What Does A Seller Do When Someone Refuses To Pay HST?
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.
Cyndee Todgham Cherniak is the founding lawyer of LexSage, a boutique international trade law and sales tax firm in Toronto,
