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Filing Protective Rebate Claims

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Tax practitioners are unfortunately well-aware of the sometimes years-long delays when requesting rulings and relief from CRA. What is less understood is the interplay between often overlapping taxpayer relief mechanisms when statutory deadlines are close to expiry, but the desired relief remains ungranted.

The recent Federal Court decision in Ontario Addiction Treatment Centres v. Canada (Attorney General), 2022 FC 393 (CanLII) dealt with this issue, and provides a cautionary tale that registrants should consider filing protective ETA 261 rebate claims within the proper legislative timelines while they otherwise wait for relief, otherwise they may find themselves out of time and with no further options.

Background

The Ontario Addiction Treatment Centers (the “OATC”) was founded in the 1990s to provide treatments for various addictions. In September 2009, the OATC requested a ruling from the CRA on whether certain reagents for drug testing kits (the “Test Kits”) were ‘zero-rated’ under the ETA (meaning suppliers of Test Kits were to charge tax at a rate of 0% on same).

Unfortunately, CRA took nearly five years to deal with the ruling request, only confirming in August 2014 that the Test Kits were zero-rated.

The CRA indicated that an ETA 261 rebate request for tax paid in error could be filed by the OATC for any amounts paid. However, since ETA 261 rebates have a two-year limitation period, the Taxpayer was out of time to make an application for amounts it had paid on the Test Kits between 2007 and 2012.

Out of options, the OATC filed a request for a remission order under the Financial Administration Act — a exceptional, last-ditch, discretionary remedy — for the tax paid that it could no longer reclaim through a rebate application. The basis for the request was that CRA was responsible for delay and that this delay amounted to the commission of an ‘error’, which had made it impossible for the OATC to otherwise obtain relief.

The Minister denied the request, and the OATC sought judicial review at the Federal Court.

Federal Court

On judicial review, the Federal Court determined that the Minister’s decision to deny the remission order was reasonable. The problem was caused because of the length of time it took CRA to issue the ruling did not mean that the CRA had committed an error which warranted a remission order — despite the nearly five-year delay. Fundamentally, the fact that the OATC was not aware of the two-year limit for requesting an ETA 261 rebate did not mean that CRA made an “incorrect action” or provided “incorrect advice”.

The Court concluded: “the fact that the [OATC] was not aware of the two-year limit for requesting a rebate, that it did not take steps to find out what limitations or actions may be available to it, and that it did not receive adequate guidance from its bookkeeper or accountant, do not ground a finding of fault on the part of the Minister.” In the court’s eyes there was “nothing to prevent the [OATC] from taking other measures, or making any further submissions, if any, to protect its interests.”

The judicial review was dismissed accordingly.

Commentary

Ontario Addiction Treatment Centres is yet another example of the time-honored chestnut: ‘hard facts make bad law’. We find it unfortunate that the CRA took no responsibility for what we view as an excessive time delay. Nevertheless, had the OATC filed for the rebate during the two-year limitation period, they could have asked CRA to hold the decisions in abeyance until the ruling request had been dealt with (or even filed an objection and appeal if the rebate request had been denied outright).

Registrants facing the unenviable position of waiting for CRA ruling relief should always consider seeking legal advice so they understand how to protect their rights.

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Guest Thursday, 18 August 2022

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