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ONCA: Late Invoice Satisfied Tax Disclosure Obligations

Posted by on in Commodity Tax Blog
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Section 223(1) of the Excise Tax Act (“ETA”) requires a registered supplier to indicate clearly on its receipt or invoice to a purchaser/recipient of supply the consideration paid or payable by the purchaser and the GST/HST payable in respect of the taxable supply, or that the amount paid or payable by the purchaser includes the tax.  However, the section is silent as to when a supplier must give the tax disclosure to a purchaser.  The Ontario Court of Appeal (“ONCA”) was asked to determine if after-the-fact invoices could satisfy section 223(1) obligations in National Money Mart Company v. 24 Gold Group Ltd. (2018 ONCA 812).  The answer is yes!

In the case, the Supplier sold unrefined gold to the Purchaser without charging GST/HST. When the Supplier was assessed by the CRA for its failure to charge and remit the tax on the transactions, the Supplier invoiced the Purchaser demanding reimbursement of the tax which was paid in full by the Supplier. When the Purchaser refused to pay the tax, the Supplier commenced an action against the Purchaser seeking payment of the tax pursuant tosection 224 of the ETA at the Superior Court of Justice and moved for summary judgment in the amount of tax collected by the CRA. The motion judge granted the summary judgment in favour of the Supplier(2017 ONSC 6373). (The decision was discussed in our previous blog - click here.)

The Purchaser appealed the motion judge decision to the ONCA. The Purchaser contended that the motion judge erred by failing to find that section 223(1) requires the tax disclosure be made at the time of the supply transaction. As the Supplier’s invoices for the GST/HST payable were issued post-transactions, the Purchaser argued that the Supplier failed to comply with section 223(1) (a pre-condition of section 224) and, therefore, the Supplier’s action pursuant to section 224 was barred.   The Supplier argued that the Purchaser could not raise this new issue on appeal because it was not raised at the lower court.

The ONCA was asked to determine (1) whether the Purchaser raised a new issue and, if so, whether the ONCA should entertain it, and (2) if the ONCA considered the new issue, whether the Supplier failed to meet section 223(1) and section 224 and, therefore, barring its action.

Regarding (1), after reviewing the Purchaser’s statement of defence, its factum before the motion judge, the reasons of the motion judge, and its first appeal factum, the ONCA determined that the Purchaser now sought to raise a new issue. However, the ONCA determined that entertaining the new issue would cause no prejudice to the Supplier that could not be compensated by costs.

Regarding (2), the ONCA stated that the case law (including Occo Developments Ltd. v. McCauley, Carman v. Jackson, Leong v. Princess Investments Ltd,) appears settled that an after-the-fact invoice could meet the requirements of section 223(1). The ONCA then went on to consider the CRA Policy Statement P-116, and professional commentary, and determined that they all have interpreted that a supplier can comply with the section 223(1) obligations by delivering an invoice/receipt after the supply transaction.  The ONCA adopted this interpretation and in particular, accepted the reasoning of Bastarache J.A. (as he then was) in Occo, supra:

…It imposes the tax on the recipient of the service, not on its supplier. It would therefore be an unreasonable interpretation of s.223 (1) to limit the sending of a notice of the amount of GST due to documents issued at the time the supply was received. My view on this issue is reinforced by the fact that the formulation of the obligations in s.223(1) does not reveal any intention of Parliament to impose such a restriction…

In the result, the ONCA concluded that the invoices issued by the Supplier to the Purchaser post-transaction had complied with section 223(1) and, therefore, the Supplier satisfied the conditions in section 224 to bring the action against the Purchaser for the tax payable by the Purchaser and, therefore, dismissed the appeal.

After this decision, it appears settled that a supplier’s tax disclosure obligations in section 223(1) can be met by issuing after-the-fact invoices to a purchaser. Therefore, in order to minimize the risk of getting invoices for GST/HST several years after completing a sales transaction, purchasers may consider taking some preventive measures before entering into sales transaction. For example, they may seek legal advice in determining whether a certain supply is taxable, non-taxable or exempt supplies and, as discussed in the decision, they may consider negotiating terms in their sales agreement which clarify whether it is the supplier or recipient of the supply that shall bear the ultimate responsibility for the payment of tax, including assessed tax. Remember, prevention is always better than cure!


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