GST/HST Interest & Penalties Apply On “Net Tax”

Sep 2, 2021 GST/HST Commentary

The tax laws enforced by the Canada Revenue Agency (CRA) can be overwhelming and complicated. In some cases, interest and penalties apply on certain taxable amounts. In a recent court case, the Federal Court of Appeal in Canada has taken a definitive stance on GST/HST interest and penalties that apply on the “net tax” that remains after deducting certain claims. This court case changes the legal landscape regarding the amount of tax that interest and penalties can be applied to for a business or individual. In many cases, taxpayers are unaware that they have the legal right to pay less in interest and penalties if the CRA made their calculations incorrectly. If you are curious as to how interest and penalties apply in your specific case, consider contacting experienced Canadian tax lawyer Jeremy Scott at (902) 403-7201 or Jeremy@Jeremyscott.ca today.        

GST/HST Taxes

There are two types of taxes that apply to certain goods and services in Canada.

GST Taxes

The goods and services tax (GST) applies to certain goods and services made in Canada. The GST also applies to both real property (buildings, land, etc.) as well as intangible property (trademarks, intellectual property, etc.).

HST Taxes

The harmonized sales tax (HST) is a way for certain Canadian provinces to “harmonize” their provincial sales tax with the GST.  The Canadian provinces that blend their provincial sales tax with the GST are New Brunswick, Nova Scotia, Ontario, Newfoundland and Labrador, and Prince Edward Island.  In these Canadian provinces, the HST applies to the same types of goods and services as the GST, but at a higher combined rate.

Who Must Pay GST/HST Taxes?

Nearly everyone must pay the GST/HST taxes on the applicable goods and services. However, some specific organizations and groups will not always have to pay GST/HST taxes, including certain provincial and territorial governments and Indians.

Understanding GST/HST Interest and Penalties

When GST/HST tax returns and any associated tax payments are submitted in an untimely manner, the CRA’s standing administrative position on the calculation of interest and penalties has been that these amounts are applied to “all amounts outstanding.” The CRA has stated that “all amounts outstanding” does not include any rebates, input tax credits, or any possible available refunds. The CRA has until recently indicated that any other amounts that are outstanding will be subject to additional interest and penalties often prior to considering what, if any, amounts are owed by the CRA to the taxpayer.

Canada v. Villa Ste-Rose, Inc.

In 2021, Canada’s Federal Court of Appeals heard the case Canada v. Villa Ste-Rose, Inc. that directly addressed this specific position of the CRA. In this case, Villa Ste-Rose, Inc. (Villa) was a not-for-profit corporation that essentially operated a residence for senior citizens. Due to a fire that destroyed their building, Villa submitted a return in an untimely manner. Villa was not entitled to input tax credits, as the supplies they were claiming were exempt. However, Villa was entitled to rebates under Sections 256.2(3) and 257(1) of the Excise Tax Act.

The original amount of penalty and interest assessed by the CRA did not take into consideration the GST/HST rebates that were due to Villa. Villa appealed to the Tax Court of Canada (TCC) and argued that the GST/HST interest and penalties should be based solely on the “net tax” owed, not the total amount collectible. The TCC agreed with Villa and made the determination that GST/HST interest and penalties should be based only on the “net tax” owed by a taxpayer.

GST/HST Obligations

The reporting requirements and obligations surrounding GST/HST interest and penalties can be confusing and challenging to understand. In many cases, taxpayers remain unaware of their full legal tax obligations. If a taxpayer finds themselves up against the CRA regarding an attempt to collect interest and penalties on amounts that are not to be included in the amounts due to the CRA, they ought to consider challenging the assessments. If you find yourself concerned about the amount of interest and penalties assessed on you as a taxpayer, consider visiting with Jeremy Scott Law to learn more about your legal rights and obligations when it comes to your GST/HST interest and penalties.

How an Experienced Tax Lawyer Can Help

In many cases, filing for your taxes, and making determinations regarding possible GST/HST penalties can be legally complex. An experienced tax lawyer can help you with the following:

  • Create an overall tax planning solution that specifically caters to your specific financial needs
  • Provide different solutions to minimize taxes payable, without ever violating any Canadian tax laws
  • Provide a comprehensive tax return that limits the possibility of any CRA audit or prosecution
  • Properly calculate your taxes, ensuring that any and all possible exemptions are applied
  • Discuss any possible GST/HST interest and penalties
  • Defend and represent any client that encounters tax issues with the CRA (businesses, not-for-profit organizations, or individuals)

Contact Jeremy Scott Law Today

If you believe that you were assessed GST/HST interest & penalties inappropriately, or if you have any questions regarding your taxes in Canada, consider visiting with an experienced tax lawyer. In many cases, individuals and businesses simply do not know their legal options to reduce their taxable amount, or how to successfully argue against the CRA regarding interest or penalties assessed. Even where a GST/HST tax reassessment may be valid, Jeremy Scott provides the experience and expertise necessary to help answer your questions, and ensure you pay the minimum amount of penalty and interest required under the law. We look forward to visiting with you, and helping you through any issues you may have regarding GST/HST interest & penalties on “net tax” or any other tax questions you may have. Contact our legal team at (902) 403-7201 today to learn more, and schedule an appointment to address your specific tax questions.

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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.

By Jeremy