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Collections — holding off on collecting on incorrect GST/HST assessment

A company that did construction-type work correctly reported GST/HST based on the amounts it billed as it completed each project. However, for income tax and financial statement purposes, it accrued Work In Progress as revenue.

A CRA auditor reviewed the company's GST/HST records, and incorrectly assessed the company close to $2 million for not remitting HST on Work In Progress that had not been billed. The auditor had not read the GST/HST legislation, and did not understand that GST/HST is triggered when invoices are issued, not when Work in Progress ia accrued.

I filed a Notice of Objection, which we knew would be allowed in due course, because the auditor's assessment was so obviously wrong. However, it would take the CRA's Appeals Division a year or more before it would reach that conclusion. Meanwhile, CRA Collections was insisting on having the company pay the assessment immediately, which would have put the company in severe financial difficulty. It would have had to shut down operations and lay off many employees. (There is no legal right to not pay a GST/HST assessment while it is under appeal, as there is for income tax.)

I found a policy in the CRA's National Collections Manual which permits Collections to postpone collection action if Appeals advises that the assessment will likely be overturned. The Collections officer agreed to give us two weeks to make a formal requrest to pospone colletion action.

I contacted the Chief of GST/HST Appeals for the region on an urgent basis, explained the problem, and she agreed to have a senior manager in Appeals review the file. Within the two-week deadline, Appeals sent me a letter confirming that the assessment would likely be overturned. I forwarded this to the Collections officer along with correspondence from the company explaining the dire consequences that would result if the CRA took action to seize the company's bank accounts or payments from its major customers.

Collections agreed to postpone collection action.

Problem solved!