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Involuntary GST Registrations of Non-Residents

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Non-residents carrying on business in Canada must be cognizant of the potential to be involuntary registered for the GST/HST. 

Subsections 241(1.3) to (1.5) of the ETA (which came into effect in June 2014) empower the CRA to unilaterally register a person who has not registered for GST/HST but, in the CRA’s view, is required to do so. The budget states that these amendments will strengthen GST/HST registration compliance and help the CRA to combat the underground economy.

Generally, a business making more than $30,000 annually in taxable supplies is required to be registered pursuant to ETA subsection 240(1). Once a business becomes a registrant, it is required to comply with various statutory obligations, including charging, collecting, and remitting GST/HST in respect of any taxable supplies; filing periodic GST/HST returns; and maintaining books and records supporting those filings.

Under the new provisions, the CRA will first send a “notice of intent” to a non-registrant. If that person has not applied for registration within 60 days of the notification, the CRA is allowed to register and assign a GST/HST registration number to the person. It is unclear whether the CRA will issue an assessment for unpaid tax at the same time that it sends the notice of intent, or whether it will delay the assessment until the GST/HST registration number has been assigned.

The CRA will advise the non-registrant of the unilateral registration and the effective date of the registration, which is not to be earlier than 60 days after the date of the notice of intent. The registration date is important because no ITCs can be claimed for GST/HST paid on inputs that were incurred prior to registration. It is unclear whether the CRA will allow the non-registrant to claim ITCs on any tax paid on its inputs that were incurred prior to the CRA’s unilateral registration. We expect that these involuntary registration provisions could significantly impact non-residents that provide goods and services to Canadian residents.

When a business objects to an assessment, it can appeal to the TCC. However, if a business objects to the CRA’s unilateral decision to register it, no appeal right is provided. Thus, if an aggrieved person disagrees with the CRA (perhaps on the basis that it was not legally required to be registered at the time the CRA took steps under these rules to effect a registration), it will have to bring a formal application for judicial review to the FC.

The CRA’s previous difficulties in registration compliance do not seem to be greatly reduced under the new legislation, because the new rules do not address the main challenge—identifying non-compliant businesses. The main strategies are still matches, leads, projects, and pursuing previously identified non-filers.

Also, the previous law appeared to provide the CRA with all necessary legal powers. Under ETA subsection 123(1), which has not been amended, a “registrant” is a person that is registered or that is required to be registered. Therefore, a non-compliant business (a business that should be registered but is not) was and is required to comply with all the statutory obligations.

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