GST/HST Elections: Why Being Late Is Not Always Fashionable (Cont’d)

  • January 31, 2022
  • Jean-Guillaume Shooner

On December 6, 2021, the Federal Court of Appeal (“FCA”) affirmed the Federal Court’s decision in Denso Manufacturing Canada Inc. v. Canada (National Revenue), which had dismissed the taxpayers’ application for judicial review and concluded that the Minister of National Revenue (the “Minister”) had acted reasonably in exercising its discretionary right to deny a late-filed GST/HST election between two closely related Canadian corporations. Writing for the three-judge panel, Justice Webb concluded that the Minister had proceeded with fairness and that the resulting decision was reasonable. This article follows a previous article that analyzed the judgment at first instance.

Among other things, the FCA determined that:

  • A joint election under section 156 of the Excise Tax Act (“ETA”) between closely related persons deems taxable supplies between them to have been made for nil consideration, such that no GST/HST is collectible on such supplies (a “156 Election”).
  • The Minister may exercise its discretion to deny late filings of a 156 Election in the absence of extenuating circumstances and an explanation that does not amount to negligence or carelessness on the taxpayer’s part.
  • Ignorance of the law and the receipt of inaccurate professional advice after the filing due date are not valid excuses for the late filing of a 156 Election.


Denso Manufacturing Canada Inc. (Denso Manufacturing”) manufactures automobile parts and sells them to its affiliated companies, including Denso Sales Canada Inc. (“Denso Sales”, and collectively with Denso Manufacturing, “Denso Corporations). Denso Corporations are closely related corporations within the meaning of section 156 ETA. In April 2007, Denso Corporations completed the then-required GST25 form to elect under section 156 ETA and kept it with its records. There was no requirement at the time to file this form with the Minister.

In 2014, an amendment to the ETA (the “156 Amendment”) imposed a significant new requirement on parties electing under section 156, namely that they file the new RC4616 form (the “New Form”) with the Minister. Parties to an existing 156 Election were permitted to file the New Form before January 1, 2016 for the election to remain valid in 2015. Denso Corporations failed to file the New Form on time.

In late 2015, Denso Manufacturing discovered a problem with its internal accounting system and made a voluntary disclosure to the Canada Border Services Agency regarding its additional net GST owing on certain imported goods. This also resulted in Denso Manufacturing making a claim for a corresponding increase in input tax credits.

In January 2016, the Canada Revenue Agency (“CRA”) reviewed Denso Corporations’ GST/HST returns for the November and December 2015 periods and later informed them of their non-compliance with the new filing requirements pursuant to the 156 Amendment. Subsequent discussions with their tax advisors led Denso Corporations to believe that their existing “unfiled” 156 Election already covered the 2015 period and so, on February 22, 2016, they filed a new 156 Election using the New Form with a January 1,2016 effective date (the “New 156 Election”).

When the CRA later audited Denso Corporations for the period of April 1, 2014 to March 31, 2016, Denso Corporations realized that the New 156 Election should have been made effective January 1, 2015. In an attempt to correct the error, on November 7, 2017, Denso Corporations sent a letter to the CRA requesting that they accept a revised late-filed New Form with an effective date of January 1, 2015. As an explanation for the late filing, Denso Corporations argued that they had no knowledge of the 156 Amendment and had been incorrectly advised by their tax advisor.

The Minister denied Denso Corporations’ late-filed New 156 Election and issued notices of reassessment for unremitted GST/HST in the amount of $30,098,952.56 for Denso Manufacturing and $308,617.34 for Denso Sales, each with interest, in respect of intercorporate supplies made in 2015.

Denso Corporations sought judicial review of the Minister’s decision to deny its late filed New 156 Election.

Decision of the Federal Court

The Federal Court found in favour of the Minister and dismissed Denso Corporations’ application for judicial review based on the principles of procedural fairness and reasonableness. In its view, the decision was procedurally fair, as Denso Corporations had sufficient information and ample opportunity to address the Minister’s concerns. The Minister did not have an obligation to disclose the opinion of a Senior Program Advisor recommending that the CRA not proceed with the proposed assessment for Denso Manufacturing.

In addition, the decision was reasonable, taking into account both the reasoning process and ultimate outcome. The failure of Denso Corporations to file the New Form on time owing to their ignorance of the 156 Amendment was not a valid excuse. Furthermore, their reliance on professional tax advice after the filing due date had lapsed did not assist them in demonstrating that they had not been careless or negligent in complying with their legal obligations.

Decision of the Federal Court of Appeal

In dismissing Denso Corporations’ appeal, the FCA agreed with the Federal Court that the Minister had acted reasonably in exercising its discretionary right to deny a late-filed 156 Election.

On the issue of procedural fairness, the FCA followed its earlier ruling in Canadian Pacific Railway Company v. Canada (Attorney General) that the ultimate question is whether the taxpayer knew the case to meet and had a full and fair chance to respond. In this regard, it found that the Minister did not have a duty to disclose, prior to rendering a decision on whether to accept the late-filed New Form, every document created by any individual connected to the Minister’s decision-making process. When Denso Corporations submitted their request for late filing, they knew that they had to explain why they were late in filing the New Form. This explanation was based on facts that were within their knowledge, and there is nothing to suggest that this explanation would have been any different had they known, in particular, that a Senior Program Advisor had expressed the opinion that their application should be accepted. The appellants were provided with ample opportunity to present their case through written submissions and meetings with the CRA. As a result, there was no breach of procedural fairness.

With respect to the reasonableness of the Minister’s decision, the FCA again found in favour of the Minister. Notwithstanding that the CRA’s policy statement on late-filed 156 Elections did not refer to the absence of extenuating circumstances as a decision-making factor, the Minister’s consideration of this factor did not render the decision to deny the application for late filing unreasonable. Neither did the Minister’s finding that there were no extenuating circumstances. The FCA agreed with the Minister that the preparation by Denso Manufacturing of a voluntary disclosure in late 2015 did not constitute an extenuating circumstance which prevented Denso Corporations from filing the New Form on time. The New Form, which is a single page in length and requires minimal information, is not time-consuming to complete and could have been filed at any time prior to the fall of 2015. Furthermore, the CRA had issued several clear notices on the upcoming 156 Amendment.

Finally, the FCA held that the Minister’s finding concerning Denso Corporations’ failure to establish that they were not negligent or careless was also reasonable. In the Court’s view, Denso Corporations essentially argued that they were not negligent or careless because they had previously completed the appropriate election form and because they sought professional tax advice in early 2016 concerning their obligations to file the new Form. However, Denso Corporations’ ignorance of the 156 Amendment (despite several CRA publications on the subject) and its reliance on a tax consultant’s advice after the 156 Election due date had already passed did not demonstrate a reasonable effort to comply with the law.


With this ruling, the FCA has reinforced the Minister’s discretion with respect to accepting or refusing late-filed 156 Elections. Taxpayers seeking to benefit from the Minister’s discretion in this regard must clearly demonstrate that their actions were not negligent or careless and explain any extenuating circumstance that prevented them from complying with their tax obligations, failing which a late-filed 156 Election is likely to be denied.

The author would like to acknowledge the support and assistance of Alexandra Fedor, articling student at law.

Jean-Guillaume Shooner is a partner in the Tax Group. He specializes in commodity taxation (including Goods and Services Tax/Harmonized Sales Tax, QuĂ©bec Sales Tax and provincial sales taxes), customs, import/export controls, excise taxes, fuel taxes and various international trade issues. Jean-Guillaume acts for major Canadian and multinational corporations and provides strategic advice in the areas of international trade, customs, Goods and Services Tax/Harmonized Sales Tax, sales tax, dispute settlement and regulatory matters. Jean-Guillaume also advises on CUSMA (USMCA) compliance, valuation issues and tariff classification. He has expertise with respect to import and export license requirements for controlled nuclear substances under the Nuclear Non-proliferation Import and Export Control Regulations. Jean-Guillaume’s commodity taxation and customs matters expertise are also recognized by the legal industry’s most prominent directories, including ChambersLexpert and The Legal 500.