The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

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When a owner of a business in Ontario is registered for Ontario retail sales tax purposes, he/she/it must obtain a purchase exemption certificate pursuant to subsection 6(1) of the Retail Sales Act (Ontario) when it disposes of a stock of goods to which the Bulk Sales Act (Ontario) applies.  If the vendor does not obtain a purchase exemption certificate,  and does not provide the purchase exemption certificate to the purchaser, the purchaser may be pursued for the unpaid sales tax debts of the vendor.

After harmonization on July 1, 2010, section 6 of the Retail Sales Tax Act will continue to be applicable.  Representatives of the Ontario Ministry of Revenue confirmed this today at the Southern Ontario Commodity Tax Group meeting at the Toronto Board of Trade.

Section 6 of the Retail Sales Tax Act has not been repealed.  The Ministry of Revenue will continue to enforce the provisions of the Retail Sales Tax Act after harmonization.  As a result, auditors will be busy little beavers running around auditing vendors under the Retail Sales Tax Act.  The Ministry of Revenue is not going to let go of the mechanism that allows it to pursue purchasers for unpaid retail sales tax liabilities of vendors when the vendors no longer have the assets.

Section 6 of the Retail Sales Tax Act provides:

(1) No person shall dispose of his, her or its stock through a sale in bulk to which the Bulk Sales Act applies without first obtaining a certificate in duplicate from the Minister that all taxes collectible and payable by such person have been paid or that such person has entered into an arrangement satisfactory to the Minister for the payment of such taxes or for securing their payment.

(2) Every person purchasing stock through a sale in bulk to which the Bulk Sales Act applies shall obtain from the person selling such stock the duplicate copy of the certificate furnished under subsection (1), and, if the person who is purchasing the stock fails to do so, that person is responsible for payment to the Minister of all taxes collectible or payable by the person who is disposing of the stock through a sale in bulk.

(3) The issuance of a certificate by the Minister under subsection (1) does not affect any liability under this Act of the person in respect of whom the certificate is issued.

What this means is that asset purchase agreements should continue to include a clause requiring the vendor to obtain the Retail Sales Tax Subsection 6(1) Clearance Certificate.  Since there is no specific limitation period within section 6 of the Retail Sales Tax Act, this contractual provision may be required for some time.

It should be noted that as a practical matter, when a vendor requests a purchase exemption certificate, the request is an invitation to conduct an audit.  The vendor is saying to the Ministry that he/she/it is going to sell his/her/its assets and the Ministry better come in an conduct an audit and find any non-compliance while they have chance.  Audits can often slow down the process of obtaining the clearance certificate (because the issuance of the certificate is delayed until the end of the audit and payment of any taxes owing).  As a result, contractual provisions need  to allow some flexibility relating to the provision of the certificate and vendors need to ask for the certificate well in advance of the closing date.