GST Memoranda

G500-3 Assessments and Penalties (GST 500-3)

GST 500-3

ADMINISTRATION AND ENFORCEMENT
ASSESSMENTS AND PENALTIES
Ottawa, October 4, 1991

This memorandum provides a general overview of the assessment of the Goods and Services Tax (GST) and the responsibilities of the person liable for the collecting, remitting or paying the GST, the circumstances under which administrative and criminal penalties are imposed and the collection of any amount of tax or net tax. Information pertaining to the voluntary disclosure of unreported GST is also explained in this memorandum.

The following sub-series of memoranda will provide detailed information on assessments and penalties:

GST 500-3-1 Tax Audits
GST 500-3-2 Penalties and Interest
GST 500-3-3 Collection and Enforcement Activities
GST 500-3-4 Voluntary Disclosure

LEGISLATIVE REFERENCES

Excise Tax Act - sections 124, 283, 284, 296, 300 and 316 to 321, subsections 123(1), 270(2), 280(1), 280(2), 286(1), 286(2), 288(1), 289(1), 296(1), 298(1), 313(1), 314(1), 314(2), 315(2), 326(1) and 329(2)

Interest Rate (Excise Tax Act) Regulations

DEFINITIONS

The following definitions have either been taken from the Excise Tax Act as amended by S.C. 1990, c.45 (Bill C-62) or represent departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act;

"assessment" means an assessment under Part IX of the Excise Tax Act and includes a reassessment under this Part;

"authorized person" means a person authorized by the Minister for purposes of sections 288 to 292 of the Excise Tax Act;

"Department" means the Department of National Revenue, Customs and Excise;

"document" includes money, a security and a record;

"Minister" means the Minister of National Revenue;

"record" includes a book, an account, a statement, a voucher, an invoice, a letter, a telegram, an agreement and a memorandum, whether recorded in writing or in some other manner and whether or not some process must be applied to the record to make it readily intelligible;

"registrant" means a person who is registered under section 241, or who is required to apply to be registered under section 240 of the Excise Tax Act;

"reporting period" of a person means the reporting period of the person as determined under sections 245 to 251; and

"tax" means the Goods and Services Tax payable under Part IX of the Excise Tax Act.

GENERAL

1. The goal of the Department is to encourage and facilitate voluntary compliance with the provisions of the Excise Tax Act and its Regulations.

2. In accordance with the policy of voluntary compliance, persons who are registered are required to collect the taxes due, calculate and report the net tax on their GST returns, and remit the net tax payable. They are also required to maintain appropriate books and records and make such books and records available for departmental inspection to determine the amount of net tax due, or to prove the accuracy of any return or rebate claim.

3. The GST, therefore, operates under a self-assessment system in which registrants determine their own liability for tax or net tax and remit accordingly or request a net tax refund. Registrants must also determine their entitlement to a rebate and submit the appropriate claim form.

4. In order to verify compliance and enforce the provisions of the Act, auditors have been given the general authority to inspect, audit or examine any documents, property or process of any person and to assess any amount, such as tax or net tax, of a person or the person's representative as referred to in section 270 of the Act. In addition, auditors have the same authority to review the penalty or interest payable by the person or the Minister.

5. All amounts payable under Part IX of the Act are debts due to Her Majesty in Right of Canada as per subsection 313(1) and, as such, the Act provides for a number of methods by which the amounts payable may be collected.

ASSESSMENTS

6. The auditor will review the books and records of the person to determine the degree of compliance with the provisions of the legislation for the periods under consideration. This review could result in adjustments to the amounts owing or refundable for the periods under review.

7. An assessment may be made as a result of the audit or verification of a specific transaction, class of transactions, return for a particular period or returns for various periods of a registrant or non-registrant or the result of an examination of rebate claims.

8. Information pertaining to the audit of rebates and returns is available in GST MEMORANDUM 500-3-1, "TAX AUDITS".

9. At the conclusion of the audit, the auditor will provide the person audited with the details of the audit results. These will include the amount of any tax adjustments and the reasons for the adjustments.

10. Auditors will encourage the person audited to pay the assessment at the conclusion of the audit, prior to the issuance of the formal Notice of Assessment (NOA). This would enable the person to avoid further accrual of penalty and interest.

11. An NOA will be sent to the person assessed after the completion of an audit. The NOA may include assessments of more than one reporting period or transaction.

12. For additional discussion on reporting periods, refer to GST MEMORANDUM 500-2-1, "AUTHORIZED FISCAL PERIODS AND REPORTING PERIODS".

13. Assessments may be issued based on an estimated tax liability when a person refuses to file a return or fails to file in the prescribed manner.

14. Additional information pertaining to an estimated assessment is available in GST MEMORANDUM 500-3-3, "COLLECTION AND ENFORCEMENT ACTIVITIES".

15. In cases where there is an erroneous tax return due to a clerical error (e.g., transposition of numbers), an assessment will be sent to the person who filed the GST return notifying that person that either an additional payment is required or a refund is payable.

Time Limits

16. The general time limitation for an assessment of net tax is four years from the later of

(a) the date the person is required to file a return, and

(b) the date the return is actually filed.

17. However, in certain circumstances, an assessment can be made at any time and the four-year limitation will not apply. For detailed information on the circumstances under which the limitation will not apply, please refer to GST MEMORANDUM 500-3-1, "TAX AUDITS".

Objections to Assessment

18. Any person who has been assessed and who objects to the assessment may, within 90 days after the day the NOA is sent to the person, file with the Minister a Notice of Objection.

PENALTIES
Penalty and Interest

19. Penalty and interest under section 280 will be automatically calculated on all assessments.

20. A penalty of six per cent per year and interest at the rate prescribed by the Interest Rate (Excise Tax Act) Regulations will be levied on the amounts not remitted or paid, including the late or deficient instalments from the date the amounts become remittable.

21. Section 124 stipulates that a penalty computed at six per cent per year and the interest computed at a prescribed rate under the Interest Rate (Excise Tax Act) Regulations are compounded daily.

22. Every person who fails to provide any information or document as required under Part IX is liable to a penalty of $100 for each default, unless the Minister waives the penalty, or, in the case of a failure to provide information, a reasonable effort was made by the person to comply.

23. Detailed information on penalties and interest is available in GST MEMORANDUM 500-3-2, "PENALTIES AND INTEREST" and GST MEMORANDUM 500-2-2, "INSTALMENTS".

Offences

24. Failure to file or make a return or comply with a requirement to keep adequate books and records, to provide reasonable access to any document or property, or to provide any document or information as required is an offence. A person is liable on conviction to a fine of not less than $1,000 and not more than $25,000 and may also be sentenced to imprisonment for a term not exceeding one year.

25. Every person who fails to comply with any provision of Part IX, for which no other penalty is provided under the Offences subdivision of the Administration and Enforcement Division of the Act is guilty of an offence punishable on summary conviction and liable to a fine not exceeding $1,000.

26. The Minister may demand a person to file a return under section 282. A failure to comply with the demand will result in a penalty as provided in section 283 equal to the greater of

(a) $250, and

(b) five per cent of the amount of tax payable or net tax remittable by the person for the period or transaction designated in the demand that was unpaid or unremitted on the day that the return was due.

False Statements or Omissions

27. Every person who knowingly or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under Part IX, makes or participates in, assents to or acquiesces in the making of a false statement or omission in a return or other document made in respect of a reporting period or transaction is liable to a penalty equal to the greater of $250 and 25 per cent of the amount by which any amount owing is increased or rebate is reduced as a result of the false statement or omission.

COLLECTION AND ENFORCEMENT ACTIVITIES

28. Sections 316 to 322 provide the authority under which the Department may collect all tax, net tax, interest, penalties, costs and other amounts payable under Part IX and enforce those provisions pertaining to collection.

29. All amounts payable under Part IX, as referred to in paragraph 27 of this memorandum, are debts due to her Majesty in right of Canada and are recoverable as such in the Federal Court or any other court of competent jurisdiction or in any other manner provided under Part IX.

30. Collection action may not be taken under sections 316 to 321 in respect of any amounts, other than interest or penalty, unless that amount has been assessed.

31. Any amount assessed that remains unpaid is payable immediately upon mailing of the Notice of Assessment.

32. The Minister may accept security on an amount assessed that is or may become remittable or payable if the Minister considers it advisable in a particular case.

33. Where a person objects to or appeals from an assessment, the Minister shall accept security for any amount that is in dispute.

34. A collection action may be postponed, subject to certain terms and conditions, as stipulated by the Minister, against a person in respect of all or any part or any amount assessed that is the subject of a dispute.

35. For additional information on collection and enforcement activities, please refer to GST MEMORANDUM 500-3-2, "COLLECTION AND ENFORCEMENT ACTIVITIES".

VOLUNTARY DISCLOSURE

36. The Department recognizes that voluntary compliance is an essential element of the self-assessment system. Consequently, a policy of voluntary disclosure has been adopted to encourage persons to come forward and report any deficiencies to the Department.

37. A voluntary disclosure which follows notice of any audit or enforcement action taken by the Department will not be considered to be voluntary.

38. All disclosures may be subject to verification or audit.

39. Additional information is available in GST MEMORANDUM 500-3- 4, "VOLUNTARY DISCLOSURE".

NOTE: This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST office for additional information.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.