by Marc Weisman of Torkin Manes LLP
The Canada Revenue Agency (the “CRA”) has recently changed its practice of backdating registrations for GST/HST.
A person (i.e., an individual, partnership, trust and corporation) is required to register for GST/HST when that person makes a taxable supply in Canada. A person can ‘voluntarily’ register for GST/HST even if the person does not make a taxable supply in Canada.
A frequent example of voluntary registration occurs when a corporation is created to acquire shares of a Canadian corporation. The acquisition corporation would not usually be required to register for GST/HST, since it does not make any taxable supplies in Canada. However, since it pays GST/HST on legal, accounting and other advisory fees in connection with the acquisition, the corporation will voluntarily register for GST/HST in order to claim input tax credits.
Traditionally, corporations do not register for GST/HST immediately upon incorporation. Administratively, the CRA allowed the backdating of voluntary registrations up to 30 days from the date of application for registration. The CRA has recently changed this administrative practice and no longer allows for the backdating of registrations. Consequently, such corporations may be denied input tax credits to which they would otherwise be entitled to had they registered for GST/HST earlier.
This change in administrative practice affects newly created corporations intending to carry on business in Canada (i.e., making taxable supplies in Canada). Consider the following situation: a corporation is established. The corporation’s legal and accounting advisors provide advice or services to the corporation concerning its upcoming business activities. Once the corporation is ready to begin carrying on business, it is registered for GST/HST. The corporation will be denied input tax credits for the GST/HST paid to its legal and accounting advisors before its registration.
Accordingly, corporations should be registered for GST/HST immediately upon their incorporation to ensure that they are not denied input tax credits.
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