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7. Temporal Limitations under paragraph 225(4)(c) of the ETA

Background

Paragraph 225(4)(c) the Excise Tax Act allows a recipient to claim the ITC outside of the regular ITC claim limitation periods outlined under paragraphs 225(4)(a) and (b), provided the following conditions are met:

  1. The supplier did not charge the GST/HST to the recipient within the four-year period after the end of the reporting period in which the supply was made.
  2. The supplier charges the previously unbilled GST/HST and discloses in writing that the Minister has assessed the supplier for the GST/HST.
  3. The recipient pays the GST/HST to the supplier before claiming the ITC.

When these conditions are satisfied, the recipient is granted a one-time ability to claim the ITC in the reporting period in which the recipient pays the GST/HST to the supplier. If not claimed in this reporting period, the ITC becomes unrecoverable.

Scenarios

Consider the following four scenarios:

Scenario A – Delayed notification

  • The supplier makes a taxable supply to a recipient on January 1, 2005, but does not charge the GST/HST.
  • The supplier is assessed by the CRA for tax not collected/remitted and a Notice of Assessment is issued on March 1, 2010.
  • The supplier notifies the recipient of the Assessment and charges the previously unbilled GST/HST on April 1, 2020 (over ten years after the Notice of Assessment).
  • The recipient pays the GST/HST on May 15, 2020 and claims the ITCs in its May 2020 reporting period.

Scenario B – Delayed payment

  • The supplier makes a taxable supply to a recipient on January 1, 2005, but does not charge the GST/HST.
  • The supplier is assessed by the CRA for tax not collected/remitted and a Notice of Assessment is issued on March 1, 2010.
  • The supplier notifies and charges the recipient the previously unbilled GST/HST on May 1, 2010.
  • The recipient pays the GST/HST on June 1, 2020 (over ten years after the invoice for the previously unbilled GST/HST) and claims the ITCs in its June 2020 reporting period.

Scenario C – Delayed notification & delayed payment

  • The supplier makes a taxable supply to a recipient on January 1, 2005, but does not charge the GST/HST.
  • The supplier is assessed by the CRA for tax not collected/remitted and a Notice of Assessment is issued on March 1, 2010.
  • The supplier notifies and charges the recipient the previously unbilled GST/HST on April 1, 2020 (over ten years after the Notice of Assessment).
  • The recipient pays the GST/HST on September 1, 2025 (over five years after the invoice for the previously unbilled GST/HST) and claims the ITCs in its September 2025 reporting period.

Scenario D – Invoice before assessment

  • The supplier makes a taxable supply to a recipient on January 1, 2005, but does not charge the GST/HST.
  • The supplier then realizes its mistake and charges the recipient the previously unbilled GST/HST on January 1, 2010.
  • The recipient pays the tax on February 1, 2010 and claims the ITC in its February 2010 reporting period.
  • The supplier is assessed by the CRA for tax not collected/remitted with respect to the January 1, 2005 transaction and a Notice of Assessment is issued on April 15, 2010. The supplier then promptly notifies the recipient of the Assessment.

Questions

  1. In each of the first three scenarios above we have the following question: assuming that all other requirements are met (e.g., ITC information requirements in 169(4) and the Regulations), is the recipient entitled to the ITCs as claimed under paragraph 225(4)(c) of the Excise Tax Act?
  2. In the fourth scenario, if the CRA were to audit the recipient in 2011 in respect of its February 2010 reporting period, what would its conclusion be with respect to the recipient's entitlement to the ITC in respect of the January 1, 2005 supply which was claimed in the February 2010 reporting period? Specifically, does the April 15, 2010 assessment of the supplier and the notification to the recipient satisfy the requirements in 225(4)(c) in respect of the February 2010 reporting period?

CRA Comments

For purposes of our responses to the questions posed below, we have assumed that both the supplier and the recipient are monthly filers for GST/HST purposes and neither is a specified person, as defined in subsection 225(4.1).

In addition, in each of the four scenarios presented, the supplier’s return for its reporting period of January 2005 was due to be filed by February 28, 2005. In accordance with subsection 298(1), that reporting period would generally have become statute-barred on March 1, 2009. Therefore, in order for the CRA to have been able to assess the supplier’s net tax for that reporting period in March (scenarios A to C) or April (scenario D) of 2010, we have assumed that either the return for that period was filed sufficiently late or one of the exceptions to the allowable period for assessment (for example, the supplier made a misrepresentation that is attributable to its neglect, carelessness or wilful default) applied in this case.

Question 1

As noted in the CBA’s submission, paragraph 225(4)(c) allows a recipient to claim an ITC beyond the regular limitation periods outlined under paragraphs 225(4)(a) and (b), provided the following conditions are met:

  1. The supplier did not charge the GST/HST to the recipient within the four-year period after the end of the reporting period in which the supply was made.
  2. The supplier charges the previously unbilled GST/HST and discloses in writing that the Minister has assessed the supplier for the GST/HST.
  3. The recipient pays the GST/HST to the supplier before claiming the ITC.

Where these conditions are satisfied, the recipient would generally be eligible to claim the ITC in the reporting period in which it paid the GST/HST to the supplier (*note the return for this reporting period must also be filed by its due date). If not claimed in this reporting period, the ITC becomes unrecoverable.

In each of scenarios A to C, all of these conditions appear to have been met. Therefore, the recipient would be eligible to claim the ITC, assuming all other requirements to claim the ITC have been satisfied.

Question 2

To be eligible to claim an otherwise statute-barred ITC under paragraph 225(4)(c), the second condition outlined above requires the supplier to have disclosed in writing to the recipient that the Minister has assessed the supplier for the uncollected tax.

In Scenario D, the recipient claimed the ITC in its February 2010 return before the supplier had even been assessed the tax in April of that year. Therefore, regardless of when the recipient’s return was audited by the Minister, this condition was not satisfied when it filed the return and, as a result, it was not eligible to claim the ITC at that time. Further, since paragraph 225(4)(c) requires the recipient to claim the ITC by the due date of its February 2010 return, even if the recipient didn’t file that return until after it obtained the supplier’s notice of assessment in April, it would not have been eligible to claim the ITC at that time either.