Ontario Auditors Should Not Assess Vendor for ORST Paid By Purchaser
Ontario retail sales tax auditors are busy auditing vendors who applied for vendor permit numbers prior to July 1, 2010 (prior to the implementation of HST). The sales side audits sometimes disclose that a vendor failed to charge ORST to a purchaser (often years after the fact).
I cannot count the times a vendor has asked me if the auditor can collect the same Ontario retail sales tax (ORST) from both a vendor and a purchaser. The answer is "NO". If a purchaser has been assessed and paid the ORST in connection with a transaction with a vendor, the vendor cannot be assessed the same ORST. This would be double tax. This would be the government taking advantage of both parties to the oversight.
Section 20(3) of the Retail Sales Tax Act provides:
"The Minister may assess against every vendor who has failed to collect tax that the vendor is responsible to collect under this Act a penalty equal to the amount of tax that the vendor failed to collect, but, where the Minister has assessed such tax against the purchaser from whom it should have been collected, the Minister shall not assess the vendor." (emphasis added)
I often advise vendors to call their purchasers to see if they have been assessed ORST with respect to their transactions. If the answer is "yes", the vendor needs to receive information to provide to the auditor --- and quickly.
I was surprised recently to learn that an auditor was busy auditing a vendor and discovered that it had not charged ORST systematically on goods that the vendor thought was exempt. The Ministry was auditing the purchasers at the same time. I provided information to the auditors concerning the overlapping audits as the vendor and purchasers worked out how to deal with their ORST issue.
If you ask the auditor to check to see if they have assessed purchasers, the auditors usually decline (okay, the appropriate word may be "refuse"). That being said, I have met a few nice auditors in my day and, when the transactions involve only a few big relationships, the auditor has (in limited cases) obliged.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
