Are you Facing Challenges as a result of the Deferral of your GST/HST
In an effort to support distressed businesses during the COVID-19 pandemic, the Canada Revenue Agency (CRA) extended the time limit for business owners to file certain tax amounts collected, including GST and HST taxes. However, the deferral of GST and HST taxes may lead to more aggressive collection efforts by the CRA and may wreak havoc to businesses whose corporate officers can be held jointly and severally liable for these debts, pursuant to the Excise Tax Act. In fact, audit activity by the CRA is ramping up, including in the areas of the GST/HST taxes. Jeremy Scott Law explains these issues below. If you need assistance with an audit or the payment of deferred GST/HST taxes, consider contacting Jeremy Scott Law at 902-403-7201.
What Is the GST/HST?
GST stands for “goods and services tax,” while HST stands for “harmonized sales tax.” GST/HST is considered a “value-added tax.” When a taxpayer purchases goods or services, they pay GST/HST. When the taxpayer sells a product or service, it collects GST/HST from the purchaser. The taxpayer deducts the amount they paid for goods and services from the amount they collected from buyers and remits the difference to the CRA.
The GST applies nationally. These provinces harmonized their provincial sales taxes with the GST to implement the HST:
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
- Prince Edward Island
Typically, the HST operates the same way as the GST and has the same tax base. Provinces with GST only charge 5% while those with the GST and HST have a combined rate of 15%, or 13% in Ontario.
There are specific rules about registering to collect GST/HST taxes and when taxes must be remitted to the taxing authority. Vendors are responsible for preparing a GST/HST return and remitting the difference for each reporting period.
Sales Subject to GST/HST
The GST/HST is a consumption tax that applies to the sales of most goods and services, including:
- Sales and leases of commercial real property
- Sales of services
- Sales of software, SaaS, and digital products
- Sales of tangible personal property
There are complex rules surrounding where to source these sales that depend on the nature and characterization of sales. Generally, the sale of tangible personal property is sourced to the location where the purchaser has the goods delivered. Sales of services are typically sourced to the recipient’s address. Sales of intangible personal property are generally sourced to the location where the contract says the rights can be used.
Deferral of GST/HST Taxes
The CRA deferred the remittance of various taxes and the preparation of certain tax returns in light of the COVID-19 pandemic. Specifically, the CRA took the following actions:
- Extended the date for monthly filers to remit GST/HST payments for February, March, and April 2020 to June 30, 2020
- Extended the date for quarterly filers to remit amounts of GST/HST for January 1 through March 31 reporting period to June 30, 2020
- Extended the date for annual filers whose GST/HST return was due in March, April, or May 2020 to remit payments to June 30, 2020
- Waived penalties for the late filing of GST returns that were filed by June 30, 2020
- Waived arrear interest on GST/HST return tax debts from April 1, 2020, to June 30, 2020
While the deferral expired on June 30, 2020, businesses that were still experiencing COVID-19 related difficulties were allowed to apply for continuing payment delays.
Additional deferrals were provided by specific provinces, such as waived penalties for missed filings that occurred earlier in the year of 2020 or the extension of sales tax returns to October 20, 2020, for Manitoba small and mid-sized businesses.
Legal Issues Involved with the Deferral of GST/HST Taxes
While the deferral of GST/HST taxes helped struggling businesses during the early days of COVID-19, several legal issues surrounding this tax policy are still lingering, such as:
Some businesses may have reallocated the funds they received as payments for these taxes to other pressing business needs and may still have trouble paying off the amounts they deferred. They may need help negotiating a reasonable repayment with taxing authorities.
Corporate officers can be held personally liable for the difference in the GST/HST taxes they fail to remit. It is not yet clear whether the CRA plan to hold directors personally liable for the deferral to remit the owed taxes if the officers fail to remit the net taxes when the deferral period ends.
People who are facing personal liability often contact a tax lawyer like Jeremy Scott Law who can advocate for them or raise applicable defenses.
Due Diligence Defence
Personal liability can be avoided if a taxpayer successfully proves a due diligence defence. This requires the officer show they exercised the degree of care, diligence, and skill that a reasonably prudent person would have exercised in similar situations to prevent the failure to remit the taxes. This defence is focused on the timing of the remittance, not what the officer did after they failed to remit the taxes due. Additionally, Canadian courts have repeatedly held that this defence cannot be raise if the business paid off current creditors with these funds in hopes that their financial situation would improve.
Directors may be able to strengthen their position by taking the following steps:
- Ensure the corporation has a separate withholdings account for tax remittances
- Require the corporation’s financial officers to regularly report on the withholdings account’s status
- Regularly obtain confirmation that withholdings and remittances have been made
- Establish a plan to catch up on GST/HST remittances that were not made during the deferral period
Contact a Tax Lawyer for Help with Your Deferral of GST/HST Taxes
Now that the deferral period to remit GST/HST taxes has expired, businesses that are struggling to catch up may need legal assistance from a tax lawyer who is familiar with these issues. If you need assistance with your deferral of GST/HST taxes, consider contacting Jeremy Scott Law at 902-403-7201.
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Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.