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GST/HST — credit for net tax wrongly remitted

My client "XCo" was in the business of arranging for an insurer to provide certain warranties on tangible property. XCo collected GST/HST on the warranty fees from the customers, but wrongly remitted that tax to the CRA, when it should have instead passed the tax on to the insurer to remit (since XCo collected the fees as agent of the insurer). XCo also failed to charge the insurer the correct amount of GST/HST on XCo's own services.

The CRA audited XCo and determined that it had undercharged the insurer, and proposed to assess XCo several million dollars of GST/HST. The auditor, acting on direction from CRA Rulings at Headquarters in Ottawa, refused to give XCo credit for the tax that Xco had wrongly remitted to the CRA, to offset this assessment.

I wrote a detailed letter to the auditor, explaining that the wrongly over-remitted amounts were a miscalculation of "net tax", and that his proposed assessment was also of "net tax", and had to reflect reductions for the amounts XCo had over-remitted. I cited past CRA interpretation letters that supported my analysis.

Within two weeks, the auditor confirmed to XCo that Headquarters had reviewed my letter and advised him that he must give XCo credit for the over-remitted amounts when issuing his assessment. This would reduce the assessment substantially.

Problem solved!

(2019)