Section 224 of the Excise Tax Act authorizes suppliers to initiate legal action against a recipient for the recovery of unpaid tax if they account for the tax payable and disclose the tax payable (on the invoice) for the supply. In the event that the original invoice does not indicate the purchase is tax-extra (tax in addition to price) or tax-included (GST included in price), the supplier may remedy the situation by issuing an amended invoice in compliance with the disclosure requirement.
Further, the disclosure requirements include a written explanation that the Minister has assessed the supplier for the unpaid taxes or the reason why they are retroactively collecting unpaid taxes. On the other hand, the purchaser may argue that they believed the GST was included in the original price or that the supply was not taxable. However, the purchaser may be willing to pay the taxes owing in the interest of maintaining good relations with their supplier.
Further, the purchaser will be eligible to claim input tax credits (ITCs) for the reporting period in which the tax is paid. Section 224 of the Act allows the supplier to sue the purchaser where certain disclosure requirements have been met. This is entirely a legal matter and is resolved in court.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.