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

On March 8, 2011, the Federal Court of Appeal allowed an appeal by the Canada Revenue Agency (CRA) in Canada Revenue Agency v. Tele-mobile Company Partnership et al. and granted a motion by the Canada Revenue Agency (CRA) in a judicial review to strike the application on the the ground that it is plain and obvious that the application has no possibility of success.  The Federal Court had previously dismissed the CRA's motion to strike.

In short, a number of Telus entities (Telus) filed a judicial review to prohibit the CRA from issuing assessments against Telus for goods and services tax (“GST”) on the international roaming fees charged by Telus to its customers from October 2004. Telus asserts that if it is assessed for GST, unfair and onerous obligations and financial hardships would be visited upon it. 

Justice Stratus held:

" We note that if prohibition is granted because of these alleged consequences, the Minister cannot issue an assessment – in effect, as a matter of law, the Minister will be obligated to forgive a tax liability that he believes is present, solely because of alleged hardships that the taxpayer will suffer.

In our view, that cannot be. The Court cannot stop the Minister from carrying out his statutory duty under the Excise Tax Act, R.S.C. 1985, c. E-15, subsection 275(1) to assess GST payable by law merely because doing so will impose unfair and onerous obligations and financial hardships upon the taxpayer.

To the extent that CRA has exercised its discretion in a manner that has improperly caused TELUS damage, TELUS may have other recourses available to it. To the extent that the exercise of discretion affects the amount of tax owing, TELUS may challenge the assessment in accordance with Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15. Alternatively, it may apply for a remission order under section 23 of the Financial Administration Act, R.S.C. 1985, c. F-11. Further, it may be able to bring an action in tort to obtain compensation for any damages that were caused by CRA."

On May 5, 2011, Telus filed a leave application with the Supreme Court of Canada (SCC File 34244).  Please stay tuned.

This is an important case for taxpayers and I hope the Supreme Court of Canada grants leave.  Under the Excise Tax Act, a debt due to Her Majesty as the result of a GST/HST assessment is immediately due and payable.  Large (and small) assessments must be paid and collections actions are not halted pending the outcome of an objection and appeal.  This means that companies can suffer financial hardship if the Canada Revenue Agency is incorrect in its interpretation of the law. While a taxpayer has other expensive legal options to pursue the CRA if they make a mistake, it the mistake causes financial hardship and the company disappears or an individual taxpayer loses everything important in life, the fact that the battle with the tax man is ultimately successful is of little consolation. 

What is important to remember is that suppliers engaged in commercial activities are not the party ultimately responsible for paying the GST/HST (consumers are).  The suppliers collect the GST/HST from recipients and remit the GST/HST to the Receiver General of Canada.  However, this group is the target of most audits. Telus fits within this group in the case at issue.  A supplier (such as Telus) may have tried to comply with the law and may or may not have made a mistake while acting as the government's collection agent.  There should be a mechanism to stop the CRA from potentially large incorrect assessments of suppliers engaged in commercial activities (including zero-rated activities).

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Canada News Wire reported the following on May 18, 2010:

Yesterday Dalton McGuinty broke yet another promise when he betrayed an all-party agreement in order to kill an Ontario PC motion that would have allowed all MPPs to freely vote on delaying the implementation of the HST.

All three Ontario political parties had an agreement-in-principle to a 'programming motion' which would have allowed the Ontario PC Caucus to introduce a single motion on an issue of important public policy. After learning the Ontario PC Caucus intended to introduce a motion that recalled Dalton McGuinty's promise not to raise taxes without the consent of Ontarians and calling for the HST to not be implemented until after the next provincial election, McGuinty quickly backtracked on his handshake deal.

This is the third time in a week that the McGuinty Liberals have been caught playing dirty political tricks with Ontario's democratic rules. Previously the Liberals were caught leaking confidential legislative information as part of an unprecedented smear campaign against Ontario Ombudsman Andre Marin and blocking Opposition MPPs from taking their seats on Budget Day.

    QUOTES:

    "Dalton McGuinty would rather break yet another promise than permit his
    own MPPs to vote on delaying the HST. These are clearly the desperate
    tactics of a desperate man."
    -- Lisa MacLeod, Ontario PC MPP for Nepean - Carleton and critic for
       Revenue and Accountability

    "It is hard to work in good faith with people who are so quick to break
    their promises and betray their commitments."
    -- John Yakabuski, Ontario PC MPP for Renfrew Nipissing Pembroke and
       Opposition House Leader

    QUICK FACTS:

      -  The Ontario PC Motion that Dalton McGuinty broke his promise to kill
         reads as follows:

         "That, in light of Premier McGuinty telling Ontario families the HST
         will be revenue-neutral when he knew all along "there will be an
         increase in taxation" as a result of it; the Legislative Assembly of
         Ontario calls upon the McGuinty government to delay implementation
         of the HST until a date following the next provincial general
         election."

For further information: Christine Bujold, (416) 325-8505, christine.bujold@pc.ola.org

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CTV Ottawa is reporting that Ontario P.C. MPP Lisa MacLeod has put forward an Opposition motion (which will be heard on Wednesday May 19th) to delay implementation of the harmonized sales tax (HST) on July 1, 2010.  Ontario's Progressive Conservatives have managed to set up a vote in the Ontario Legislature next week on the looming HST. The motion that would postpone the HST's scheduled July 1 implementation until after "the Liberals have a mandate from the people," which would mean at least until the October 2011 provincial election.

In the end, the motion is non-binding.  This means that McGuinty can ignore the result if the motion passes with the help of some of his own MPPs.

This is an opportunity for the McGuinty Government to claim that the feds are not ready and a delay is the appropriate thing for Ontario to do. 

I acknowledge that all of this is very unlikely.  But I give a big kudos to Ms. MacLeod for the effort.

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