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GST — cleaning up years of failure to charge GST on management fees

My client was an insurance broker. His holding company charged management and administration fees to the brokerage every year. After five years, the client's accountant approached me to inquire as to whether there was a GST problem. There was - a potential liability of $60,000, if Revenue Canada were to audit the companies. They had neglected to charge GST on the management fees!

I determined that, because an insurance brokerage is a "financial institution", the companies could have filed a special election to eliminate the GST. However, this election had to have been filed in 1993 and it was now 1998. The legislation did not permit late filing.

I approached senior management at the local Revenue Canada office and convinced them to accept the election based on an obscure technical provision of the legislation, even though the election was five years late. After it was filed, the Revenue Canada official wrote back to me to confirm that it was accepted, and that was that.

Problem vanished!

(1998)