Section 317

Where an account debtor receives a Direction to Pay under s. 317 respecting the GST/HST indebtedness of a registrant that had made the related taxable supply to the account debtor, (i) how should the account debtor treat the GST/HST portion of the amount owing by it for the supply, (ii) should it pay the tax and consideration to CRA, and (iii) how does the supplier account for the GST/HST on the payment in remitting its net tax for the applicable reporting period if that amount has been paid by the account debtor pursuant to the garnishment?

(b) The 2012 version of the National Collections Manual states that, in exercising its garnishment power (e.g., under s. 317), CRA will normally abide by the provincial exemptions. What does it signify that this statement does not appear in the 2015 version of the Manual.

CRA responded:

4(a)(i) [Application to pre-existing tax debtor GST/HST debt]

…[U]pon receiving the required payment, the CRA will apply the payment to the debtor’s pre-existing GST/HST liabilities. A portion of the payment cannot be allocated to the amount that the tax debtor is required to pay on the next remittance due date as the funds were recovered by way of a Requirement to Pay in respect of the tax debtor’s pre-existing GST/HST liabilities.

4(a)(ii) [Payment of garnished amount satisfies 3^rd party’s liability]

[I]f the amount owed to the CRA by the tax debtor exceeds the amount of the consideration for the supply [and] the related GST/HST…then the total amount payable by the third party to the tax debtor must be paid to the Receiver General. [Otherwise]… the full amount identified on the Requirement to Pay must be paid to the Receiver General and the residual amount of the account receivable should be paid to the tax debtor.

When a third party who receives a Requirement to Pay pays the required amount to the Receiver General, subsection 317(5) of the ETA provides that a receipt issued by the Receiver General is a good and sufficient discharge of the original liability to the extent of the amount of the payment sent to the Receiver General. Further, the third party is deemed for all purposes by subsection 317(11) of the ETA to have paid the amount to or on behalf of the tax debtor. Consequently, the tax debtor would not be able to successfully pursue the third party for the amount payable that was redirected to the Receiver General.

4(a)(iii) [Interest charges if tax debtor fails to remit its net tax]

…[I]n circumstances where an amount is intercepted by a Requirement to Pay and the CRA applies the funds against the tax debtor’s pre-existing GST/HST liabilities, the pre-existing GSTHST liabilities owed by the tax debtor is reduced by the corresponding amount. Accordingly, while interest may be charged on the next remittance to the extent that the tax debtor’s payment is deficient, the amount of interest charged on the pre-existing GST/HST liabilities identified on the Requirement to Pay is reduced and arrears interest is charged on the reduced amount. If the amount of the deficient future remittance is equal to the amount of the reduction in the pre-existing liabilities, the interest charges should be increased and reduced by similar amounts and the amount of interest charged should be somewhat neutral to the tax debtor. …

4(b) [Provincial exemptions]

With the exception of Quebec, the CRA does not necessarily abide by the provincial exemptions when determining the rate to issue administrative garnishment action.

The CRA is not legally bound by provincial legislation when exercising its administrative garnishment powers….[including] under similar provisions of other statutes…. In the past, the Agency generally did follow the various provincial exemptions when attaching certain types of remuneration such as salary or wages. However, exceptions would be considered in some circumstances to proceed with administrative garnishment action at a rate that would exceed the provincial limitations. Some examples…include situations where there were other sources of income and only one income source was to be subjected to garnishment action, assets that could be readily available to the debtor to generate funds to satisfy the tax debt in full or a substantial portion and the debtor was not cooperating, or situations where the provincial exemption amount would be insufficient to address the amount of arrears. …

[T]he CRA felt it was better to treat all debtors, in a similar circumstance, the same to the extent possible. Hence, the CRA no longer abides by the provincial exemptions, except for the province of Quebec.

In… Quebec…[i]t is not unusual that the province and the CRA will issue administrative garnishment action at about the same time. Accordingly, in order to minimize confusion on the part of the debtors as well third parties who have to act on the administrative garnishment, the CRA decided to abide by the provincial exemptions for the province of Quebec.