Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Would You Like To Play Audit Roulette In Ontario?

Last week at the Canadian Institute of Chartered Accountants Commodity Tax Symposium West in Calgary, a representative of Ontario stated to the audience that Ontario planned to conduct retail sales tax audits of most businesses in the next two years.

Pursuant to the Retail Sales Tax Act (Ontario), the normal audit period is four years. The audit period may be extended where there has been a misrepresentation attributable to neglect, carelessness or wilful default.

This is important to know because after the implementation of the harmonized sales tax (HST) on July 1, 2010, the Ontario Government will want to make sure that it has received all the retail sales tax required under the law as it was prior to HST. Just because we are moving to the HST, retail sales tax liabilities will continue. Auditors will continue to visit businesses (some would say plague businesses - but that is not very nice).

Businesses are now playing audit roulette. Will the auditor find the retail sales tax problems/mistakes that the business has been ignoring?

Businesses have three primary choices:

1. Continue to play audit roulette by continuing to ignore legacy retail sales tax problems;

2. Conduct an internal audit or control audit with a sales tax lawyer, accountant or consultant, identify the existing problems, and make a voluntary disclosure to report the mistakes to the Ministry of Revenue (come clean so to speak); and

3. Conduct an internal audit or control audit with a sales tax lawyer, accountant or consultant, identify the existing problems/mistakes and improved the processes and retroactively solve the problems to reduce exposure. For example, if a business sells goods that will be incorporated into goods for resale or will be resold by the purchaser, the business may ensure its purchase exemption certificates are in order. Another example would be that if a business should have collected tax on a transaction, they may send an invoice to the customer and remit the tax to the Ontario Government. Another example would be that if a business imported goods and failed to report and pay retail sales tax in respect of the importation, they may do so before an auditor knows on the door.

In addition, vendors and customers should communicate with each other about audits as the Minister is not entitled to impose a penalty on a vendor who failed to collect tax and assess the buyer for failure to pay tax on the same transaction --- the Minister cannot receive the same tax from both parties.

Audits take up the human resources of company officials and interfere with the operation of the business. Proactive steps by a business does save money, time and aggravation.

If you have any questions, please contact Cyndee Todgham Cherniak at 416-307-4168.

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