Tax & Trade Blog

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THE DUE DILIGENCE DEFENCE & DIRECTORS’ LIABILITY

PROVING DUE DILIGENCE TO AVOID DIRECTORS’ GST/HST LIABILITY NO EASY FEAT!

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The GST/HST framework under the Excise Tax Act (“ETA”), as with other indirect tax regimes (like federal and provincial alcohol, tobacco and vaping taxes) includes “directors’ liability” provisions that are triggered when the corporation does not have the money to pay an assessed amount. Most of these systems have “due diligence defences” and “statutory limitation rules” which may limit a director’s liability, but these rules are tricky to apply in practice.

We review these rules in a two-part series, with reference to the recent case Stevens v. The King, 2026 TCC 76 (“Stevens”), which revolves around this directors’ liability framework.

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UNCLAIMED GST ITCs ALLOWED ON REASSESSMENT

TCC CONFIRMS CRA MUST ACCOUNT FOR UNCLAIMED CARRIED-FORWARD ITCs

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In a long-running GST/HST issue, the question has been whether the Minister’s obligation to “audit to net tax” requires CRA to take into account ALL unclaimed Input Tax Credits (“ITCs”) carried forward to a particular reporting period under audit. In the past, CRA maintained that its obligation under section 296(2) of the Excise Tax Act (“ETA”) only required it to allow unclaimed ITCs for the particular reporting period under audit and not any that may have then remained unclaimed from prior periods.

In a seismic decision of Justice Visser of the Tax Court of Canada ("TCC"), the TCC has now answered that question in favour of all Canadian GST registrants — a decision which we review below.

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WILFUL BLINDNESS: SAME AS ACTUAL KNOWLEDGE

TO TAXPAYER'S CHAGRIN, "SHOULD HAVE KNOWN" SAME AS KNOWLEDGE

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In over 35 years of tax practice, we have had more than a few inquiries from taxpayers facing CRA Audits and Assessments maintaining that they did not actually know they were non-compliant with their tax obligations. The doctrine of “wilful blindness” is something that these taxpayers would have benefitted from understanding: that is the ability that Canada Revenue Agency (“CRA”) and the Tax Court of Canada (“TCC”) have to equate “knowledge” with “information that the taxpayer should have known but was perhaps ‘wilfully blind’ to”.

In this Tax Audit Series Report, we discuss the doctrine of “wilful blindness” and a recent TCC decision that upheld some $1.3 million in penalties and interest, on the basis that the taxpayer was wilfully blind to his tax non-compliance.

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GST 201: BAD DEBT GST RECOVERY HAS STRICT RULES

SEVERAL CONDITIONS MUST BE MET TO RECOVER TAX PAID ON UNCOLLECTIBLE DEBT

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For businesses dealing with unpaid invoices, section 231 of the Excise Tax Act (ETA) offers a vital form of relief: the ability to recover GST/HST previously remitted on debts that have become uncollectible. However, as the recent Tax Court of Canada (TCC) decision Heydary Green Professional Corporation v. The King, 2026 TCC 69 (“Heydary”) demonstrates, this relief is only available to those who strictly adhere to the ETA’s technical requirements.

In this GST 201 Series blog, we review section 231 and the statutory rules for bad debts, as well as what Heydary shows about the process that must be followed to benefit from this section.

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AUDIT WAIVERS: GENERALLY A BAD IDEA?

AGREEING TO WAIVING AN AUDIT LIMITATION PERIOD COMES WITH SEVERAL RISKS

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When it comes to Tax Audits, most Tax Auditors — whether the federal Canada Revenue Agency (CRA) or its counterparts auditing for tobacco, fuel or other provincial compliance matters — are operating with one particular deadline in mind: a three or four-year limitation period governing what the Auditor can review and assess.

When Tax Audits are conducted late in that period, Tax Auditors will typically request Audit Waivers to provide themselves with additional time to complete their audits and issue assessments.

In this Tax Audits Series Report, we review what Audit Waivers are, how they operate, and why they can often be a very bad idea for the taxpayers and businesses agreeing to them.