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

This is a problem now and the problem will occur more regularly in British Columbia after the referendum results are misstated and people believe the HST should not be charged.  The answer that vendors, sellers & service providers do not want to hear is the only answer to give.

GST/HST registrants are tax collectors for the government.  They must charge, collect and remit the HST or risk an assessment plus interest and penalties.  During an audit by the Canada Revenue Agency ("CRA") will assess the registrant for failure to collect HST or a failure to remit the HST.  This means that if the vendor does not charge the purchaser HST (when he/she should), the CRA will assess the vendor.  If the vendor does charge the HST on the invoice and the buyer does not pay the HST, the vendor must remit that HST to the government with its GST/HST return for the period during which the transaction took place (regardless of whether the money was actually received).  If a vendor fails to remit HST, it will be assessed.

There are special rules for bad debts that do not apply to only the HST portion.  There are also special rules that allow a registrant (seller) to sue a recipient (vendor) for HST, however, these rules only kick in after an assessment by the CRA.

The CRA auditors will not be sympathetic when a vendor does not follow the rules.  Telling an auditor that the buyer refused to pay the HST will fall on deaf ears.  The auditors will not care that the vendor would have lost the sale and the profits related to the sale.

Vendors in British Columbia should post a sign in their shops telling buyers that HST will be collected until the transition date (currently said to be March 2013).  This includes service providers who provide in person services (such as hair salons).  Other vendors and service providers should include a statement in quotations that:

 "Harmonized Sales Tax ("HST") is payable in respect of any property or services provided prior to the date established by the Province of British Columbia and Federal Government of Canada to transition to a provincial sales tax (the "Transition Date").  HST will continue to be charged after the Transition Date if required by law.  All applicable provincial sales taxes are payable in respect of property and services provided after the Transition Date."

This statement may be added to contracts for property or services.

If a buyer does not pay the HST after the property or services are provided, the vendor may pursue the buyer in Small Claims Court or the provincial court for breach of contract.  However, in respect of point of sale refusals, the vendor will have to make a business decision whether to meet refusal with a refusal to make the sale. Service providers and restaurant owners who have provided the service and experience the refusal at the cashier are in a very difficult position and may have no other option but to call the police before the person dashes (while being careful to avoid a false imprisonment claim made against them).

In any event, document any situation where there is a refusal to pay the HST and provide as much detail as possible..  Even if an unsympathetic CRA officer will not accept the information, the Tax Court of Canada may sympathetically suggest that a remission order would be appropriate.

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There are good assessments (being nil assessments) and bad assessments (you own money to the Ministry).  This blog post is going to list the most common types of Ontario retail sales tax (ORST) assessments.  It is not a complete list of every type, but I will hit the highlights:

1. Assessment of a vendor who has collected ORST and failed to remit the ORST;

2. Assessment of a vendor a penalty for failure to collect ORST from a purchaser as required (including innocent mistakes);

3. Assessment of a purchaser who did not pay ORST to a vendor as required (even when the vendor did not ask for the ORST or honestly thought the sale was exempt);

4. Assessment of a director for the ORST liability of the corporation;

5. Assessment of a person who imports taxable goods into Ontario;

6. Assessment of a person who hires a non-resident contractor (who has not coordinated with Ontario) who builds real property in Ontario and imports building materials; 

7. Assessment of a person who over claimed a rebate or refund;

8. Assessment of a buyer of a business to which the bulk sales tax applies in circumstances where the vendor owes Ontario ORST on past activities and the buyer did not get a clearance certificate; and

9. Assessment of an assignee, liquidator, administrator, receiver, receiver-manager, secured or unsecured creditor, agent of the creditor, trustee or other like persons who distribute property or proceeds from the sale without obtaining a clearance certificate from the province and there are outstanding ORST liabilities.

Another categorization of assessments that you should be aware of are:

A) interim assessment - meaning that the auditor has guessed the amount and not finished his/her work before issuing an assessment;

B) audit summary: this is not an assessment; 

C) final assessment: this is an assessment if it is in the form of a notice of assessment; and

D) revised assessment: if an auditor issues an assessment and subsequently revises the assessment, the new assessment generally replaces the previous assessment (if it relates to the same transactions) and restarts the limitation period for filing a notice of objection.

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