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GST/HST — fixing a failed voluntary disclosure

My client was a company that set up investment structures in the financial industry, and charged significant fees to the partnerships it created to handle pools of investment funds. Its fees were subject to GST/HST, but it did not realize this.

The company's accountants advised it that it needed to do a voluntary disclosure to clear up this problem with the CRA. However, the company did not do this properly. It registered the partnerships for GST/HST many months before formally initiating the disclosure. In the interim, the CRA sent the partnerships notices to file GST/HST returns, and this constituted "enforcement action" that made a voluntary disclosure impossible. The company was assessed $192,000 in penalty and interest.

The company's Voluntary Disclosure was rejected, and it retained a major accounting firm to appeal that decision internally within CRA. That appeal was also rejected. The company then came to me for advice.

I found an alternate solution using the CRA's "wash transaction" policy. Even though the Voluntary Disclosure had been rejected, I wrote to the CRA and got them to agree to cancel $164,000 of the penalty and interest.

Problem mostly eliminated!

(2014)