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Retroactive retail sales tax (RST)

Expert: Michael Fromstein

Helen asked:

My friend had a business several years ago and it was closed in 2000, they went through proper procedures to end the business but yesterday, all of a sudden, she got a letter from the ministry of revenue saying that she (personally) is owing retail sales tax from 1999 to 2006 because she didn't file her RST.

However, this business was a corporation and there was another shareholder, why was this only sent to her? If it's for the business wouldn't the letter mention the name of the business and c/o her since corporations are limited liabilties? And the business was closed in 2000 how can there be retail sales tax to file after that? the letter said that they had contacted her in the past, but she never got anything from them at all.

She never left Canada to live in other countries and she updates her address whenever she moves, how could it be possible to take 7 years to locate her?

Michael Fromstein answered:

She likely did not update the address of the non-active corporation with the Ministry of Finance. Likely she did not file a terminal retail sales tax return either or they would not still be under the impression that she is carrying on business. However, a seller has the responsibility of collecting 8% PST on the taxable items it sells. Absent sales, there is no liability for sales tax. However, if she closed down in 2000 and there are 1999 returns outstanding – the corporation may well owe PST.

Directors are liable for unremitted government funds they collect (source deductions, GST, PST) until at least 2 years after they resign as directors. Your friend may well not have filed her resignation as a director – leaving her potentially open to the 1999 liability.

As for the time delay – it is more likely that Ontario is improving its software to run exception reports and increase its compliance efforts. The City of Toronto just acknowledged that it will stop collection efforts on parking tickets from 20 years ago. Governments don't have to move quickly.

About the author

Michael Fromstein is a tax specialist with Integrated Professional Specialist Services.

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