By Rob Lamberti
He tells AdvocateDaily.com the ruling in his successful case clarified two significant points in law: under the Excise Tax Act, there are no time limitations in a s. 224 suit to collect an outstanding tax debt; and the two-year limit under the Ontario Limitations Act begins when the cause for an action becomes known to the plaintiff rather than when the transaction occurred.
“These are significant points of law and now the case can serve as a guide for the appropriate limitation for cases that fall under s. 224 of the Excise Tax Act,” Huberman says. “It was not clear until now.”
The case revolved around an unpaid Harmonized Sales Tax (HST) payment in Ontario involving two sales of unrefined gold by his client to another firm.
He says his client was audited by the Canada Revenue Agency (CRA) in 2015 when it discovered that more than $1.57 million in HST wasn’t collected or paid in the $12.16-million sale. The deal, sealed in an oral contract in 2012, didn’t make mention of sales taxes, Huberman says.
The CRA took the unpaid tax from his client’s account, arguing the plaintiff should have collected the tax on behalf of the government from the buyer of the gold. At that point, Huberman says the plaintiff sued the buyer for the HST, plus interest and legal fees.
He argued before the Superior Court of Ontario that s. 224 of the Excise Tax Act allows a supplier to “bring an action in a court of competent jurisdiction to recover the tax from the recipient as though it were a debt due by the recipient to the supplier.”
“The buyer has the legal liability to pay it,” says Huberman. “Ours was simply to collect it and remit, which we didn’t do. The CRA scooped the money from my client’s corporate account, so we paid the outstanding bill.”
Huberman, acting for the firm, turned to an “esoteric section, 224, of the Excise Tax Act that affords companies like my client a statutory right of action to sue for the HST as though it was a debt owing to us.”
He says there are two preconditions to using the section: the plaintiff pays the outstanding tax and then sends the tax invoice or invoices to the buyer of the goods.
“So, we paid the tax and complied with the invoices to the defendants, and then we sued in 2016, about seven months after being assessed and paying the tax,” Huberman says. “We fell under the section and we had a right to sue.”
He says the defence raised one issue: what limitation period — if any — applied? The defendants argued that time limitations in both the Excise and Limitations Acts had expired.
Superior Court Justice James F. Diamond found the Excise Tax Act “does not contain any time limit within which the plaintiff must bring its legal proceeding.”
The court also found the plaintiff’s action was within the time limitations imposed by the Ontario Limitations Act, which formed the basis of the defendants’ argument.
“We got everything we asked for,” Huberman says. “It was a complete success for my client.”
He calls the ruling a “significant point of law” since it clarifies the absence of time limitations within a s. 224 suit. In the October hearing, he argued that the clock in the provincial limitation statute starts ticking at the moment it is legally discovered.
“The court says when you’re dealing with this kind of action, there is a two-year period that is applicable,” Huberman says. “Then the question becomes ‘when did that two-year period start?’”
Diamond agreed with Huberman’s contention that the plaintiff didn’t “possess any cause for action” until the CRA acted.
“While I do not condone the delay on the part of the plaintiff to properly invoice the subject transactions, the bottom line is that the plaintiff could not commence a legal proceeding until the CRA audit resulted in the payment by the plaintiff of the outstanding HST,” Diamond ruled.
And that’s when it was time for his client to launch the action, Huberman says.