If GST was not collected on taxable products/services at the time of sale, what options do suppliers/purchasers have?

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.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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