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GST/HST — recovering HST not paid on sales incentives

My two clients were sales representatives who worked for a store that sold appliances. Several appliance manufacturers paid extra commissions or allowances to sales reps who sold their brands of appliance. These were arranged through an "incentives" agent that handled the payments, and were unrelated to the sales reps' salary and commissions from the store that employed them.

My clients were both very successful and had substantial revenues from these incentives. The manufacturers issued T4As to them, and they reported these revenues for income tax purposes and paid tax on them.

The CRA audited my clients for GST/HST, concluded that they had failed to collect and remit substantial amounts of HST, and assessed them. The clients and their accountant then came to me for advice about appealing the assessment. They had also asked the incentives agent about getting payment of the HST, but had been given the runaround.

I advised the clients that the assessments were correct and should not be appealed, but they should ask the CRA to reduce the interest under the CRA's "wash transaction" policy. I then assisted my clients in recovering the HST itself, by writing a strong letter to the incentives agent as well as each of the manufacturers, invoicing them for the HST. In the letter I carefully explained that: (a) my clients had made a "supply" of services the manufacturers and the incentives agent, based on the contractual terms in the incentives agent's website; (b) the manufacturers and incentives agent were legally liable to my clients for the HST, and would be sued in the Ontario courts if they did not pay it; and (c) paying would cost the manufacturers nothing, since they were entitled to full input tax credits to recover all the HST my clients were billing them.

The manufacturers quickly agreed, and paid the HST owing to my clients.

Problem solved — though not by contesting the CRA assessment!

(2015)