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Around the Courts

by DMA Staff | Jun 29, 2020

The recent Federal Court of Appeal decision in Montecristo Jewellers is a cautionary tale about not relying on common sense when dealing with the GST and HST.

Montecristo sold high-end jewellery and watches at three stores in Vancouver. Many of its customers were from China and were taking their purchases home.

Goods exported from Canada are not subject to GST or HST. Montecristo’s customers wanted to make their purchases without paying the 12% HST that applied in B.C. at the time.

Montecristo arranged to deliver the goods to the customer as they were leaving Canada at Vancouver International Airport. A Montecristo employee carried the jewellery and accompanied the customer to the Canada Customs office at the airport, to get a record that the goods were being exported. The Customs official would stamp a Form E15 confirming export, the goods were handed to the customer, and the Customs official would walk the passenger over to see them through airport security (ensuring that any return would go back through Canada Customs).

This procedure might seem to work — if one is using common sense. After all, the goods were being exported, and Canada Customs was involved in ensuring that. Unfortunately for Montecristo, however, it was still making delivery in Canada, and was required to collect and remit HST on these sales.

The CRA assessed Montecristo for some $2.3 million of unremitted HST over three years, plus interest. Montecristo’s appeals to the Tax Court of Canada, and then the Federal Court of Appeal, were both dismissed. Even though it was clear that the goods actually left Canada, Montecristo did not meet the technical requirements for either zero-rating or for a “supply made outside Canada”.

This case is a lesson to any business trying to work around the GST/HST rules. Make sure you obtain competent professional advice from a GST/HST specialist, before believing that your approach will work!

This article is part of DMA's Canadian Sales Tax quarterly newsletter. Stay up to date with sales tax news, events, and information by signing up for the newsletter  here.