BMO – Federal Court of Appeal approves the extensive reasons of Walker J in confirming that CRA did not unreasonably reject the Bank’s proposed ITC methodology
In affirming the decision of Walker J below in the BMO case, Noël CJ stated:
[T]he Federal Court identified the correct standard of review and applied it properly. In order to explain why we come to this view, we can do no better than adopt as our own the reasons of the Federal Court.
That decision concerned the rejection by the Minister of the request of the Bank for approval of an “output method formula” ITC allocation method on the basis inter alia that such method “did not result in a reasonable approximation of the inputs it used to provide zero-rated financial services to non-residents of Canada.” “Distorting factors” identified by the Minister included what she considered to be a violation of the “first order supply rule” that “a business cannot recover GST incurred on inputs acquired to make exempt supplies, even when those exempt supplies enable the business to make other taxable supplies” and the factor that the Bank’s method, by taking into account cross-border branch loans and excluding domestic intra-bank loans effectively ignored that the latter activity also “represent[ed] real activities” that consumed inputs in a largely exempt activity.
She also stated:
I agree with the Bank’s submission that the effect of section 141.02 is to strip QIs [such as banks and investment dealers] of the right to appeal to the TCC the question of whether their ITC computation methods are fair and reasonable. ...
Both the Bank’s methodology and what the Minister might have been prepared to accept appeared to treat interest costs on foreign borrowings by the Bank as a proxy for zero-rated supplies made by it, and Walker J did not demur.
Neal Armstrong. Summary of Bank of Montreal v. Canada (Attorney General), 2021 FCA 189 under s. 141.02(18), and summaries of Bank of Montreal v. Canada (Attorney General), 2020 FC 1014, aff'd 2021 FCA 189 under s. 141.02(18), s. 141.01(5), s. 123(1) – financial service – para. (d) and Sched. VI, Pt. IX, s. 1.