When the Ontario government repealed the Retail Sales Tax (RST) in favour of the new Harmonized Sales Tax (HST), it transferred audit and collection activities to the Canada Revenue Agency. Unfortunately, that doesn’t mean Ontario restaurants can forget about the old RST!
Ontario is still responsible for auditing the old RST for periods up to June 30, 2010. Under the Statute of Limitations, Ontario has up to four years to audit the RST. Actually, they can go back more than four years, if they can show fraud or misrepresentation or if they obtain a waiver from the taxpayer.
Many of these Ontario auditors will be transferring to the CRA in 2012. So, they are racing to complete audits of most Ontario RST vendors. This is especially true for Ontario restaurants, which have always been a target of the Ministry of Revenue.
Usually, near the end of an audit, the tax auditor presents his or her proposed adjustments and gives the taxpayer about 30 days to respond with additional information and arguments before issuing a formal reassessment. This has always been an important time to correct auditor errors and present facts and evidence to convince the auditor to change his or her reassessment. Recently however, given the rush to get all of their audits completed, Ontario auditors have been bypassing this phase and proceeding directly to reassessments.
Even though such reassessments can still be appealed, this presents several significant problems to the taxpayer:
- Appeals are costly!
- Appeals can take an awful long time to be addressed by the appeals officer (18 months on average – Ontario)
- Many appeals officers simply affirm the auditor’s reassessment, forcing the taxpayer to appeal to the courts (even more costly)
- Taxpayers must pay the reassessed taxes, penalties and interest, even though they are appealing
- Restaurants cannot renew or transfer their liquor licenses if they have a RST balance owing.
If you are being audited by the Ministry of Revenue, the best advice I can provide is to seek professional advice prior to the audit. You must be prepared before the auditor arrives. Armed with the right information going into an audit, it is usually possible to avoid large tax bills at the end. Otherwise, you may get a nasty reassessment notice in the mail, kicking off the start of a long and costly process to set things right.