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REGISTERED BUT NOT REGISTERED!

CRA BUSINESS NUMBER TRAP: ACCOUNTS ASSIGNED DURING AUDIT NOT ENOUGH

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When the Canada Revenue Agency ("CRA") assesses an individual for unremitted GST/HST on a real property transaction, the agency typically creates an administrative business number to process the assessment. Many taxpayers assume that once the CRA opens this account and assesses tax, the taxpayer is officially GST "registered" and entitled to claim offsetting Input Tax Credits ("ITCs") on related expenses, for example real estate commissions.

The recent Tax Court of Canada decision in Asadi v. His Majesty the King, 2026 TCC 147 (“Asadi”) has put a wrench in that line of thinking, suggesting that this CRA approach will not amount to GST registration, and can have unintended effects for the taxpayer!

Background

Under Section 169 of the Excise Tax Act (the “ETA”), a person is only entitled to claim an ITC in respect of property or services acquired in a reporting period during which the person is a "registrant". Section 123(1) defines a "registrant" as a person who is registered, or who is required to be registered, under the ETA.

This creates a trap in many real estate transactions, because under section 240(1)(b) of the ETA, an individual whose only commercial activity is the sale of real property “otherwise than in the course of a business” is expressly excluded from the requirement to register. Because a one-off house build or flip is not considered to be “in the course of a business”, it does not trigger a mandatory registration requirement, and the builder / flipper never automatically becomes a 'registrant’ – even though they MUST pay HST on their expenses, and must collect it on the final sale of the house.

The Asadi Decision

The CRA assessed a non-registrant taxpayer for unremitted HST on a $3.845 million sale of a newly built Toronto home, deeming the isolated project a taxable adventure in the nature of trade. The taxpayer appealed to the Tax Court of Canada (“TCC”), arguing that if the sale was taxable, she should at least be entitled to an offsetting ITC for the $19,994 in HST paid on the real estate broker's commission. She argued that she met the statutory requirement of being a "registrant" because the CRA had unilaterally opened a GST/HST business number for her when issuing the reassessment.

The TCC dismissed the appeal and denied the ITCs, confirming that because an isolated house flip is not an ongoing "business," the taxpayer was never legally required to register for GST/HST purposes. Lacking formal registrant status when the commission was paid, the taxpayer was completely barred from claiming the ITC.

The TCC ruled that the CRA's internal assignment of an administrative business number during the audit did not cure this defect, leaving the taxpayer liable for tax with NO offsetting ITC.

Takeaways

The Asadi decision serves as a stark reminder that an administrative business number generated during an audit or assessment or assessment process may not be a full substitute for formal GST/HST registration. Taxpayers engaging in isolated real estate projects cannot rely on the CRA's internal paperwork to retroactively cure a failure to register. To avoid the trap of paying tax on the sale without ANY ITCs, property vendors should voluntarily register well before a transaction closes.

Taxpayers navigating the pitfalls of real estate audits or seeking proactive GST/HST advice are encouraged to contact Experienced Indirect Counsel for assistance.

For help with Indirect Tax Issues, please click here.