaded cause of action, Marcotte JCA stated (at paras. 44-46, TaxInterpretations translation):

[I]s the proposed class action actually grounded in civil liability, rather than being a disguised attempt to receive a tax refund to which the members no longer have a right?

If the alleged fault of the respondents rested solely on the erroneous collection of taxes on products sold, it could be concluded that the recourse sought attempted to circumvent the ETA and STA ….

However, here, to the extent that the alleged failure relates to a deceptive invoicing practice contrary to the CPA, and not simply to the collection of taxes on exempt products, I consider that the Superior Court remained competent to be seized of such action.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Act - Section 12 allowing class action for deceptively collecting GST on exempt products did not trench on Tax Court's jurisdiction 233

SNF L.P. v. The Queen, 2016 TCC 12

no rebate entitlement for an error caused by the applicant’s own inattention and carelessness

Rip J found that the appellant (SNF) was not entitled to ITCs in the case of one of the suppliers because it did not exercise proper care in verifying that the person was a legitimate supplier. He then stated (at para. 84):

The amounts paid to Ms. Bergeron were paid by error but by error due to SNF's own negligence. I cannot view section 261 as contemplating a rebate on an error caused by the author's own inattention and carelessness. Entitlement to a rebate in either situation would open a Pandora's box of dubious and baseless claims, claims the legislator never heard of, much less contemplated.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(4) ITCs where reasonable efforts to verify suppliers and registration numbers, where GST not remitted 402
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 2 - Intermediary intermediary need not carry on business and may be a nominee 131
Tax Topics - General Concepts - Agency "prête‑nom" contract is a valid contract 217

Administrative Policy

23 March 2017 CBA Commodity Taxes Roundtable, Q.17

rebate where CRA assesses non-resident for not charging Div. II tax where the recipient had already self-assessed Div. IV tax

An unregistered non-resident corporation (USCo) provides consulting services to a Canadian financial institution for use exclusively in its exempt activities, so that the financial institution self-assessed Division IV tax on the fees. In late 2016, CRA determined that USCo had been carrying on business in Canada, registered it effective July 1, 2013, and assessed USCo for GST/HST not collected for the periods from then onwards. USCo is seeking to recover the amount assessed by charging the GST/HST to the financial institution.

(a) Would the financial institution be able to claim rebates to recover the tax self-assessed as tax paid in error under s. 261 (within the normal two year limitation period)?

(b) Does CRA have an administrative policy similar to P-131R to address the collection of tax in these circumstances?

CRA responded:

(a) [Except] where the return that included the amount self-assessed as Division IV tax has been previously assessed, the financial institution… would be entitled to claim a tax paid in error rebate under section 261 in respect of the amount self-assessed as Division IV tax.

However, where the financial institution can demonstrate that it has or had a liability under Division II for the amount in question and therefore was not required to self-assess under Division IV, the financial institution would be able to request to have its return reassessed in order to have the amount that was originally included as Division IV tax removed and refunded to the financial institution subject to the applicable legislative time limit.

(b) … Any administrative position taken would be at audit’s discretion at the time of audit and based on the facts of the case at hand. In the example provided, the possibility of double remittance is due to the non-compliance of USCo and not through a business arrangement between two parties for collection and remittance of tax such as one that is indicated in P-131R.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 296 - Subsection 296(6) CRA can assess to reverse self-assessed Div. IV tax if it has assessed the non-resident for uncharged Div. II tax 112
Tax Topics - Excise Tax Act - Section 218 reversal of s. 218 tax if NR vendor assessed for Div. II tax 81

GST/HST Memorandum 13.5 Non-creditable Tax Charged January 2017

No s. 259 rebate for amounts paid in error

113. Under subsection 261(1), a PSB may receive a rebate if,

  • it paid or remitted an amount as or on account of, or that was taken into account as, tax or net tax that it should not have paid or remitted, or that was more than it had to pay or remit; or
  • it paid an amount as penalty, interest, or any other similar obligation that was not payable or remittable.

114. GST/HST paid in error is not "tax", which is defined in subsection 123(1) as tax payable under Part IX. Therefore, GST/HST paid in error cannot be included in the calculation of non-creditable tax charged. As such, there is no non-creditable tax charged in respect of property or services where GST/HST was paid in error in respect of the supply, importation, or bringing into a participating province of the property or service. If a PSB has paid or remitted an amount as or on account of tax in error, it cannot claim a PSB rebate to recover this amount, rather it must claim a rebate under section 261.

Words and Phrases

Subsection 261(2) - Restriction

Administrative Policy

2 September 2011 Interpretation Case No. 137200

rebate precluded by assessment even if no adjustment

Although s. 261(1) "does not authorize a supplier who has charged or collected the GST/HST in error to claim a rebate for the tax that the supplier mistakenly charged or collected," s. 261(1) would generally allow a supplier to apply for a rebate of tax remitted in error in certain circumstances including where the supplier had not collected GST/HST from a recipient in respect of an exempt or zero-rated supply but had erroneusly remitted GST/HST for that supply; or the supplier has collected GST/HST from a recipient but has mistakenly remitted more GST/HST than was collected.

However, if (as had been the practice of CRA between April 2007 and April 2011), CRA issues notices of assessment once a GST/HST return has been filed by a registrant even where there is no adjustment or net amount owing, the effect is to preclude the supplier from filing for a rebate of tax remitted in error under s. 261 for that month (or other reporting period). The supplier must instead file a timely notice of objection or apply for a reassessment under s. 296(1) within the four-year period.

4 July 2008 Interpretation Case No. 106135

recipient can claim rebate

A recipient of a supply would not be prevented from claiming a rebate for tax paid in error (here, GST charged to it on a zero-rated supply) by s. 261(2)(a) only because CRA had assessed the supplier for the reporting period in which the tax was paid.


David M. Sherman, "What's New in GST and HST?", GST & HST Times, No. 263C, October 2011.

The CRA policy of automatically assessing returns in certain circumstances (e.g., where full payment does not accompany the return) has the effect of precluding an application for tax remitted in error unless a timely notice of objection is filed.

Paragraph 262(2)(b)


SLFI Group v. Canada, 2019 FCA 217

denial includes where the CRA assessment of the tax was of another person

A non-resident bank ("Citibank") agreed to fund the payment of the upfront brokerage commissions that were payable on the issuance of units in the Invesco/Trimark funds (the “Funds”) in consideration for receiving an assignment of a portion of the amounts that otherwise would have been earned by the Invesco manager as management fees. More precisely, the manager agreed to reduce its management fees (i.e., reduce its percentage charge of NAV), and the Funds agreed to pay the same percentage amounts to a special purpose non-resident Citibank-formed vehicle (“Funding Corp”) essentially in consideration for Funding Corp paying the brokerage commissions. Funding Corp then immediately sold its fee-amount entitlements to Citibank.

Woods JA found that the services supplied by Funding Corp to the Funds were exempted under the financial services definition. However, the manager had self-assessed itself under s. 218 on behalf of the Funds on the amounts paid by the Funds to Funding Corp, was assessed for these amounts and did not file a notice of objection, and then, after each such assessment, filed a s. 261 rebate application (stated to be made in its own capacity and/or on behalf of the Fund). Such rebate applications were denied by the Minister by notices of assessment, and the manager filed notices of objection to such assessments.

In finding that s. 261(2)(b) precluded a right to rebates, and that there had been a failure to file notices of objection to the initial assessments of the self-assessed tax, Woods JA stated (at paras. 79, 81):

… [A]ssessments were made of the particular tax that was paid by the Funds. The exclusion in paragraph 261(2)(b) applies in this case. The provision is not limited to assessments issued to persons who paid the tax.

… [T]here was a remittance of tax by the Manager on behalf of the Funds. The Manager was in a position to file a notice of objection to the assessments which were made based on the filing in the returns, and did not do so. It does not make sense to have a different result under section 261 of the Act depending on whether the assessments were issued to the Manager or to the Funds, and the language used in paragraph 261(2)(b) reflects this intent.

She stated (at para. 80) that it was not necessary for her to address the "hypothetical scenario" of "the exclusion of a rebate to a recipient of a supply where the tax has been remitted by a supplier."

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (q) dominant element in supply by funder of broker commissions was a financing service rather than a management service 514
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) dominant element in MFT commission funding arrangement was the payment, or the arranging of payment, of the funding 187
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 tax characterization not affected by securities law characterization 87

Subsection 261(3)

See Also

Al-Rubaiy v. The Queen, 2020 TCC 34

In connection with a purchase of a dental practice (by the taxpayer, or by a partnership between him and the vendor – those facts are not clear), on February 29, 2012, the taxpayer paid the vendor $85,013.50 in HST in addition to the purchase price and, following a change in accountants, filed GST/HST general rebate application dated February 12, 2016 seeking a rebate of tax paid in error in the amount previously paid.

The taxpayer contended that the common law principle of discoverability applied such that the two-year limitation in s. 261(3) had not lapsed when the rebate application was filed as the taxpayer was not aware until August 2015 of the overpayment when his own accountant reviewed the purchase documents.

Wong J dismissed the appeal, stating (at paras 17, 24):

I am unable to see a way in which the common-law discoverability rule can be appropriately applied to the present situation.

… By the time the Minister received the Appellant’s rebate application on February 5, 2016, the time limit had already passed and cannot be extended: see Panar… .

She went on to state in obiter (at para. 25):

No evidence was introduced to show that the joint election was made with respect to subsection 167(1) for the tax-free supply of the Vendor’s business assets. Therefore, since no election appears to have been made, this transaction was subject to GST/HST and the tax in issue was likely not paid in error.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 167.1 s. 167 election thought to be necessary to detax sale of dental practice 148

Administrative Policy

FAQ - Deferral of GST/HST Tax Remittances: CRA and COVID-19 20 April 2020 CRA Webpage (as amended on June 29, 2020)

Q.11 Consideration of late-filed rebate claims made during COVID-19

GST/HST rebates that are late filed may be considered for processing. They will be reviewed on a case by case basis when operations resume.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 281.1 - Subsection 281.1(1) 662
Tax Topics - Excise Tax Act - Section 280.1 no penalties for late-filing GST/HST returns on June 30, 2020 38


GST189 General Application for Rebate of GST/HST

To determine the appropriate reason code for your rebate application, and for detailed instructions on how to complete it, see Guide RC4033, General Application for GST/HST Rebates … .

Part B- Reason for rebate request …

Tick the appropriate box to indicate the reason for this claim. Tick only one box. …

[Box 1C] amounts paid in error (subsection 261(1)) ...

All other reason codes

If you are claiming a rebate for any other reason code and you are filing a paper GST/HST return and claiming a rebate on line 111, send this completed rebate application with your return, to the address shown on your GST/HST return. Otherwise, send this completed rebate application to:

Prince Edward Island Tax Centre
275 Pope Road
Summerside PE C1N 6A

Guide RC4033 General Application for GST/HST Rebates

…Reason code 1 - Amounts paid in error

You can apply for a rebate of an amount if:

  • you paid or remitted it as or on account of GST/HST or net tax that you should not have paid or remitted, or that was more than you had to pay or remit; or
  • you paid it as penalty, interest, or any other similar obligation that was not payable or remittable.

…Amounts paid in error - If you believe you paid an amount as GST/HST in error to a supplier, you can request a refund or credit of the amount from the supplier, instead of applying for a rebate under reason code 1. This is often the simplest way for you to recover the amount. If the supplier gives you a refund or credit, you are no longer eligible for a rebate because the amount you paid in error has already been refunded or credited to you. If you cannot get a refund or credit from the supplier (for example, if the supplier refuses to refund the amount or goes out of business), you can apply for a rebate of that amount under reason code 1.

You are not entitled to a rebate for amounts paid or remitted in error if any of the following apply:

  • The amount has been taken into account as tax or net tax in an assessment.
  • The amount paid was tax, net tax, penalty, interest, or any other amount assessed.
  • The amount is the result of an appraisal or reappraisal of the value of goods, or a determination that the GST/HST applies to the goods by the Canada Border Services Agency (CBSA).

Amounts collected in error - If you collected an amount as or on account of GST/HST that you should not have collected, include that amount in the calculation of your net tax. You are not entitled to claim a rebate for amounts you collected as GST/HST in error. To correct this error, refund or credit the amount to your customer and issue your customer a credit note for the amount. You can then reduce your net tax owing by the amount you refunded or credited to your customer. Include the amount of the adjustment on line 107 of your GST/HST return in the reporting period in which you issued the credit note. ...

All other reason codes

If you are claiming a rebate for any other reason code and you are not filing a GST/HST return, or you are filing your GST/HST return electronically and you are not claiming the rebate on line 111 of your return, send your completed rebate application to:

Summerside Tax Centre
275 Pope Road
Summerside PE C1N 6A2

If you are filing a paper GST/HST return and claiming a rebate on line 111, send your completed rebate application with your return. ...

Using your rebate to reduce your remittance of GST/HST

If you are responsible for collecting the tax from the purchaser, report that tax and remit it to us using Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non-Personalized). Generally, the amount of your remittance will be the amount you indicate as net tax on line 109 of Form GST62. However, if you are entitled to a rebate under reason code 7, you can simply remit the difference between the net tax amount on line 109 of Form GST62 and the amount of your rebate. To do this, enter the amount of your rebate on line 111 of Form GST62. The amount you will have to remit is equal to the amount on line 109 less the amount on line 111.

File your rebate application together with Form GST62 if you want to reduce your remittance by the amount of your rebate.