The HST Blog

What are the Typical Steps in a Tax Court of Canada Appeal?

Cyndee Todgham Cherniak — Thu, 04 Apr 2013 05:44:02 -0500

Most Canadians know about the Tax Court of Canada, but are not aware of the typical steps in a GST/HST appeal proceeding before the Tax Court of Canada. The following is a list of the typical steps in an appeal under the general procedure rules (which is different than an informal procedure appeal - but similar):

1. The Notice of Appeal: The taxpayer (called the Appellant in the appeal) commences an appeal by filing with the Tax Court of Canada a Notice of Appeal and paying the applicable filing fee. The Tax Court of Canada Rules sets out what must be in a Notice of Appeal.

2. Service of the Notice of Appeal: The Appellant files the Notice of Appeal with the Tax Court of Canada and provides 2 copies of the Notice of Appeal. If the Appellant would like a stamped copy, they provide three copies. The Tax Court of Canada serves the Department of Justice (the Department of Justice provides lawyers to Crown Agencies, such as the Canada Revenue Agency and defends the appeal).

3. The Reply: The Department of Justice must file with the Tax Court of Canada the Canada Revenue Agency's reply within 60 days after service of the Notice of Appeal and serve it on the Appellant within 5 days after the 60 day deadline. The Reply must set out information required by the Tax Court of Canada Rules. Generally speaking, the Reply sets out which facts in the Notice of Appeal that the CRA admits, which facts in the Notice of Appeal that the CRA denies, which facts in the Notice of Appeal that the CRA claims no knowledge and the CRA's facts and assumptions that for the basis of the assessment.

4. The Answer: The Appellant has 30 days after service of the Reply to file with the Tax Court of Canada the Answer. It is not mandatory to file an Answer. The Answer identifies new facts that must be provided in light of the Reply by the CRA. The Answer must set out the information required by the Tax Court of Canada Rules. Generally speaking, the Answer sets out which facts in the Reply that the Appellant admits, which facts in the Reply that the Appellant denies, which facts in the Reply that the Appellant claims no knowledge and additional relevant facts that will be put forth by the Appellant in the proceedings. If an Appellant does not file an Answer, then he/she/it is deemed to deny all the allegations of fact put forward in the Reply.

5. List of Documents: Both the Appellant and the CRA file and serve a list of relevant documents within 30 days of the close of pleadings. In practice, the exchange of lists of documents may take longer. The list of documents is a list and not the documents themselves. Both the Appellant and the Respondent prepare a list of all relevant documents known to the party at the time which may be used in the proceedings as evidence by the party. Either side may later ask for the production of any document listed. In practice, the Appellant will review the Respondent's List of Documents and ask for the production of documents that are not contained on the Appellant's List of Documents. The same holds true for the Respondent.

6. Examinations for Discovery: Both the Appellant and the Respondent (the CRA) are entitled to ask questions to discover the what testimony may be provided in the case 9and to attempt to narrow the issues to be decided in the case). Often the Department of Justice asks to examine the Appellant (if an individual) or the key personnel (if the Appellant is a business entity). Sometimes accountants and advisors are examined. The Appellant may examine the auditor, the CRA's appraiser, an appeals officer or another relevant person. A court reporter records the examination if it is in oral form. Sometimes the examination may proceed by way of written questions. The testimony is given under oath. There is no timeline for the examinations for discovery.

7. Undertakings: During the examination for discovery, a party may not be able to answer a question or a document may be discussed that has not been exchanged. The examiner will ask for an undertaking for the answer to be provided in writing or a document be provided. A list of Undertakings is exchanged shortly after the examination for discoveries.

8. Motions and Questions Presented to the Court: Sometimes examinations for discovery may be frustrated by refusals to answer questions and legal issues arising. When problems arise in the process, they are generally dealt with my a motion to the Tax Court.

9. Hearing Date Application: The Appellant and the Respondent jointly apply for a hearing date to be set after the examination for discoveries and the satisfaction of undertakings has occurred. The parties must indicate the number of days that will be required for the hearing, In practice, the parties discuss lists of witnesses and a litigation plan is created by the Appellant's counsel. Calculating the number of days required for a hearing is not a science, but the litigation plan helps.

10. Pre-hearing Conference and Pre-Hearing Conference Brief: After the hearing date has been set, the Tax Court of Canada may set a pre-hearing conference date (or the parties may apply to the Tax Court for a pre-hearing conference). A judge will preside over the pre-hearing conference, but that judge will not ultimately hear the case. The purpose of the pre-hearing conference is to narrow the issues.Often the pre-hearing conference judge will give a first impression of the evidence and this may lead to a settlement because the weaknesses of the case are discussed. The Appellant provides a short Pre-Hearing Conference Brief in connection with the pre-hearing conference setting out the issues, the Appellant's theory of the case and propositions of law to be relied upon at the hearing. Where the parties have requested more than three days for the hearing, the Court may discuss the scheduling of the hearing in order to reduce the number of days needed for the proceeding.

11. Hearing: This is the big event. The witnesses testify and the arguments are presented. The Appellant and the Respondent will be required to file documents and books of authorities and detailed arguments prior to the hearing. During this time, settlement discussions may occur.

In addition to the above steps, there may be motions (e.g., the Department of Justice may ask the Court to strike parts of the Appellant's proceedings, the Appellant may ask the Court to strike parts of the Respondent's proceedings, either may bring jurisdictional questions to to the court, either may bring a motion to compel production of certain documents, etc) and request examinations of non-parties. Litigation may take many twists and turns.

The Cost of Paid Parking in a PSB Lot Just Became More Expensive In Canada

Cyndee Todgham Cherniak — Wed, 03 Apr 2013 05:36:50 -0500

The 2013 Federal Budget in Canada closed a perceived loophole in respect of GST/HST on parking in a PSB lot. PSB stands for "public service body" and covers municipalities, governments, universities, public colleges, school authorities, hospital authorities, charities and non-profit organizations (also known as the MUSH sector).

Many of these PSBs offer parking to the public. Anyone who visits a sick child or family/friends in the hospital knows that a hospital offers parking (and it is quite expensive). Many PSBs have structured their offering of paid parking such that they do not remit GST/HST from the amounts collected for such parking. This paid parking was treated as exempt for GST/HST purposes.

The 2013 Federal Budget attempts to even the playing field between commercial paid parking lots (GST/HST taxable) and PSB parking lots (often treated as GST/HST exempt). The 2013 Budget proposal for parking includes the following rules:

Rule 1: If a PSB offers paid parking on a regular basis, it will be subject to GST/HST;

Rule 2: Notwithstanding Rule 1, if a charity (that is not a municipality, university, public college, school or hospital authority) offers parking, it may still be exempt;

Rule 3: If a charity that is also a municipality, university, public college, school or hospital authority, offers paid parking to the public that is supplied by the charity for the municipality, university, public college, school or hospital authority, the paid parking will be subject to GST/HST; and

4) If a PSB offers property and services free of charge or if 90% or more of their supplies are made free of charge, then occasional paid parking (e.g., a special event parking) will not be subject to GST/HST.

There are 2 implementation dates for the new rules. Paid parking will be subject to GST/HST with respect to supplies made after March 21, 2013. However, Rules 2, 3 and 4 may be applied retroactively to the implementation of GST and/or implementation of HST in a participating province (subject to statutory limitation periods). In other words, the CRA may retroactively assess PSBs in respect to their supplies of paid parking in certain cases.

These changes have been developed by the CRA to close a perceived loophole in the legislation. The Department of Finance has included the proposed amendments in the 2013 Ways & Means that accompany the 2013 Budget. There are paid parking suppliers that the CRA is targeting with the proposed retroactive amendments. Regardless of whether a particular PSB is being targeted, they must quickly restructure their parking related activities because the effective date.

If You Use Zapper Software, You May Shocked By New GST/HST AMPs

Cyndee Todgham Cherniak — Tue, 02 Apr 2013 05:02:23 -0500

The March 21, 2013 Federal Budget in Canada announced new administrative monetary penalties (AMPs) and criminal offences under the Excise Tax Act (Canada) for:

(1) the use of Electronic Suppression of Sales (ESS) software;

(2) the possession or acquisition of ESS software; and/or

(3) the manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software.

ESS software is also known as "zapper" software because it hides sales transactions, thereby allowing vendors to under-state sales and evade payment of GST/HST and income taxes. This has been a hot audit topic for a number of years and the Department of Finance is giving the Canada Revenue Agency (CRA) new tools to rid Canada of zapper software.

The AMPS penalties will shock the vendors who use ESS software or possess or acquire ESS software. Vendors who use ESS software may be assessed an AMPs penalty in the amount of $5,000 for the first infraction and $50,000 on any subsequent infraction. Vendors who possess or acquire ESS software may be assessed an AMPs penalty in the amount of $5,000 for the first infraction and $50,000 on any subsequent infraction. These two AMPs penalties go hand-in-hand because a vendor who acquires or possesses ESS software is also likely to use it. Both AMPs penalties can be imposed against the same vendor. Also, if the CRA issues a first level AMPs penalty, it will also require the ESS software to be removed from the computer. If ESS software is subsequently discovered in a new audit, it is likely second level AMPs will be imposed. It may be possible that the CRA will interpret the AMPs penalties on a per transaction basis because the penalties may be imposed on a per infraction basis.

Businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale will receive higher voltage AMPs. The AMPS penalty for a first infraction is $10,000 and $100,000 for any subsequent infraction. This AMPs penalty aims to end the supply of ESS software in Canada.

There is a limited due diligence defense available for vendors who acquire and possess ESS software and businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale. The due diligence defence will generally require a person to show that exercised the degree of care, diligence and skill to prevent the contravention with respect to ESS software that a reasonably prudent person would have used in comparable circumstances. There may be cases where the person has attempted to ensure that they do not have ESS software and it has been installed on their computers. There may be a bug in a computer program that disrupts the sales records, but it was not intended.

In addition to the AMPs penalties, businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale may also be subject to criminal sanctions. The potential fines are as low as $10,000 (in addition to the AMPs penalties) and as high as $1,000,000 and/or imprisonment of up to 5 years or both.

These new AMPs penalties and criminal sanctions will take effect January 1, 2014. Given the time before implementation, it may be prudent to spend money on an IT check-up (it will likely cost less than a first level AMP).

Candian Sales Tax Rates Chart (As at April 1, 2013)

Cyndee Todgham Cherniak — Mon, 01 Apr 2013 08:28:38 -0500

Canadian Sales Tax Rates Chart
As at March 1, 2013

Province/Territory	Provincial Sales Tax	GST/HST Rate	GST Included in PST Tax Base	Combined Rate
British Columbia	7%	5%	No	12%
Alberta	Nil	5%	N/A	5%
Saskatchewan	5%	5%	No	10%
Manitoba	7%	5%	No	12%
Ontario	N/A	13%	N/A	13%
Quebec	N/A	14.975%	N/A	14.975%
New Brunswick	N/A	13%	N/A	13%
Nova Scotia	N/A	15%	N/A	15%
Newfoundland/Labrador	N/A	13%	N/A	13%
Prince Edward Island	N/A	14%	No	14%
Northwest Territories	Nil	5%	N/A	5%
Yukon	Nil	5%	N/A	5%
Nunavut	Nil	5%	N/A	5%

The Divorce is Official: British Columbia Is A Single Stage Sales Tax Province Again

Cyndee Todgham Cherniak — Mon, 01 Apr 2013 00:00:01 -0500

1005 days ago, the British Columbia and federal sales tax systems joined in a value-added tax union called Harmonized Sales Tax or HST. It was not long before the strains of the union started to show. It was not a match made in heaven (it was politically motivated - never a good starting point). Some say they was also outside interference in the relationship (Bill Vader Zalm did not wish this union to succeed). With the outcome of the 2011 referendum, separation was certain. In the months following the referendum, the steps to legally separate have been undertaken. On April 1, 2013, the divorce has become official. British Columbia sales tax has returned to being a single staged sales tax (a retail sales tax).

1005 days is not particularly long - but it is not as short as some Hollywood marriages:

Kim Kardashian's and Kris Humphries' marriage lasted 72 days (but the divorce proceedings are taking time - so, technically the marriage may last for longer than the HST - TBD);
Britney Spears' and Jason Alexander's marriage lasted only 55 hours;
Pamela Anderson's and Cris Rock's lasted 102 days; and
Elisabeth Taylor's and Conrad "Nicky" Hilton's marriage lasted 9 months.

Elizabeth Taylor married 8 times (twice to Richard Burton and the second marriage was 16 months after the couple divorced) - so their is hope that after a passage of time, another attempt at a harmonized sales tax in British Columbia may transpire.

This love/hate relationship will continue for some time. Chapters of this story are yet to be written - check back from time to time.

MUSH Sector Rebate Rates (As at April 1, 2013)

Cyndee Todgham Cherniak — Sun, 31 Mar 2013 14:18:45 -0500

A registrant/non-registrant for GST/HST purposes which makes exempt supplies will not be entitled to claim input tax credits (unless the entity also makes taxable supplies). Some entities are not entitled to claim any rebates of the GST/HST paid on business inputs. The MUSH sector may or may not be entitled to claim a rebate depending on the province in which the entity is located.

I have promised to share my MUSH sector rebate chart.This chart highlights many important problems for the MUSH sector.

MUSH Sector Entities	GST Portion Rebate	HST Portion Rebate - Ontario	HST Portion Rebate - Quebec	HST Portion Rebate - BC	HST Portion Rebate - NS	HST Portion Rebate - NB	HST Portion Rebate - Nfld	HST Portion Rebate - PEI
Municipalities	100%	78%	0%	0%	57.14%	57.14%	No rebate	No rebate
Hospitals	83%	87%	51.5%	0%	83%	No rebate	No rebate	No rebate
Facility Operators	83%	87%	51.5%	0%	50%	50%	No rebate	No rebate
School Authorities	68%	93%	47%	0%	68%	No rebate	No rebate	No rebate
Universities & Public Colleges	67%	78%	47%	0%	67%	No rebate	No rebate	No rebate
Charities	50%	82%	50%	0%	50%	50%	50%	35%
Qualifying Not-for-Profits	50%	82%	50%	0%	50%	50%	50%	35%

1. The lack of significant rebates for hospitals in Prince Edward Island, Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable health care costs.

2. The lack of significant rebates for school authorities and universities and colleges in Prince Edward Island, Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable education costs.

3. Nova Scotia was able to relieve some of its budget pressures when it signed a CITCA.

4, British Columbia has de-harmonized and for that reason the provincial portion is shown as 0%.

5. For Ontario, the effective unrecoverable GST/HST rates (what the entity will not be able to recover by way of a rebate) in respect of purchases for use in exempt activities are:

MUSH Sector Entity	Effective GST/HST Rate after Rebate
Municipalities	1.76%
Hospitals	1.89%
School Authorities	2.16%
Universities and Colleges	3.41%
Charities	3.94%
Qualifying Not-For-Profits	3.94%

Canadian Lawyers May Need The BC PST "Application For Clearance" Re Transactions Closing After April 1, 2013

Cyndee Todgham Cherniak — Sat, 30 Mar 2013 06:14:47 -0500

When a business sells its assets by way for a sale in bulk (or the Bulk Sales Act applies), it does not do so in the normal course of its business. Usually, one of the preconditions to closing a transaction (one of the vendor closing documents in an asset purchase) is a certification from the provincial sales tax authorities to the vendor that all provincial sales taxes have been paid or arrangement have been made by the vendor to pay the taxes. The vendor provides this certification to the purchaser. When this certification is provided, the provincial sales tax authorities cannot pursue the purchaser for the unpaid provincial sales taxes of the vendor. When this certification is not obtained, the provincial sales tax authorities may pursue the purchaser for the unpaid sales taxes of the vendor.

If an asset purchase transaction involves or includes assets located in British Columbia on the closing date, it may be necessary to obtain a clearance certificate from British Columbia.

The BC Ministry of Finance released FIN 447 "Application for Certification" on March 28, 2013. Vendors use this form to submit their application for a certificate. It may be completed to cover provincial sales taxes and other provincial indirect/commodity taxes (such as tobacco tax, motor fuel tax, carbon tax, social service tax, and hotel room tax).

What is most interesting about this form is that the lawyers for the purchaser may file the form (previously, the lawyers for the vendor were the the party who requested the clearance certificate and could not control the delivery). While the vendor (person whose tax records are to be searched) must sign the form giving authorization for the search, the purchaser may be the submitter of the form and the party receiving the information.

Everybody's Working For the Week-End (in BC)

Cyndee Todgham Cherniak — Fri, 29 Mar 2013 15:52:13 -0500

April 1, 2013 is only 3 days away - so, everybody in British Columbia is working Easter week-end to get ready. The government bureaucrats are working hard releasing publications on returning to British Columbia provincial sales tax (BC PST). Business owners are busy reading the new publications and making systems changes to ensure compliance by Monday morning at midnight.

On March 28, 2013, the following forms and publications were released:

Bulletin MFT 014 " Propane Exemptions"
PST Bulletin 203 "Energy and Energy Conservation"
PST Bulletin 106 "Legal Services" (Updated)
Bulletin CTB 007 "Exemption For Members of Diplomatic and Consular Corps"
PST Bulletin 102 "Commercial Fishers"
PST and MRDT Guide for Accommodation Providers
Notice 2013-007 "Notice to Fuel Sellers and Purchasers"
Notice 2013-005 "Notice to Vehicle Licensing Companies"
FIN 262 "Application for Registration as an Exempt Sale Retail Dealer (ESRD) and/or Exempt Fuel Retailer"
FIN 319 "Gift of a Vehicle"
FIN 355 "Application for a Refund - General (PST)"
FIN 355 MV "Application for a Refund of Provincial Sales Tax (PST) Paid on a Motor Vehicle"
FIN 355/Schedule "Refund Claim Schedule PST"
FIN 400 "Provincial Sales Tax Return"
FIN 401 "Municipal and Regional District Tax Return"
FIN 407 "Provincial Sales Tax (PST) Schedule - Boats and Aircraft"
FIN 477 "Application for Clearance"

Why Are There So Many Tax Changes Coming Into Effect April 1?

Cyndee Todgham Cherniak — Fri, 29 Mar 2013 07:12:24 -0500

There are many tax changes coming into effect on April 1 of each year. Is it an April Fool's joke? No - the Government of Canada's year end is March 31 (the fiscal year runs April 1 - March 31). The same holds true for the provinces. Tax changes are often implemented to start at the beginning of the government's new fiscal year.

This is why British Columbia de-harmonization occurs on April 1, 2013 and it is no longer an HST participating province. Prince Edward Island becomes an HST participating province on April 1, 2013. The Government of Quebec must start to pay HST on its purchases starting on April 1, 2013 (did not start on the January 1, 2013 harmonization date). Many of the measures in the 2013 Budget take effect either budget day or April 1.

This is why so many government budgets are released in the month of March every year. Even the provinces implement many changes to taxes on April 1. For example, the government of Ontario (via Ontario Tire Stewardship) is implementing increases (and decreases) on April 1, 2013. Ontario Electronics Stewardship Fees change on May 1, 2013 (for something a little different).

Hidden In 2013 Budget Is A Potential Problem For Businesses

Cyndee Todgham Cherniak — Tue, 26 Mar 2013 08:32:23 -0500

On March 21, 2013, the Government of Canada tabled the 2013 Budget. GST/HST does not receive much attention. One of the sleeper issues is the new authority given to the Canada Revenue Agency to withhold GST/HST refunds claimed by businesses if certain information is not provided to the CRA.

The Notice of Ways and Means contains the following:

Section 229 of the [Excise Tax Act] is amended by adding the following after subsection (2):

(2.1) The Ministry is not required to pay a net tax refund under subsection (1) to a person that is a registrant unless the Minister is satisfied that all information, that is contact information or that relates to the identification and business activities of the person, to be given by the person on the application for registration made by the person under section 240 has been provided and is accurate."

This provision has been added based on net refund frauds that have occurred. In the past, a small number of people have incorporated companies, obtained a GST/HST number, applied for a net refund (to which they were not entitled), received a refund cheque, and disappeared before the CRA knew they had been scammed. There are serial offenders who have done this over and over again and this takes taxpayer money out of the system. This is wrong and it needed to be stopped.

However, the powers given to the Minister/CRA (drafted by the CRA for the Department of Finance) are very broad. A CRA auditor can use this power against law abiding businesses too. That is the concern I am raising. An auditor can say he/she does not believe that the information provided is correct or complete and withhold a needed refund. The business may provide accurate information and there may be a disagreement.

It is also not clear whether this provision may be utilized by an auditor say 3 years after registration (so you are not dealing with the rogues who create a number of dummy companies to obtain net GST/HST refunds). Can a net GST/HST refund be withheld in circumstances where the current information is different than the original information provided with the GST/HST registration? If the directors change, Can a GST/HST net refund b withheld because the information is different than on the original form? Can a GST/HST net refund be withheld if the year end changes (even where the CRA is informed of those changes for income tax purposes)? Can a GST/HST net refund be withheld if a business evolves and the product offerings change (such that the original information is not the best answer)? Can a GST/HST net refund be withheld if the estimates of taxable sales is wrong (business is better or worse than what was estimated prior to business activities starting)?

Also, it should be noted that it is not necessary to actually fill out a GST/HST registration application. The CRA's process has evolved to the point that a corporation is incorporated and a business number is automatically sent in the mail within a few weeks. A director of the business may telephone the CRA to open a GST/HST account without completing a written form and sending it in.

The British Columbia PST Exemption Forms Help Auditors And Create Identify Theft & Other Risks For Buyers

Cyndee Todgham Cherniak — Mon, 25 Mar 2013 08:07:23 -0500

In the week of March 18, 2013, The British Columbia Ministry of Finance released the following 3 exemption certificate forms:

The instructions on each of these forms is that the vendor must collect the information from the buyer or the vendor must collect PST. What this means that the information must be provided by the buyer or they must pay PST.

Looking at FIN 425 "Certificate of Exemption - Children's Clothing and Footwear", parents/grandparents (purchasers of children's clothing) must provide their name, address and telephone number to the retail clerk in order to benefit from the exemption contained in the law. Forms must be competed and any number of people may access the information provided. I am not suggesting that all retail locations are dishonest - not in the least. There are elements in society who are dishonest and they may put themselves in a position to obtain this information. If the buyer of the children's clothing pays by credit card (and isn't that usually the case?), the retail clerk would have a person's credit card number, name, address, telephone number and security code from the back of the credit card. What more will they need to engage in illegal activities for quick gain?

Businesses and consumers are at the mercy of telemarketers. All three exemption certificates require a telephone number to be provided. Names, addresses and telephone numbers can be added to marketing lists.

Finally, businesses must provide their PST number. While this is understandable, how does a business prevent another person from using the information in order to make exempt purchases. Based on experience from old Ontario RST days, it was common to see bar staff using ORST numbers to purchase alcohol for home party consumption.

It is understandable that the Ministry of Finance wants to be able to audit the use of purchase exemption certificates. The government wants to protect the tax base. However, the people planning PST re-implementation should ask about protecting the people too. In my humble opinion, the exemption certificate forms are not balanced to protect buyers and this is a problem. The quick retort that if a buyer wants to benefit from an exemption they should be willing to take the risk is not acceptable. A person who is buying children's clothing should not be put in a position that they must pay PST or accept identity theft risk.

Lawyers Receive Revised PST Guidance from British Columbia

Cyndee Todgham Cherniak — Sun, 24 Mar 2013 08:28:19 -0500

On March 19, 2013, British Columbia issued revised PST Bulletin 106 "Legal Services", which provides guidance to lawyers about the new provincial sales tax ( BC PST) rules for lawyers and law firms. Under the new BC PST rules for lawyers, legal services are subject to BC PST at a rate of 7%. This does not give much time to get ready and may cause some concern with respect to transactions not completed before April 1st (this may be a busy week for lawyers).

PST Bulletin 106 "Legal Services" is only three pages in length and provides limited guidance. That being said, it raises a few red flags for law firms outside of British Columbia. For example, PST indicates that legal services provided by any law firm with respect to "acting as legal counsel in negotiations, including settling terms of a business purchased in BC", are subject to the new BC PST. This could translate into exposure of lawyers and law firms outside British Columbia who act in a national sale of a business, including assets in British Columbia. There is an audit risk for failure to register for BC PST purposes and failure to collect BC PST with respect to legal fees. By the way, the bundling rules in the Provincial Sales Tax Act (British Columbia) add to the value of the risk because the auditors may try to argue tax is payable on the legal fees for the non-BC components of such a national/multi-provincial transaction.

PST Bulletin 106 "Legal Services" contains a short (but broad) list of legal services provided outside British Columbia that are considered to be subject to BC PST. The list of legal services outside BC that are subject to BC PST includes the following (provided that a specific exemption does not apply):

legal services that relate to real property situated in BC
legal services that relate to tangible personal property that is ordinarily situated or brought into BC
legal services that relate to the ownership, possession or right to use any other property in BC
legal services that relate to a court or administrative proceeding in BC
legal services that relate to the incorporation of a company under the Business Corporations Act or Societies Act
legal services that relate to the registration of an extra-provincial company or society under the Business Corporations Act or Societies Act
legal services that relate to the interpretation or application of an enactment as defined in the Interpretation Act, or a former or proposed such amendment
legal services that relate to a contract or covenant (or the contemplation of a contract or a covenant) related to a physical or legal presence, activity or transaction in BC, or the contemplation thereof
legal services that relate to the interpretation or application of any enactment, or a former or proposed enactment of any jurisdiction, or the analysis or application of any law, if it relates to
- a physical or legal presence in BC
- any activity or transaction in BC
- the contemplation of a presence, activity or transaction in BC
any other matter that relates to BC

Auditors have wide discretion take the position that they may assess a lawyer/law firm outside British Columbia under administrative policy or statutory provisions. Canadian lawyers and law firms are at risk, as well as U.S. lawyers and law firms and lawyers/law firms outside North America.

Farmers Receive Guidance From British Columbia on New PST Regime

Cyndee Todgham Cherniak — Sat, 23 Mar 2013 07:45:50 -0500

On March 22, 2013 (a week before the re-implementation of provincial sales tax in British Columbia), the Ministry of Finance issued PST Bulletin 101 "Farmers". Old MacDonald has some guidance, but is it helpful enough?

The good news for farmers is that they have a bulletin. The bad news is it is 19 pages to read, digest, synthesize and implement in one week, The good news is that half of the pages are lists of exempt sales and taxable sales. The bad news is that March 21 is a date many farmers start to prepare fields, orchards and farms for spring planting and start the business cycle - they do not have a lot of extra time like they did after harvest ended in Fall 2012.

As for content, PST bulletins are helpful. PST Bulletin 101 "Farmers" does contain good lists and some thought and effort went into the preparation of the lists. However, there is not much guidance on when the BC auditors will deny the exemption on the basis that the purchase is not "solely for farm purposes".

Not all the answers farmers require are contained in PST Bulletin 101 "Farmers". Farmers may have to review other Bulletins, such as PST Bulletin 002 "Charging, Collecting and Remitting PST", PST Bulletin 301 "Related Services", PST Bulletin 103 "Aquaculturists" (which is currently not released), Bulletin PST 110 "Production Equipment and Machinery Exemption" (which is currently not released), Bulletin PST 305 "Containers, Labels and Packaging Materials" (which is currently not released), and PST Bulletin 314 'Exemptions for First Nations" (which is currently not released) to name a few (not all).

Farmers may apply for an exemption card to show at the time of a purchase of exempt goods and/or services. Farmers must apply for the exemption card using Certificate of Exemption - Farmers Form (FIN 458) (however, it is currently not released). In the meantime (and after re-implementation), farmers may use their BC Farmer Identity Card. Farmers who do not have a BC Farmer Identify Card may apply for one from the Ministry of Agriculture Council. In light of the fact that PST re-implementation is April 1, 2013 and only one week away, it is unlikely that a farmer without a card will be able to receive one before April 1. This is unfortunate in light of the fact that re-implementation coincides with the planting season.

That being said, the supplier is able to provide a refund of the PST paid within 180 days of the purchase if the documentation is subsequently provided. However, retailers will need to have the ability to document refunds and expose themselves to assessments for making errors. This is not an ideal situation for retailers.

Farmers may also seek from the BC Ministry of Finance refunds of PST paid in error or paid due to inadequate documentation to support a point of sale exemption. There will be a form (FIN 355/FAF), but it is currently not yet released.

British Columbia Ministry of Finance Releases FIN 492 Certificate of Exemption - Production Machinery and Equipment

Cyndee Todgham Cherniak — Thu, 21 Mar 2013 08:26:27 -0500

On March 20, 2013, the British Columbia Ministry of Finance released form FIN 492 "Certificate of Exemption - Production Machinery and Equipment". Either my computer download capabilities are a not working properly or there is a problem with the form (or it is my eyes after too much reading of PST legislation).

The Certificate of Exemption is a purchase exemption certificate. Businesses that may purchase exempt manufacturing and production machinery and equipment use this form when seeking a point of sale exemption or a blanket exemption and the vendor keeps the form on file. This purchase exemption certificate is different than the FIN 490 - Certificate of Exemption - General, which is to be used by businesses to purchase goods that are exempt for the purposes of resale or incorporation into goods for resale (or any other reason except it is production machinery and equipment). I am not sure why there is the need for two separate forms (and why a few more potential boxes to check cannot be added to one form). The two separate forms may give rise to confusion and assessment risk for vendors for having the wrong form completed.

Documentation of exempt of exempt transactions used to be a hot audit topic under the old PST regimes in British Columbia and Ontario. Auditors would ask for the documentation and the vendor under audit would look or seek forms from their buyers/customers. In many cases, it was not possible to satisfy the auditor and the vendor was assessed a penalty for failure to collect PST. I recommend that businesses keep a folder of the forms for buyers to complete (please note that individual names are scrutinized as opposed to business names and forms without a PST number of the buyer are also scrutinzed by auditors). I recommend that all completed forms be scanned and saved in computerized records - this was an electronic folder can be used as a back-up (do not throw out the completed forms because an auditor may demand the original).

A Judicial Review Of A CRA Administrative Decision Is An Option

Cyndee Todgham Cherniak — Mon, 18 Mar 2013 08:06:16 -0500

A taxpayer recently succeeded in a judicial review of a Canada Revenue Agency decision to deny taxpayer relief (that is, a cancellation of a penalty). On February 27, 2013, the Federal Court of Appeal sided with the taxpayer in NRT Technology Corp. v. Attorney General of Canada, 2013 FC 200. The case is against the Attorney General of Canada and not the Canada Revenue Agency because the government department cannot defend itself in a judicial review - the Attorney General is the respondent if an interested party does not participate.

In short, the CRA assessed NRT Technology a penalty (a significant amount) for failure to remit payroll taxes on time (even though this is a payroll tax case, the principles would apply in the case of GST/HST). NRT Technology applied for taxpayer relief (that is, a cancellation of the penalty) and the CRA denied the request.

The starting point is the CRA has wide discretion to waive penalties and interest and, thereby, grant a taxpayer relief. In this case, the CRA took the position that NRT Technology failed to act quickly to remedy the error. The remittance was due on or before March 3, 2006 and NRT Technology remitted the amount on March 14, 2006 (without prompting by the CRA and operating under the mistaken belief the remittance was due on March 15, 2006). By the time the CRA realized that an error was made (in April 2006), the remittance had already been made by NRT Technology. Do you see the potential to extend this decision in the case of GST/HST filing deadlines?

The Federal Court of Appeal found the CRA's stated reasons for denying the relief to be unreasonable. The Federal Court of Appeal found that the reason was inconsistent with the evidence.

Some tax practitioners would have considered the CRA letter to be perfunctory. The usual reasons to deny the relief requested were being provided again. Some may have referred to the letter as "standard form". However, each taxpayer who is assessed deserves consideration. If evidence is presented to the CRA in the taxpayer relief process, it should be carefully considered and weighed. If a negative response does not appear to consider the evidence presented, then a judicial review may be warranted.

One cautionary note - judicial reviews can be expensive in terms of legal fees and taxpayers should consider this option when the amount of relief at issue warrants the expenditure. The Federal Court of Appeal is often deferential to the government decision-maker and success in a judicial review is not guaranteed. That being said, the NRT Technology case gives taxpayers hope that they will get a fair hearing by the Federal Court of Appeal.

Canadian Sales Tax Rates (as at March 1, 2013)

Cyndee Todgham Cherniak — Sun, 17 Mar 2013 11:35:04 -0500

Canadian Sales Tax Rates Chart
As at March 1, 2013

Province/Territory	Provincial Sales Tax	GST/HST Rate	GST Included in PST Tax Base	Combined Rate
British Columbia	N/A[1]	12%[2]	N/A	12%
Alberta	Nil	5%	N/A	5%
Saskatchewan	5%	5%	No	10%
Manitoba	7%	5%	No	12%
Ontario	N/A	13%	N/A	13%
Quebec	9.975%[3]	5%	N/A	14.975%
New Brunswick	N/A	13%	N/A	13%
Nova Scotia	N/A	15%	N/A	15%
Newfoundland/Labrador	N/A	13%	N/A	13%
Prince Edward Island	10%[6]	5%[7]	Yes[8]	15.5%[9]
Northwest Territories	Nil	5%	N/A	5%
Yukon	Nil	5%	N/A	5%
Nunavut	Nil	5%	N/A	5%

[1] British Columbia will reinstate provincial sales tax on April 1, 2013 at a rate of 7%

[2] On April 1, 2013, the GST/HST rate will decrease to 5% because British Columbia is de-harmonizing

[3] Quebec harmonized with GST on January 1, 2013.

[4] On January 1, 2013, the Amended QST, GST rate will be 14.975%

[5] Starting January 1, 2013 there will no longer be tax on tax

[6] Prince Edward Island will harmonize with GST on April 1, 2013. The proposed rate will be 14%.

[7] Prince Edward Island will harmonize with the GST on April 1, 2013 and impose HST at the rate of 14%

[8] Starting on April 1, 2013, there will no longer be tax on tax

[9] Will reduce to 14% on April 1, 2013

List of British Columbia PST Publications (as at March 15, 2013)

Cyndee Todgham Cherniak — Sat, 16 Mar 2013 08:09:48 -0500

On April 1, 2013, British Columbia will no longer be an HST (harmonized sales tax) province and will be a PST (provincial sales tax) province again. The publications that have been issued so far to assist vendors and buyers are:

"What's Taxable under the PST and What's Not?"
PST Bulletin 001 "Registering to Collect Provincial Sales Tax"
PST Bulletin 002 "Charging, Collecting and Remitting PST"
PST Bulletin 100 "Safety Equipment and Protective Clothing"
PST Bulletin 113 "Manufactured Buildings"
PST Bulletin 201 "Children's Clothing and Footwear"
PST Bulletin 202 "School Supplies"
PST Bulletin 204 "Bicycles and Tricycles"
PST Bulletin 300 "Special Occasion Liquor Licenses"
PST Bulletin 301 "Related Services"
Notice 2013-002 "PST on Vehicles"
Notice 2013-003 "Real Property Contractors"
Notice 2013-004 "Vehicle Exemptions and Refunds"
Notice 2013-005
Notice 2013-006 "Notice to Sellers of Energy Products"
Notice 2013-015 "Notice to Deputy Collectors and Retail Dealers"
Notice 2013-016 "Notice to BC Wholesale Dealers: New Tobacco Tax Rates"
Notice 2012-009 "Notice to Liquor Vendors: BC Returns to PST on April 1, 2013"
Notice 2012-010 "General Transition Rules for the Re-implementation of the Provincial Sales Tax"
Notice 2012-011 "Purchases of tangible Personal Property (Goods) in British Columbia"
Notice 2012-012 "Leases of Tangible Personal Property (Goods)"
Notice 2012-013 "Tangible Personal Property (Goods) Brought Into British Columbia"
Notice 2012-014 "Legal Services"
Notice 2012-015 "Propane Purchasers and Sellers"
Notice 2012-017 "Notice to the Restaurant Industry"
Notice 2012-018 "Telecommunication Services"
Notice 2012-019 "Notice to Tobacco Retail Dealers"
Notice 2012-021 "Notice to Tobacco Wholesale Dealers"
Notice 2012-022 "Accommodation"
Notice 2012-023 "Municipal and Regional District Tax"
Notice 2012-024 "Software"

More bulletins and notices will undoubtedly be published. Also, please note that any notice of publication is subject to change without notice.

The blanks above mean that a document has not been published yet. I know, there are 14 days until April 1st. Maybe the Ministry of Finance is working overtime to get the publications ready.

Request For Taxpayer Relief - How Do You Spell R-E-L-I-E-F?

Cyndee Todgham Cherniak — Thu, 14 Mar 2013 08:31:50 -0500

There is form that exists than enables a taxpayer (including a GST/HST registrant, supplier or recipient) to request GST/HST relief from the Canada Revenue Agency (often in the form of interest and penalty relief, but can include GST/HST). It is an RC4288 form. However, it is not a magic form and completing it does not necessarily mean that you are going to get the relief you seek. While the CRA has broad discretion to grant relief, they also have broad discretion to deny relief.

The CRA is working to improve its procedures for dealing with Requests for Taxpayer Relief. When a completed form is filed with the supporting documentation, the CRA should send a letter to the requester acknowledging receipt of the Request for Taxpayer Relief. The file should be assigned to a CRA officer and the taxpayer should receive requests for relevant documentation (unless a full set of relevant documents is provided with the Request for Taxpayer Relief).

If the taxpayer gets a decision that is not favourable - it happens often - then there is the ability to request an impartial review of the CRA officer's decision by the CRA (not the same CRA officer who rejected the request).

If the review procedure ends in a rejection of the requested relief, it is possible to seek a review by the Federal Court of Appeal by way of a judicial review. However, judicial reviews often are an expensive legal procedure and can cost tens of thousands of dollars (even hundreds of thousands of dollars in some cases depending on the complexity of the issues). There have been judicial review applications filed and the Federal Court of Appeal has in some cases sided with the taxpayer.

I will be honest with you - the Request for Taxpayer Relief Program can be frustrating for persons seeking relief. That does not mean it is not worth the effort and one should not try. Just know that you may feel like you are still stuck in the mud while pursuing a process that may take time.

What Happens If I Do Not Respond To A GST/HST Requirement For Information?

Cyndee Todgham Cherniak — Wed, 13 Mar 2013 08:28:31 -0500

A GST/HST Requirement For Information (called RFIs) is a demand by the Canada Revenue Agency ("CRA") for information or documents issued pursuant to section 289 of the Excise Tax Act (Canada) ("ETA"). Subsection 289(1) of the ETA provides that:

Despite any other provision of this Part, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of ... this Part, including the collection of any amount payable or remittable under this Part by any person, by notice served personally or by registered or certified mail, require that any person provide the Minister, within any reasonable time that is stipulated in the notice, with

(a) any information or additional information, including a return under this Part; or

(b) any document.

Simply put, the CRA has the authority under the ETA to request persons (including third party advisors, such as lawyers and accountants) to provide identified information and/ or documents to the CRA.

Where a Requirement For Information is sent to you for your own information, the CRA is not required to take any formal steps before sending the Requirement For Information. Where the CRA sends a Requirement for Information to a third person (e.g., a lawyer) for the information of another person (e.g., a former or existing client), the CRA must obtain a judicial authorization prior to imposing on the third person (e.g., lawyer) the Requirement for Information obligation. Subsection 289(2) of the ETA provides:

The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection (1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection [289(3) of the ETA].

The judicial authorization may be (and usually is) obtained by the Minister on an ex parte basis. This means the CRA does not have to notify the person who will receive the Requirement For Information about the steps being taken to go to the court to obtain a judicial authorization. The surprise arrived in the mail or by a smiling auditor.

If you do not respond to the Requirement For Information, the CRA may seek a compliance order from the Court pursuant to section 289.1 of the ETA. After receiving the court order, the CRA may, pursuant to section 290 of the ETA, bring an ex parte application to the Court for a search warrant and execute the search warrant to look for the documents and information. The documents and information may be seized pursuant to the search warrant if located in the location specified in the search warrrant.

If you do not provide the information required by the court order, you could be prosecuted. However, if you provide the information too quickly and without notifying the owner of the information or documents, they may bring a court action or complaint against you. For third party advisors, they may find themselves in a catch-22 situation and must walk carefully through the minefield.

Due to the manner in which a Requirement For Information may escalate, it is important to take such requests/demands seriously. You should contact a lawyer who may review whether the Requirement For Information was validly issued. There are many cases in which a particular Requirement For Information has been reviewed by the courts.

However, if the Requirement For Information is sent to a lawyer for a client's information, the documents may be subject to solicitor-client privilege. That is another topic for discussion in another post.

Can a GST/HST Registrant File a Notice of Objection On-line?

Cyndee Todgham Cherniak — Tue, 12 Mar 2013 08:15:33 -0500

The Canada Revenue Agency has started to "go electronic" and developed an e-filing system for GST/HST registrants to file GST/HST returns on-line and other documents. However, it is important to note that as of March 1, 2013, the "My Account" and "My Business Account" does not permit notices of objection to be filed on-line. To be more correct, the Excise Tax Act does not allow registrants to file notices of objection on-line. However, there are many other things that you can do using the electronic system and a list is available on-line.

Section 301 of the Excise Tax Act requires that notices of objection be filed in "the prescribed form and manner". The prescribed form is a GST Form 159. The prescribed manner is by mail and the CRA location depends upon the postal code of the registrant.

What this means is that a notice of objection may be considered to be invalid if filed on-line. The CRA has discretion to accept or not accept the notice of objection if it is not filed in the prescribed form and in the prescribed manner. It is better to anticipate the CRA will take advantage of a registrant's error.