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GST/HST — convincing CRA that it was too late to assess

My client built and sold a new home in 2011, without remitting HST. She did not have a history of being a builder.

In 2019, a CRA auditor proposed to assess my client for the HST not collected and remitted. The CRA's records seemed to show that my client had not filed a GST/HST return for 2011, though she had filed for later years. The client came to see me to discuss how to respond to the auditor's proposal letter.

If my client had indeed never filed her 2011 GST/HST return, then the CRA could certainly assess her for 2011. However, if she had, the assessment would be "statute-barred" — past the 4-year limitation period — unless the CRA could demonstrate carelessness or neglect on her part.

My client had a 2012 email from her accountant enclosing a copy of the return to be filed. Her recollection was that she had signed and faxed the return to CRA. However, CRA did not have it in their records.

I encouraged my client and her business partner to dig into their records to find any further indication of having filed the return in 2012, such as a memo or email referring to this. They could not find anything. I pressed them to look further, including their fax machine records. They had given away the fax machine to a friend a few year ago, but were able to track it down and recover from it a copy of the return.

With this information, I wrote to the auditor to point out that GST/HST registrants are not required to keep records beyond 6 years, so it was difficult for my client to prove she had filed the return. However, we did have the email from the accountant, as well as the copy recovered from the fax machine. I explained to the auditor why it would be wrong to assess my client eight years after the sale, especially since the CRA's own records showed no indication that the CRA had written to my client at any time about an unfiled return. I also pointed out that since the GST/HST legislation deems anything sent by mail to be received once it is sent, a fax could be given the same benefit of the doubt.

The auditor agreed, and cancelled the proposed assessment for 2011.

Problem vanished!