Brief Situation Overview
The taxpayer operates an online store via Shopify that sells all kinds of jerseys to customers in North America, the UK, France and Australia. The taxpayer incorporated an Ontario Corporation, ON Corp, to carry on business and was its sole shareholder and sole director.
The CRA audited ON Corp in early 2023 for the period of 01 JAN 2017 – 31 JUL 2019 regarding GST / HST. The taxpayer’s accountant failed to provide representation because of a lack of technical expertise and advised the taxpayer to hire a tax lawyer.
The taxpayer hired the first tax lawyer for representation, but soon after being hired, the tax lawyer stopped responding to the taxpayer’s emails and phone calls. After some time, the tax lawyer’s website was deleted. Taxpage, the second Canadian tax lawyer hired by ON Corp, later discovered that the previous tax lawyer’s license was, in fact, suspended by the Law Society of Ontario (LSO). Neither the accountant nor the first Canadian tax lawyer who was hired retained any legal representation during CRA’s audit of ON Corp.
In September 2023, the CRA concluded the tax audit and issued ON Corp two (2) Notices of Assessment under the Excise Tax Act for the years 2017, 2018, 2019 and 2022, stating that it failed to remit HST / GST on its sales of jerseys and owed $140,000 in tax.
Problems & Challenges
Luckily, the taxpayer had retained all the sales records on Shopify. But because the CRA had already completed the tax audit, Taxpage had no option but to file a Notice of Objection.
Taxpayer missed the 90-day deadline to file a Notice of Objection
In November 2023, the taxpayer initially retained us on behalf of his corporation, ON Corp, to file a Notice of Objection to the Notice of Assessment issued on October 16, 2023, regarding the GST / HST reporting period from the 2017 to 2019 tax years.
We were initially unaware of the Notice of Assessment issued on September 5, 2023, regarding the GST / HST reporting period of 2022. Once Taxpage obtained access to the Appellant’s MyCRA Account, we found out about the Assessment in December 2023 and raised the issue with the taxpayer, who immediately instructed us to object to the Assessment.
This further complicated the situation because in addition to the Notice of Objection, we would also have to file an Extension of Time request with the CRA requesting an extension beyond the 90-day deadline to file the Objection.
The Approach & Solution
Taxpage used the sales records from Shopify to determine that over 95% of the jersey sales were made to customers based in the USA. About 3% of sales were made to customers based in the UK, France and Australia. The rules for GST / HST are clear that Canadian businesses do not charge GST / HST to non-resident clients.
Moreover, Shopify’s sales records also showed that ON Corp ceased operating in January 2021. Therefore, holding the company liable for the GST / HST payments for 2022 made no sense.
Lastly, Taxpage reviewed the tax audit decision letters of the CRA and discovered that neither the client, his accountant, nor his first tax lawyer ever provided any supporting documents to the CRA. This fact was confirmed by the taxpayer in the initial consultation.
Taxpage used the sales records from Shopify and prepared and filed Notices of Objection for the reassessments of 2017, 2018, 2019, and 2022, as well as an extension of time request for the reassessment issued for 2022.
In the Notices of Objection, Taxpage stated that all sales, except $26,000, were made to foreign customers in the US, UK, France and Australia, and therefore these foreign sales should be zero-rated. ON Corp was not obliged to collect and remit GST / HST on these sales.
Moreover, since the sales to Canadian customers were less than $30,000 / year, ON Corp was exempt from charging its Canadian customers GST / HST because it was a small supplier.
Results
The CRA tax auditor accepted the Extension of Time request and accepted our Objections for his review. After reviewing our Objections, the tax auditor vacated the reassessment issued for 2022 in whole and reduced the amount of tax owed for 2017, 2018, and 2019. In total, the CRA reduced the tax owed by ON Corp from $140,000 (approx.) to $3,000 (approx.).
Lessons Learned
First, Canadian taxpayers should make sure that they have online MyCRA Accounts for themselves and as well as their businesses. This not only allows you to keep track of all correspondence from the CRA, but also provides details of your statement of account with the CRA.
In addition, when Canadian taxpayers retain a Canadian tax lawyer to represent them, a Canadian tax lawyer can easily receive access to your MyCRA account and can review all correspondence and documents from CRA to make sure that you are not missing any deadlines. In this case, the taxpayer was proactive in this regard, had a MyCRA account and granted us access to it, which allowed us to find out about the 2022 reassessment and file an Objection to it.
Second, Taxpage advises all Canadian taxpayers to fully vet their tax accountants and Canadian tax lawyers before hiring them to provide representation with CRA. You can easily vet a Canadian tax lawyer by going to the respective Province’s Law Society website.
For example, in the case of Taxpage, with a simple search on the internet, anyone can find that all our lawyers are fully compliant with Law Society of Ontario (LSO) guidelines and the principal lawyer of the firm, David Jacob Rotfleisch, is a Certified Specialist (C.S.) in Taxation Law by the Law Society of Ontario (LSO). In Ontario, there are fewer than 20 Canadian tax lawyers who hold this designation.
It is also a good idea to check out the Google Reviews of a Canadian tax lawyer to see what other clients think. Here are the Google Reviews of Rotfleisch & Samulovitch PC.
Another way to vet a Canadian tax lawyer is to see if reporters, editors, and producers call on them to help the public understand tax problems. Here is the “In the Media” section of Taxpage’s vast website.
Thirdly, Taxpage advises all businesses to keep all sales records, receipts, invoices, and any other such important paperwork in their possession for 10 years. These documents should be organized and kept on a year-by-year basis. This helps save valuable time for meeting the short and stringent deadlines of CRA for filing Objections and review applications.
Disclaimer
This case study provides information of a general nature only. It is only current at the posting date. It is not updated, and it may no longer be current. It does not provide legal advice, nor can it be relied on. All tax situations are specific to their facts and will differ from the situations in Case Studies. If you have specific legal questions, you should consult an experienced Canadian tax lawyer.