I came across an interesting article on the H&R Block blog site regarding the Canada Revenue Agency (CRA) and their upcoming strategy regarding dormant GST accounts. The original article can be found right here. Having spent almost 11-years working for the CRA – almost 2 of those years dedicated to GST, I am very familiar with the problem the CRA faces by having many GST accounts open and unaccounted for. When the CRA is unsure as to whether the account is open, active and not filing, or open, inactive and never used can often be difficult to determine is the phone number and address on file at the time of registration are no longer applicable.
As many of you are already aware, not filing GST returns is a criminal offence under the Excise Tax Act for which the CRA can, and will prosecute taxpayers. When the CRA moves to action on these accounts their intention is in their approach so if they suspect the file was opened in error, or can be sure it is not required then they will call, or have a field officer drop by the residence or business to ask about the account. If, however, they have reason to believe that the account is open and just not-filing, maybe as a result of a telephone conversation, then they approach this completely differently.
In this case, the CRA will begin to collect information for their permanent diary and see how the story differs from the information provided by the taxpayer. Once they notice a difference, they move in with a Demand to File, which is an indication that they intend to prosecute.
The CRA understand that taxpayers register GST accounts then move and fail to update their address with the CRA (HUGE mistake!) at which point the CRA needs to determine if the account is inactive or a non-filer. If this is you, or someone you know, it’s best to take care of this right now.
A common example would be this; a taxpayer opened a business which operated as a sole proprietorship (SoleProp) for 18-months until it incorporated. The new corporation (NewCorp) registered a GST account and began to make its quarterly installments, while the SoleProp no longer had any income attached to it, but instead of closing it, the owner filed nil returns for the next 3-years.
This is an example of an account the CRA would happily close over the phone because the trail is clear and both are current.
Normally, you need to complete a RC145 Form (used to be a GST11)– Request to Close Business Number Program Accounts in order to close your GST account, however under this program, the CRA will close the account if you give them permission over the phone.
Whether the account is closed or not, you still have to file all your outstanding GST/HST returns and pay any amounts owing up until the day your business ends because closing your account does not exempt you from paying any GST owed back to the CRA. In addition, if you have business assets and shut down the operation, the assets are deemed disposed of at Fair Market Value (FMV) on the day you stopped operating so you will need to calculate the GST on the value of your assets, too. You will also want to make sure that you capture any bad debts on that final GST return if you have not previously.
If you sell to a purchaser who is a GST registrant and who continues to operate the business, you can jointly file a Form GST44, Election Concerning the Acquisition of a Business or Part of a Business, so the purchaser does not have to collect and you do not have to pay GST.
The important thing to remember about the GST is that once you open an account it remains open until you take action to close it. If you have a dormant GST account and the CRA is calling you, it will save you time to answer the phone and provide permission to close it. If you fail to close it and the CRA is unable to get in touch with you, they can enforce collection actions against you and raise director’s liability to hold you personally liable to corporate debts, as well as the previously mentioned criminal prosecution. Stopping this kind of action can be difficult once the CRA has determined that you are hiding something from them.
Do not wait for the CRA to come collecting their returns or their GST, but if you are already embroiled into a battle with the CRA over notional assessments or GST amounts owing, or worse if you have received a Demand to File notice from the CRA that they are intending to assess you as a director of the corporation and are seeking a due diligence defence, you need professional help right away.
I can help!
Just visit http://www.intaxicating.ca and see how Intaxicating Tax Services can assist you in all your CRA matters. Passionate about Tax. Passionate about helping people.