What is the worst GST/HST infraction?
The worst goods and services tax (GST) / harmonized sales tax (HST) infraction is collecting HST and not remitting the GST/HST to the Receiver General of Canada. The Canada Revenue Agency (CRA) considers this to be on the same level of wrongdoing as stealing the government's money. Many auditors say to registrants and non-registrants who charge HST who do not file GST/HST returns after collecting GST/HST from recipients or who file returns without the remittance cheque that they are stealing the government's money.
GST/HST is a tax on consumers or on consumption. Generally speaking, businesses do not bear the ultimate burden of the GST/HST. However, the Government of Canada relies on suppliers to collect GST/HST from recipients of taxable supplies. If a business takes advantage of the fact that they collect GST/HST and keep the government's money, the system breaks down.
This is why there is no limitation period for this type of infraction. If a person collected GST from a recipient in 2001 and did not remit it to the Receiver General, that person could be audited and assessed today. If the person is a corporation and still in business, the CRA could assess a director if the money cannot be recovered from the corporation. If the person is a corporation and no longer is in business, the CRA could assess a former director so long as the director did not cease to be a director more than 2 years ago. If the person is a partnership, the CRA may assess one or more of the partners. If the person is a sole proprietorship, the individual may be assessed.
When a supplier discovers that it collected tax and failed to remit it (for example a bookkeeper was stealing the money) over a lengthy period of time and makes a voluntary disclosure, the CRA may ask the person to go back in their records to the very beginning (at least until the start of GST or the systematic failure). The interest charges on the unremitted GST/HST can exceed the amount not remitted (I have seen theis many times).
The person who does not register for GST/HST purposes and who falsely informs recipients that they are registered, gives a false GST/HST number, and takes the GST/HST money for themselves is arguably the worst of the worst type of offender. Persons who do this may be prosecuted criminally for fraud and other GST/HST specific offences. Persons who collect GST/HST from recipients and just keep the money may also be prosecuted under the Excise Tax Act and the CRA publicly announces convictions.
Some businesses that commit this type of infraction have "good" explanations after their wrongdoing is discovered. It is not easy to convince the CRA that the decisions are not blameworthy. If you think that you will just tell the CRA a reasonable story and they will not issue an assessment for the tax not remitted plus penalties plus interest, you are living in a fantasy world. There are few very good explanations that satisfy the conditions of the fairness policy or that pass the smell test.
For this reason, if you discover (not in the context of an audit because that would be too late) that you have collected GST/HST and failed to remit it, the best course of action is to make a voluntary disclosure (not the type within the CRA's voluntary disclosure program but voluntary in that you come forward on your own initiative). If you admit your wrongdoing to the CRA (with a lawyer preferably) and pay the GST/HST collected and not previously remitted (or make arrangements to pay the amounts owed) and penalties and interest, the CRA may not pursue criminal charges. There is a risk of criminal charges even if you come forward voluntarily and that is why making a voluntary disclosure with a lawyer's assistance is prudent.
For more information, please contact Cyndee Todgham Cherniak at 416-760-8999. I am a lawyer and our discussions will be subject to solicitor-client privilege.
Cyndee Todgham Cherniak is the founding lawyer of LexSage, a boutique international trade law and sales tax firm in Toronto,
