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GST — voluntary disclosure of management fees

My client was a lawyer. His office administration was handled by a management company owned by his wife. The company charged him annual fees but neglected to charge GST or to make an election so that GST would not apply to these fees. After four years of this, his accountant noticed that GST had not been charged. The lawyer approached me to ask if he had a GST problem.

The answer was yes — and no. The lawyer's wife's company was indeed liable to be assessed for some $100,000 in GST, plus interest and penalties. However, as I explained to the lawyer, I would be able to solve the problem for no cost beyond my professional fees.

I made a Voluntary Disclosure to the CRA on the company's behalf, and arranged for the company to bill the lawyer all the unbilled GST. He paid the GST and claimed offsetting input tax credits. The CRA agreed to forward the resulting large refund to him in advance of expecting the company to remit its net tax. The CRA also agreed to cancel all penalties, due to the Voluntary Disclosure, and to cancel all interest, under its "wash transaction" administrative policy.

In the end, the GST was sent around in circles, and no penalties or interest were assessed. Problem vanished!

(2003)