What Happens When Good Companies Make Mistakes?
Some companies/businesses are very compliance-conscious when it comes to sales tax. They attempt to do everything by the book. However, with the changes to harmonized sales tax and the late breaking changes to the sales tax laws, some issues may have fallen through the cracks.
Other companies have hired experienced sales tax staff to ensure accounting records are accurate and GST/HST returns are filed on time. But, these employees deserve their 4 weeks vacation or have sick days from time to time. Someone else takes over their desk and mistakes can occur.
Some companies conduct internal audits of their sales tax reporting mechanisms every year. When such mistakes are discovered, the entity may make be able to make adjusting entries (such as claiming an overlooked input tax credit) or may file an amended return (if permitted to adjust the amount of GST/HST collected). However, when the mistakes are discovered later in time or are systemic in nature or are the result of changes to the law that were not understood in time, it may be necessary for the company to make a voluntary disclosure.
A voluntary disclosure must be made before the tax authorities come knocking on your door. If the tax authorities are already planning an audit, they may not accept any disclosure as voluntary in nature.
A voluntary disclosure must be complete and may be subject to an audit. Think of a voluntary disclosure as you doing the auditor's job for them. You do the calculations that they would do if they came in to conduct an audit. By taking this approach, if the tax authorities decide to verify your voluntary disclosure, they can quickly determine that you have been as thorough as they would have been.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
