Audit First, Pay GST/HST Tax Refunds (Much) Later
Published date | 13 November 2020 |
Subject Matter | Accounting and Audit, Tax, Audit, Sales Taxes: VAT, GST |
Law Firm | Miller Thomson LLP |
Author | Ms Colleen Ma and Molly Luu |
GST/HST registrants who commonly make zero-rated supplies often file a return claiming a net tax refund, relying on the prompt payment of that refund in order to finance their businesses. The minister is required to pay the refund "with all due dispatch" (ETA section 229). However, where the return is selected for audit prior to assessment, there is often a delay of months, or even years, while the CRA audits the return to ensure that the refund is in fact payable (perhaps appropriately for the management of the public purse). Recent attempts to compel the CRA to pay the net tax refund through a court granting a writ of mandamus have been unsuccessful, apparently because the time taken for the audit was not considered unreasonable (see Iris Technologies Inc., 2020 FC 532; aff'd 2020 FCA 117; and Express Gold Refining Ltd., 2020 FC 614). On the other hand, a mandamus application can cause the minister to assess the applicant, which at least allows the taxpayer to file of a notice of objection.
Apotex ( [1994] 1 FC 742) sets out a six-part test for a mandamus application. One notable requirement is that there be a clear right to performance of the public legal duty to act (in this context, pay the refund). This requires consideration of whether the applicant has satisfied all conditions precedent giving rise to the duty, and whether there was (1) a prior demand for performance of the duty; (2) a reasonable time to comply with the demand unless refused outright; and (3) a subsequent refusal, which can be either expressed or implied (for example, by an unreasonable delay).
In Express Gold, the mandamus application was made just a few months after the return was filed and only two months after the CRA commenced the audit. The court found that because of the complexity and scope of the audit'the registrant's scrap gold (and other metals) business involved a high volume of transactions with multiple third parties'the application was made prematurely. Importantly, the court found that section 229 of the ETA does not create a "pay first, audit later" regime.
Similarly, in Iris Technologies, the FCA agreed with the reasons in...
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