In AOK Payday Loans Inc. v The Queen,1 the taxpayer, AOK, tried to do an end-run around the GST rebate provisions that limit recovery of GST paid in error to two years. In an earlier Tax Court appeal by AOK, the Court agreed with the Canada Revenue Agency (the "CRA") that AOK was beyond the two-year period within which to claim a rebate of $90,200 for GST remitted in error to CRA. Thus, the Tax Court upheld the CRA's assessment to deny this GST rebate claim (the "First Assessment").2
AOK then claimed input tax credits ("ITCs") on its November 2010 GST return to recover the $90,200 GST remitted in error. CRA raised an assessment to deny the ITCs (the "Second Assessment"). AOK appealed the Second Assessment to the Tax Court, which agreed that there was no basis for the ITC claims. In the alternative, AOK sought to recover the GST remitted in error through the application of subsections 296(2.1), (3.1) and (4.1) of the Excise Tax Act (the "ETA").
These provisions establish a detailed code for when an unclaimed GST rebate of a person should be credited or refunded by CRA to a person as a result of the CRA's assessment of net tax or another overdue amount against that person. As AOK had already (unsuccessfully) claimed the GST rebate (the subject of the First Assessment and earlier Tax Court appeal),3 AOK failed to satisfy one of the conditions in these provisions. Therefore, the Tax Court did not allow a credit or refund for the amount of the previously claimed GST rebate (i.e., this claim could not be resurrected by the Second Assessment).
This finding was sufficient to dispose of AOK's appeal. The Tax Court, however, went on to consider whether AOK's appeal of the Second Assessment would have been allowed had AOK not previously filed a GST rebate application. As no net tax was owing by AOK for the November 2010 reporting period, the GST rebate could not have been credited in the reporting period.4 There was no other tax amount in default against which to offset the GST rebate5, leaving a refund amount. Such a refund claim6 would be subject to the strict two-year rebate claim period calculated from the date of the Second Assessment (which could not be met).7
This case is instructive in at least three respects. Firstly, despite what the Tax Court acknowledged was an unfair result in this case (in fact, recommending that AOK apply under the Financial Administration Act to the federal government for remission of the GST remitted in error), limitation periods for ITC and rebate claims will be strictly enforced against taxpayers. Secondly, should a taxpayer be assessed, then the taxpayer should consider whether there is any opportunity to receive a credit or refund for any unclaimed ITC or any other deduction from net tax, or for any GST/HST rebate. Thirdly, provisions in section 296 of the ETA set out a strict hierarchical code of conditions to be met to allow such a credit or refund.