Dealers Dodge a Bullet After Positive CRA Ruling

In a recent message to the industry, Boating Ontario's Executive Director, Al Donaldson, passed along news that the Canadian Automobile Dealers Association (CADA) and Trillium Automobile Dealers Association (TADA) have won a decision over the Canadian Revenue Agency (CRA) that will benefit marine dealers.

The CRA has reversed its decision to charge HST/GST on all financing income received by dealers from banks, meaning marine dealers will also no longer need to worry about paying additional taxes on referral fees.

A letter sent out by CADA's President and CEO, Rick Gauthier (dated February 5 of this year), stated that the "CRA's Appeals division has just confirmed that both conditional sales and financing contracts are deemed HST/GST exempt.' Additionally, he says the CRA's Appeals division has confirmed that it will be vacating all assessments on financing contracts. As a result, auto dealers who were already been forced to pay the tax have begun to receive significant refunds from those audits.

Prior to this resolution, a handful of larger Ontario-based marine dealers had already been audited by the CRA and instructed to pay taxes retroactively on referral fees for directing customers to particular retail financing providers. "If this had continued, then all marine dealers would have been audited and had to pay serious money,' says Donaldson.

In some cases, Donaldson says a marine dealership could find itself owing between $50,000 to $100,000. However, with the ruling in the CADA and TADA's favour, he says this will result in marine dealers as a whole saving millions of dollars in HST/GST payments, which they were not expected to recover. In the process of challenging the tax, the two auto associations have spent hundreds of thousands of dollars on legal fees.

"Fortunately, Boating Ontario was able to join forces with the automobile associations and piggyback at no cost onto their fight,' explains Donaldson. "They allowed us to meet with their lawyers and to use their services for very little cost. As a result, many of our members facing these costs will save a great deal of money thanks to the recent decision.'

The issue stems from the CRA changing the definition of a ‘financial service' back in December of 2009, making some referral fee transactions subject to HST/GST. Following definition change, the CRA began auditing dealers to pay the outstanding tax. Many dealers were caught unawares in 2012 when the CRA's audits first came to the attention of the auto associations. Dealers, not widely realizing the significance of the change, had continued to treat the referral fees as tax-exempt even years after CRA changed the definition.