Late Notice of Objection allowed because company did not have full information
Patterson Dental Canada Inc. v. The Queen, was an application for extension of time to file a GST objection. (The rules for GST objections are virtually identical to those for income tax objections.)
Normally an objection must be filed within 90 days of a Notice of Assessment. An extension of up to one year beyond the deadline is available from the Tax Court, provided certain conditions are met. One of those conditions is that the person either has been “unable to act” during the 90 days, or has intended to object before the 90 days expired.
Patterson Dental (PDI), based in Montreal, sold dental equipment and products to dentists. One product was an anaesthetic solution containing epinephrine, a drug that is sold free of GST. PDI did not collect GST on these sales from 2005 until December 2008.
In December 2008, PDI became aware that Revenu Québec, which administers the GST in Quebec, had stated that a solution containing epinephrine was not the same as epinephrine itself, and was taxable. As this statement was clear and definitive, and PDI wanted to comply with its tax obligations, PDI started collecting and remitting GST on its sales of the solution. PDI was audited in 2009-10, and the RQ auditor was again clear that the anaesthetic solution was taxable. The auditor issued an assessment in March 2010 for over $1 million of GST not remitted on the solution from 2005-08.
PDI did not object within the 90-day deadline (by June 2010), because it had no reason to think the anaesthetic solution was not taxable. However, in March 2011, a GST consulting firm that was reviewing PDI’s affairs advised PDI that based on a 2007 Court decision on a related (but not identical) issue, the anaesthetic solution might well be free of GST.
PDI obtained a dental expert report on April 21, 2011, confirming that epinephrine was an essential ingredient of the solution, which would seem to make it free of GST based on the related Court case. Six days later, on April 27, 2011, PDI applied for an extension of time to object.
The CRA rejected the request for an extension of time, and PDI applied to the Tax Court for the extension. It was clear that PDI had not intended to object before the 90 days expired. The issue therefore was whether PDI was “unable to act” during the 90 days.
The Tax Court judge allowed the application. In his view, PDI was “unable to act” because it did not have full information. The related Court case had been decided several years earlier, yet the RQ auditor was unaware of it and so did not bring it to PDI’s attention. PDI’s decision not to object within the 90 days “was not a fully informed one”, as it was based on RQ’s definitive statements that the anaesthetic solution was taxable.
Furthermore, it would be “just and equitable” to allow the application, meeting another of the conditions for an extension of time. The issue of whether the anaesthetic solution was taxable was clearly a legitimate and serious one, and deserved to be addressed, especially since over $1million was at stake. PDI had “demonstrated a history of willingness to voluntarily comply with its tax obligations”, and should not be left without a remedy.
This case breaks new ground in allowing an extension of time even where the taxpayer in question did not actually form an intention to appeal within the 90 days.