Penalties, Interest and Wash Transactions
A wash transaction occurs where a registrant supplier fails to bill or collect GST/HST on the supply of goods or services to a registrant that would be entitled to a full input tax credit, or fails to bill or collect QST on the supply of property or services to a registrant that would be entitled to a full input tax refund.
Revenu Québec may reduce the penalties and interest that apply to such a transaction. Tax relief measures may also apply if a wash transaction is disclosed voluntarily.
In respect of the GST/HST, Revenu Québec applies the guidelines laid down by the Canada Revenue Agency.
If justified by the circumstances, Revenu Québec may reduce the interest and penalties payable in respect of a wash transaction to 4% of the uncollected QST.
Also, where a registrant voluntarily discloses to Revenu Québec an omission or error considered to be a wash transaction, Revenu Québec may elect not to assess the duties that should have been collected by the supplier in respect of the transaction. In such circumstances, no interest is payable.
Revenu Québec may reduce the interest payable in respect of a wash transaction to 4% of the uncollected GST/HST.
Also, where a registrant voluntarily discloses to Revenu Québec an omission or error considered to be a wash transaction, Revenu Québec may reduce the interest payable to 0% of the transaction amount if the voluntary disclosure satisfies all the requisite conditions.
Note that for both the QST and the GST/HST, interest applies, as prescribed by law, to amounts unpaid after the date of assessment.
Persons who have failed to file returns or pay GST/HST or QST amounts for the current year or previous years can voluntarily rectify their tax situation by making a voluntary disclosure.
To find out more, see Voluntary Disclosure.
For further information, refer to interpretation bulletins LMR. 94.1-1/R6, Waiver or cancellation of interest, penalties or charges, and ADM. 4/R2, Voluntary Disclosures, or GST/HST Memorandum 16.3.1, Reduction of Penalty and Interest in Wash Transaction Situations.