Late invoicing satisfies supplier tax disclosure obligations

  • June 25, 2019
  • Robert G. Kreklewetz

Section 224 of the Excise Tax Act allows a supplier that has remitted GST/HST collectible from, but as yet unpaid by, a purchaser to sue that purchaser for the unpaid tax as if it were a debt owed to the supplier. A pre-condition for bringing an action under section 224 is that a supplier must have complied with subsection 223(1), which requires a supplier to provide the recipient with written disclosure of the tax payable. Subsection 223(1) is, however, silent as to what point of time this tax disclosure must (or can) be provided by the supplier.

In National Money Mart Company v 24 Gold Group Ltd. (2018 ONCA 812) the Ontario Court of Appeal was tasked with determining whether after-the-fact invoices could satisfy the subsection 223(1) tax disclosure obligations. The ONCA answered this question in the affirmative.

In National Money Mart, National sold approximately $12.16 million in unrefined gold to 24 Gold between July 2010 and July 2012, but did not charge or collect GST/HST at the time of the transactions. In May 2015, after being assessed by the CRA for $1.5 million in GST/HST not collected, National, as the supplier, issued two GST/HST-only invoices to 24 Gold based on the CRA assessments. Each of these invoices specified the consideration for the gold sales, the GST/HST payable on the transactions, and stated that the “(GST/HST) at 13% was not charged in error” and was “being billed to [24 Gold] as a result of Minister issuing an audit assessment to National Money Mart for the failure to charge and remit GST/HST on the consideration for the taxable supplies of jewellery.”

After 24 Gold refused to pay the GST/HST for which it was invoiced after-the-fact, National brought an action against 24 Gold, relying on section 224 of the ETA, and successfully obtained a summary judgment against 24 Gold in the Ontario Superior Court (2017 ONSC 6373).

24 Gold appealed the judgment to the ONCA where it argued that National was not allowed to bring an action under section 224 of the ETA because it had not complied with the tax disclosure obligations in subsection 223(1) on a timely basis. In effect, 24 Gold argued that subsection 223(1) required disclosure of the GST/HST payable at the time of the original transaction.

The ONCA however held that a clear interpretation of subsection 223(1) and section 224 had emerged in the case law over the years which confirmed that a supplier can invoice for GST/HST after the fact, subject only to any contractual restrictions on doing so. This conclusion was found to also be further supported by CRA Policy Statement P-116 and other professional commentary, which all confirmed that a supplier can satisfy the requirements of subsection 223(1) by issuing an invoice/receipt after the supply transaction.

In reaching its decision, the ONCA also adopted the following comments made by Bastarache J.A. (as he then was) in OCCO Developments Ltd. v McCauley ([1996] G.S.T.C. 16): “…[The ETA] imposes the tax on the recipient of the service, not on its supplier. It would therefore be an unreasonable interpretation of s.223 (1) to limit the sending of a notice of the amount of GST due to documents issued at the time the supply was received. My view on this issue is reinforced by the fact that the formulation of the obligations in s.223(1) does not reveal any intention of Parliament to impose such a restriction…”

After this decision, there should be no question that the tax disclosure obligations outlined in subsection 223(1) can be satisfied by a supplier issuing after-the-fact invoices. Given the ONCA’s indication that the ability to issue after-the-fact invoices is “subject to any contractual restrictions on doing so,” purchasers may want to ensure that their purchase contracts either explicitly require a timely billing of GST/HST or are deemed to include GST/HST. Commercial recipients that purchase inputs exclusively for consumption, use, or supply in the course of commercial activities may also have the option to pay the GST/HST and claim applicable input tax credits. That said, there are certain requirements prior to claiming such ITCs, which all need to be met precisely, particularly where the normal time for claiming the ITCs has expired, so anyone who has received an after-the-fact invoice should seek immediate legal advice.

Robert G. Kreklewetz is with Millar Kreklewetz LLP, Toronto