Lohas – Tax Court of Canada finds that buyers made purchases of iPhones as agents for a grey market reseller

A grey marketer (Lohas) of newly-released iPhones purchased them in Vancouver-area Apple stores for export to Hong Kong and Taiwan, where those models were still unavailable. In order to get around Apple’s limit of two iPhones per purchase, Lohas used friends and acquaintances to make the purchases (the “buyers”). As the buyers did not charge GST to Lohas, whether it was entitled to input tax credits (ITCs) for the GST charged on their purchases turned on whether they purchased as its agents and on whether the documentation for their purchases satisfied the Input Tax Credit Information (GST/HST) Regulations.

The Crown’s best argument for the absence of an agency relationship was that “the buyers could not affect the legal position of Lohas, since the principal could not have contracted with Apple.” In rejecting this argument, D’Auray J stated:

… [A]ssuming the buyers purchases were in violation of Apple policy[,] at most, this made the purchase contracts voidable and not void. It is clear from the evidence that the contracts were never avoided and remained binding on Lohas.

Although many of the receipts issued by the Apple stores had missing, fictitious or unreadable names for the buyers (as agents of Lohas), D’Auray J found that such deficiencies were cured in the case of purchases for which a “memo prepared by Lohas showed the name of each buyer, the iPhones purchases, the tax and the commissions paid” – so that ITCs were denied only for the relatively small number of purchases where this was not done.

Neal Armstrong. Summaries of Lohas Farm Inc. v. The Queen, 2019 TCC 197 under General Concepts – Agency, Input Tax Credit Information (GST/HST Regulations, s. 3(c)(ii) and General Concepts – Onus.