Canada: CASE STUDY: Rotfleisch & Samulovitch Obtains $800,000 Refund On Successful Tax Appeal

Last Updated: July 27 2016
Article by David Rotfleisch

Brief Situation Overview

A trust examiner conducted an HST audit of The Canadian Auto Exchange for 2013 reporting periods. As a result of the examination, all input tax credits (ITCs) claimed by The Canadian Auto Exchange during that period were disallowed. The CRA reassessed and denied all the credits claimed during the examination period in addition to all subsequent HST periods. The analysis of the tax examiner was flawed and resulted in over $800,000 in denied ITCs.

Toronto tax lawyers Rotfleisch & Samulovitch were hired by the client to assist with the GST/HST appeal case.

Problems & Challenges

The Canadian Auto Exchange exports vehicles to other countries so collecting supporting documents was challenging. The Appeals Division at the CRA was, at times, less than reasonable with their requests for documents and it was necessary for Toronto tax lawyers Rotfleisch&Samulovitch to request extensions in order to meet CRA's expectations. At one point, the CRA requested documents that our client was not legally entitled to request from a foreign jurisdiction. The documents included bills of lading and dock receipts for vehicles sold overseas. Based on our tax advice, our client traveled overseas to secure the documents in a demonstration of good faith to the CRA Appeals Division. Rotfleisch&Samulovitch tax lawyers determined that compliance with the unreasonable request was the best way to try to win the HST tax appeal case.

The original issue with the GST/HST audit was a flawed interpretation of principal and agency concepts. The CRA GST/HST tax auditor concluded that The Canadian Auto Exchange was an agent acting on behalf of a foreign principal and therefore not a recipient of supply. This incorrect characterization resulted in the denial of previously claimed ITCs. This conclusion failed to take into consideration key factors about the operations of the business. Toronto tax lawyers Rotfleisch&Samulovitch identified and provided supporting information for financing agreements, repair expenses, shipping arrangements, insurance policies, payment structures, etc. in order to refute the CRA GST/HST auditor's position.

The Approach & Solution

The Canadian Auto Exchange retained Toronto tax lawyers Rotfleisch&Samulovitch to represent their interests and object on their behalf. Specific actions included the following:

  • A Notice of Objection to the incorrect assessment was prepared and filed.
  • A memorandum on agency in GST/HST cases was created and was later used to refute the position taken by the HST examiner.
  • Revised agreements were drafted to reflect the true relationships and intentions between our client and third party overseas purchasers.
  • Requests were made under the Access to Information Act in order to release documents held by the CRA about our client.

CRA's Appeals Division contacted Rotfleisch&Samulovitch regarding the Notice of Objection and requested supporting documentation. CRA requested that our client prepare a detailed listing of all purchase invoices and receipts, a detailed sales listing, and detailed breakdown of select items in the corporation's bank statements. Rotfleisch&Samulovitch tax lawyers realized that this request was substantial and that our client would need more time to respond to the request. We prepared extension requests which enabled our client, and our client's retained accountant, to prepare the necessary documents. The extension request was accepted and our client was able to adhere to the new deadline. If the extension had not been granted, the CRA would not have been able to reassess our client based on the documents in their possession at the time of the deadline, so we would have challenged the denial.

We retained an accountant to assist in the preparation of submissions to the Appeals Division. In the course of doing so, it was discovered that our client was eligible for additional input tax credits. We reviewed and submitted amended returns to the CRA claiming the additional tax credits over and above the original claim.

We made submissions to the Appeals Officer and provided all requested documentation.

The Appeals Officer replied to our submissions with a request for additional documentation. The Officer wanted information on a small sampling of the vehicles that had been sold overseas. To prepare the sample, documents such as bills of lading and dock receipts were needed. We advised our client to travel overseas in order to collect the documents so that he may be entitled to the additional ITCs we discovered while reviewing his books. Toronto tax lawyers Rotfleisch&Samulovith made additional submissions to the Appeals officer wherein we provided the requested documents.

The Appeals Division accepted our arguments and the CRA reassessed our client to allow all of the previously denied ITCs. In addition, the unclaimed ITCs that Toronto tax lawyers Rotfleisch&Samulovitchdiscovered were allowed.


The Toronto tax lawyers at Rotfleisch&Samulovitch Professional Corporation were able to prove to CRA that the tax assessment of The Canadian Auto Exchange was wrong. The Appeals Division accepted our submission and our client received an HST refund cheque for $847,923.14 from the CRA.

Tax Audit & Appeals Advice

  • On receipt of a wrongful assessment by CRA, always contact an experienced Canadian tax lawyer.
  • Respond to the assessment point-by-point, until all points have been covered.
  • Respond to a Notice of Assessment on a timely basis.
  • Provide all supporting documentation to the tax auditor.
  • Be polite but firm. Experienced tax lawyers such as Rotfleisch&Samulovitch will know when CRA personnel have crossed the line into unreasonableness and will advise you accordingly.

They will work with your Canadian tax lawyer to preserve your appeal rights. You may discover amounts legitimately owing to you at a later date. If you can prove that those amounts are owed to you, the CRA must accept it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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