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Rob Kreklewetz & Shahrukh Khowaja

Rob Kreklewetz & Shahrukh Khowaja

Rob Kreklewetz & Shahrukh Khowaja has not set their biography yet

Judicial review applications for injunctive relief attempting to circumscribe or prohibit the CRA’s collections powers are usually doomed to failure – the test requires a high threshold to meet! Such matters must be dealt with immediately on audit, as unlike in the Income Tax situation, all GST/HST is due and payable immediately and cannot be delayed by filing a Notice of Objection!

In Iris Technologies Inc. v. Canada (National Revenue), the Federal Court denied a motion for injunctive relief to prohibit the CRA’s collections actions after a $79 million GST/HST Assessment – demonstrating in spades how difficult it is to obtain an order prohibiting CRA collections!

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NEXUS is a bi-national, Canada-US privilege program for pre-approved, low-risk travellers, allowing them to enter either country’s ports of entry swiftly.

Recently, however, thousands of NEXUS cards from Canadian and US citizens, have been confiscated either by the Canada Border Services Agency (“CBSA”) or U.S. Customs and Border Protection (“CBP”) – often for minor infractions.

Generally speaking, this administrative action can and should be challenged!

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The Canadian dairy industry is one of the most protected industries in the world, which while good news for Canadian diary producers is decidedly bad news for Canadian importers looking to import and distribute specialty dairy products like fine or specialty cheeses. These importers will face requirements for both import licenses and quota allocation, with the latter usually difficult if not impossible to obtain for first time entrants!

Regulatory Background

As indicated, Canadian importers must have access to a Tariff Rate Quota (“TRQ”) in order to import supply-managed goods that fall within Canada’s Import Control List (“ICL”) at “preferential tariff” rates.

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The Canada Revenue Agency’s (“CRA”) administrative position on computation of interest and penalty for late-filed GST/HST returns has been that it applies on “all amounts outstanding” (notwithstanding possible available refunds, rebates or input tax credits (“ITCs”) that could reduce the amounts outstanding, if properly claimed). This approach has recently been corrected by the Federal Court of Appeal (“FCA”) in Canada v Villa Ste-Rose Inc. 2021 FCA 35, which has confirmed that this interest and penalty only applies to the amount of “net tax” that remains after deducting (in this case) possible rebate claims.

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Canada Border Services Agency (“CBSA”) resets it “audit priority areas” twice a year. This sees CBSA designate certain tariff classification codes as CBSA’s priority areas for custom verifications (i.e., “audits”), which is based on program areas that the CBSA believes pose significant risks for non-compliance. The non-compliance risk is generally in tariff classification, valuation and origin of goods imported.

Right on schedule, CBSA has now released its July 2021 Trade Compliance Verifications, which update where CBSA started in January of this year.

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The Canada Revenue Agency (“CRA”) has been rigorously challenging intermediaries in the financial services industry, categorizing their services as taxable promotional, advertisement or taxable administrative services (as opposed to treating them as GST/HST exempt financial services).

While this aggressive approach seems (at first blush) consistent with the definition of a “financial service” under 123(1) of the Excise Tax Act (“ETA”) (which exempts the “arranging for” processing of credit and debit card payments, while excluding from exemption “promotional or advertising services”), many have suggested that contrary:   that CRA was trying to pigeon-hole what these service providers do in order to find “taxable” services.

In the recent Zomaron Inc. v. The Queen case (“Zomaron”), the Tax Court of Canada (“TCC”) found against CRA, and concluded that the dominant element of the services being provided were “exempt” in nature, and that the promotional, advertisement or administrative elements of the services did not serve to disqualify from GST/HST exemption.

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In a prior Blog on the “Time Bomb Ticking on Canadian Home Construction Industry” we discussed the problems facing Canadians who make money buying, fixing up, and reselling their alleged “principal residences”.

We said then: “An individual buying a run-down house, fixing it up, and living in it a while, and then selling for a tidy income tax exempt profit (the house being the individual’s principal residence) sounds like a recipe for success. [But repeat] that 21 times in a row, and you may have a different kettle of fish!”

Apparently, all you have to do is “repeat 2 times in a row” to be liable for income taxes on our profits, and uncollected GST/HST on your sales revenue!

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The Canada Revenue Agency (“CRA”) has broad audit powers, allowing it to request any documents, records, and information from taxpayers and third parties under audit. The 2021 Federal Budget proposed an expansion (!) to these powers – allowing CRA to compel interview and answers from an owner-manager and any other employees of the business. The changes are aimed at making it easier for the CRA to get information and issue assessments, but those in the know predict real problems for unrepresented taxpayers and their employees! The worry is that CRA will have a single mindset heading into these interviews and will use them to simply gain ammunition for an Assessment.

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