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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The Ontario Ministry of Revenue conducts audits of vendors (sales side audits) looking for failures to remit tax collected and failures to collect tax.  The Ministry also conducts audits of purchasers (some are also vendors) looking for failures to pay tax on taxable goods (called purchase side audits).  When an auditor is looking at the purchase side of the business and failures to pay Ontario retail sales tax ("ORST"), the best defense is that "The other guy was audited already or self-assessed the ORST - you have your money".

The Ministry should not audit both the vendor and the purchaser for the exact same tax.  This happens sometimes because an audit or a purchaser can lead to an audit or a vendor and vice versa because an audit brings out information of non-compliance of others. Often the auditor goes from an audit of one person to his/her next "target" who was discovered in a previous audit.  Many times the auditor may not know of the other audit/assessment.  It should not be assumed that the auditor is intentionally trying to collect the same tax twice.

Over the course of my career, I have helped many businesses during the audit process by asking them to review an audit summary (before the "finish assessment" button is pushed) and identify large amounts of unpaid ORST on the purchase side of the audit.  I explain that the Ministry cannot assess the same tax twice.  If they have good relationships with their suppliers, I explain the benefits of picking up the phone and calling their contact at a supplier to see if they have been visited by an ORST auditor.  Sometimes the answer is "unfortunately, yes" and sometimes the answer is "luckily, no".

If they answer is "unfortunately, yes", it will be necessary to determine if the transactions at issue in the current audit were covered by the other audit and assessment.  If the answer is "yes", then the auditor should remove those items from the proposed assessment before pressing the 'finish assessment" button on the computer (there really isn't such a button).

Even if the answer is "luckily, no", the supplier may have self-assessed if they determined they should have charged and collected the ORST.  The supplier could have made a voluntary disclosure or received advice from an accountant or lawyer and the ORST could have been remitted without the purchaser knowing or receiving a new invoice showing ORST remitted/remittable.

It is worth mentioning that the vendors may use this defense if a purchaser has voluntarily disclosed or self-assessed and remitted ORST or if the purchaser has been audited.  The vendor may show an auditor that the ORST has been remitted or paid to the Ministry of Revenue in order to defend portions of a sales side audit.

The next step after finding that "the other guy has paid or remitted the ORST" is to communicate the information to the auditor and providing adequate proof that the monies have been paid.  This is where an experienced lawyer may be able to help with the clear communications and strategy. 

The existence of this defense is important to know now more than ever before because Ontario is auditing in order to finish all ORST audits by March 2012 (when the auditors transfer to the Canada Revenue Agency).  There is an increased likelihood that this defense is available given the volume of audits.