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GST/HST — assessment of real estate agent on sale of condo was statute-barred

My client was a real estate agent. She filed her GST/HST returns on time every year. Unrelated to her real estate business, she also bought and sold two condominium units in Toronto, selling them in 2011 and 2013.

In 2018, the CRA, as part of its “real estate flipping” audit project, proposed to assess my client HST on the sale of the two condos. The client’s accountant sent her to me for assistance.

I identified that the proposed assessment was “statute-barred”, i.e., beyond the 4-year deadline after each return’s due date. Unless the CRA could show that my client made a misrepresentation on her return due to carelessness or neglect, the assessment could not be issued.

I spoke with the CRA auditor about this over the phone, and he maintained that because he had set up a different sub-account for the client (ending RT0002 instead of RT0001), and she had not filed a return for this different business, the assessment could be issued.

I then wrote to the auditor, quoting the legislation and explaining that based on the operation of paragraph 298(1)(a) of the Excise Tax Act (ETA), filing any return for a reporting period started the clock running for an assessment of that reporting period to become statute-barred, even if the registrant had multiple sub-accounts.

I further explained that the CRA is is not authorized to require a separate return from a registrant under the RT0002 number. Separate returns can be required under ETA section 239, but that requires an application by the registrant. As my client did not make any such application, the CRA was not permitted to assign her separate business sub-numbers, and even though it had done so, that did not create a different filing obligation that would stop paragraph 298(1)(a) from making the assessment statute-barred.

The auditor agreed, and withdrew his proposal to assess my client for HST.

Problem solved!