An unregistered non-resident corporation (USCo) provides consulting services to a Canadian financial institution for use exclusively in its exempt activities, so that the financial institution self-assessed Division IV tax on the fees. In late 2016, CRA determined that USCo had been carrying on business in Canada, registered it effective July 1, 2013, and assessed USCo for GST/HST not collected for the periods from then onwards. USCo is seeking to recover the amount assessed by charging the GST/HST to the financial institution.
(a) Would the financial institution be able to claim rebates to recover the tax self-assessed as tax paid in error under s. 261 (within the normal two year limitation period)?
(b) Does CRA have an administrative policy similar to P-131R to address the collection of tax in these circumstances?
CRA responded:
(a) [Except] where the return that included the amount self-assessed as Division IV tax has been previously assessed, the financial institution… would be entitled to claim a tax paid in error rebate under section 261 in respect of the amount self-assessed as Division IV tax.
However, where the financial institution can demonstrate that it has or had a liability under Division II for the amount in question and therefore was not required to self-assess under Division IV, the financial institution would be able to request to have its return reassessed in order to have the amount that was originally included as Division IV tax removed and refunded to the financial institution subject to the applicable legislative time limit.
(b) … Any administrative position taken would be at audit’s discretion at the time of audit and based on the facts of the case at hand. In the example provided, the possibility of double remittance is due to the non-compliance of USCo and not through a business arrangement between two parties for collection and remittance of tax such as one that is indicated in P-131R.
