Section 280

A company that was not registered for GST purposes was required to self-assess itself under 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 reported 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 found that, under s. 228(6), CRA was required to net the rebate claims against the gross GST payable for interest and penalty purposes.

CRA had assessed the taxpayer for interest under ETA s. 280 for his failure to file returns for what had now been found by Smith J to be a taxable activity of providing psychotherapy services. Smith J found that such interest was not payable because the taxpayer had established a due diligence defence, based on having consulted on the tax status of his supplies with his accountant and with professionals in his health care network. In this regard, he stated (at paras. 54-55):

l’École polytechnique … 2004 FCA 127, confirms that the reasonable diligence defence can be used against an administrative penalty established under the scheme of section 280 of the ETA [stating]:

[D]ue diligence excuses either a reasonable error of fact, or the taking of reasonable precautions to comply with the Act.

I find based on this, that “in order to establish a due diligence defence to a penalty an appellant must show he either (a) made a reasonable error in his or her understanding of the facts, or (b) took reasonable precautions to avoid the event leading to the penalty”: Comtronic Computer Inc. v. The Queen, 2010 TCC 55, paragraph 35.

Graham J found that foster care services supplied by the appellant ("Caithkin") were not exempt under Sched. V, Part IV, s. 2. Despite treating such supplies as exempt, Caithkin had claimed input tax credits on the per-diem payments that it made to the foster parents.

Graham J upheld the Minister's penalties under s. 280(1)(a), noting that "in no way could this have-my-cake-and-eat-it-too approach be seen as duly diligent" (para. 39).

A college ("Humber") was entitled to claim a rebate under s. 259(3) of 67% of most GST payable by it on its purchases. Approximately a year after it purchased three real estate properties, it realized it had failed to report those purchases. It did so in its August 2008 return, applied at that time for the 67% rebate, and remitted the net amount of GST. The Minister assessed interest on 100% of the GST from the time it was owed, without reduction for the rebate amounts. Humber appealed on the basis that the interest should be calculated on the net 33% amount so that, in effect, it should be given the 67% rebate retroactively to approximately one year before it applied for it.

In agreeing with this approach, C Miller noted (at para. 20) that if Humber had instead only reported the GST on its property purchases in its August 2008 return without claiming the rebate, then the Minister, in assessing that return, would have been obligated to apply s. 296(2.1) so as to grant the rebate on a retroactive basis - and that it was absurd to interpret the Act so as to impose a worse result because Humber made a more complete filing. He stated (at para. 22):

Clearly, subsection 296(2.1) of the Act is there to help a college that has not made the rebate claim, not to harm the college that applies for a rebate it has not yet obtained.

Accordingly, s. 280(1) was to be interpreted on the basis that "the Act intends to offset the rebate against the tax at the time the tax arises" (para. 27).

Hogan J. found that the taxpayer, who had failed to file two income tax returns and nine GST returns until they were requested by the Minister, was liable for late-filing penalties. Regarding the taxpayer's submission that it had reasonable grounds to believe that no taxes were owed in connection with the late-filed returns, Hogan J. stated:

To succeed with this defence, the taxpayer must show how the error was made and demonstrate that he relied on the error in deciding to postpone the filing of the returns beyond their due date. This is required in order to satisfy the subjective test. To satisfy the objective test, the taxpayer must then establish that a reasonable person would have made and relied on the same error in deciding to postpone the filing of the returns.

The taxpayer's evidence was vague and self-serving, and did not satisfy either test.

The taxpayer did not report the GST that was payable under the self-assessment rule in s. 191(3) on the completion of two multiple unit residential complexes until one quarter late in the case of one building and two years late in the case of the second building. It also claimed related ITCs in the same returns.

Garon CJ dismissed the taxpayer's submission that the late-claimed ITCs should be applied to retroactively adjust the net amount of GST owing on the buildings, so as to thereby eliminate interest payable under s. 280(1). He stated (at paras. 16-17):

The juxtaposition of the mention of the particular reporting period and the preceding period in paragraph a) of Point B of [s. 225(1)] does not seem to leave any doubt that the legislative intent was to allow a taxpayer to claim input tax credit in a return subsequent to the period during which these credits could first have been claimed. ...

The above indicates that this right to input tax credit does not exist until it is claimed.

Revenue Canada waived interest, and reduced penalties to 4% in accordance with its policy on "wash transactions", with respect to the failure of the registrant to add GST to its reimbursement charges to tenants for property taxes, utilities and insurance. Lamarre TCJ. found that the registrant had made out a defence of due diligence, with the result that Revenue Canada was directed to delete the 4% penalty.