The vendor (appellant), winding up its limousine business, sold the limousines. The buyer registered them with the Ministry of Transportation and paid 13% Ontario retail sales tax. Knowing that the buyer paid (or would pay) the retail sales tax, the vendor did not collect or remit HST.
Justice D’Auray gives an illuminating explanation of how the 13% Ontario Motor Vehicle Tax interacts with the GST/HST. She concludes by noting that the buyer may be able to get a refund for tax paid in error, because tax is not payable if the sale was subject to HST.
The Ontario Retail Sales Tax Act says:
Exemptions
4.2
(4) Subsections (1) and (1.1) do not apply in respect of a specified vehicle that is,
…
(b.1) acquired after June 30, 2010 by a purchaser at a sale that is,
(i) a taxable supply by a registrant under Part IX of the Excise Tax Act (Canada), or
(ii) an exempt supply under Part I of Schedule V to the Excise Tax Act (Canada), other than an exempt supply prescribed by the Minister;
(Subsection 4.2(1.1) imposes the 13% tax on vehicles acquired after June 2010.)
Justice D’Auray describes the situation as “a very unfortunate situation”. [17]. But ETA s. 224 allows the seller to sue the buyer for the HST that was paid. There would be no reason to use that rule, though.
The buyer will be a GST registrant able to claim input tax credits. The seller (the appellant) can issue an invoice or just “disclose in writing” that it has been assessed, and the buyer could claim the input tax credit: 225(4)(c).
The buyer would also have an obligation to pay the tax, unless the tax was included in the purchase price. Probably the buyer would struggle to argue that tax was included in the purchase price, since the RST would be imposed on top of the price and the buyer might get that back through the Ministry of Transportation. If the buyer can get its money back from Ontario, the buyer really doesn’t have any cost from paying the vendor (and then claiming an ITC for the amount paid.) So the buyer won’t care. If the buyer can’t get the refund, then it may have a reason to argue that the HST was included in the sale price.
Brian & Deborah Dewan Enterprises Ltd. v. The Queen 2017 TCC 135 (D’Auray)
For a case with essentially identical reasons, involving gas station owners who sold a used truck, see Aswal v. The Queen 2017 TCC 134 (D’Auray, J.)