29 October 1997 GST/HST Interpretation HQR0000306 - Documentary Requirements - Supplier's Registration Number

Dear XXXXX:

This letter is in response to your e-mail (attached) sent to Michael Matthews, dated March 22, 1996. I have been asked to respond. In your message, you are asking us to review the answers to questions GST 8f.4 and GST 8g.11 of Revenue Canada's question and answer database. You asked us whether an input tax credit can be claimed by a registered purchaser of a taxable supply when a vendor provides a false registration number. You also asked us whether a registrant has the obligation to verify the registration number of the suppliers from which an input has been acquired and which is the object of an input tax credit claim. We apologize for the delay in responding.

Questions and Answers Examined

Existing question and answer 8f.4 reads as follows:

"Q.: Can an input tax credit be invalidated if the vendor who collected GST on purchased goods or services was not registered or provided a false registration number?

A.: Subsection 221(1) requires every person who makes a taxable supply to collect the GST payable thereon from the recipient of the supply. One exception to this requirement is where the person is a small supplier with annual taxable supplies under $30,000 and is not registered for GST purposes. No tax is payable in respect of a supply if the supplier is not voluntarily registered or is not required to be registered.

Section 169 provides that, to the extent a taxable input is used in a commercial activity, the purchaser of this input, if registered for GST purposes, would be entitled to claim an input tax credit in respect of the GST paid on the taxable input.

If the purchaser was not involved in any fraudulent activity with respect to the purchase, he/she would be entitled to claim the ITC, and the vendor of the taxable supply, whether or not registered, would be liable to remit the GST collected. A vendor failing to remit the GST collected would be guilty of an offence and would be subject to the imposition of a penalty.

However, if the vendor of the input is not registered nor required to be registered, the input itself would not be subject to GST and therefore no input tax credit would be applicable under these circumstances. A purchaser who claims an ITC in respect of a purchase on which GST is not collectible may be subject to reassessment."

Question and answer 8g.11 reads as follows:

"Q.: Will a municipality be responsible for verifying the GST registration number for vendors who supply input tax credit claimable material? If so, what are the consequences if such verification is not supplied?

A.: It is not necessary for a registrant claiming input tax credits (nor for a non-registered organization claiming a rebate) to verify the registration number of suppliers. It will be necessary, however, to obtain and retain the documentary evidence required by regulation before a claim can be made. This evidence will likely include the registration number of a supplier where the supplies total $30.00 or more. Subsection 223(2) of the ETA provides that this information must be provided to the recipient upon demand. In the majority of cases this information will appear on invoices and receipts issued by suppliers in the normal course of business."

The Department's Position

Claimant: obligation to verify the supplier's registration number.

There is no provision creating an obligation for an input tax credit claimant to verify the supplier's registration number. Strictly, there is no such obligation. Where the registration number of the supplier is not correct, however, the related input tax credit claim is not valid. Where an invalid input tax credit has been claimed, the claimant may be subject to assessment and applicable interest and penalties.

Discretionary Power

Where the fact that a registration number is not accurate for the purposes of the Regulations is attributable to a clerical error, for example, discretion can still be used to validate the related input tax credit claim.

Where the documentary requirements provided for at subsection 169(4) are not met, subsection 169(5) of the ETA provides authority for the Minister of National Revenue to exempt a specified registrant, a specified class of registrants or registrants generally from any of the documentary requirements under subsection 169(4) of the Act for claiming input tax credits.

The Minister's discretionary power provided for at subsection 169(5) is delegated under the authority of subsection 275(3) of the ETA to various persons, including certain audit positions at the District or Regional levels. We have attached a copy of the relevant extracts of the delegation documents.

Questions and answers review

The answers to the above-noted questions identify the condition that tax must be payable by an input tax credit claimant for the claim to be valid. In this respect, they are correct. Hence, if no tax is payable in respect of the supply (such as if the supplier is not a registrant for example), a substantive condition for claiming an input tax credit is not met, as explained in the answers to questions 8f.4 and 8g.11.

Where the substantive conditions for claiming the input tax credit provided for at subsection 169(1) of the ETA are met, the documentary requirements provided for at subsection 169(4) of the Act must also be met.

Subsection 169(4) of the ETA provides that, before filing the return for the reporting period in which the input tax credit is to be claimed, the registrant must have obtained sufficient evidence in such form containing such information to allow the amount of the input tax credit to be determined, including information which may be prescribed under the Input Tax Credit Information Regulations (the Regulations).

The requirement to obtain the registration number of the supplier is found under paragraph 3(b)(ii) of the Regulations. This requirement exists where the total amount paid or payable shown on the supporting documentation in respect of the supply is $30 or more.

Please note that these Regulations are subject to proposed amendments. It is proposed that, where there is an intermediary in respect of the supply, which is the object of an input tax credit claim, the registration number of the intermediary is accepted under the Regulations. The proposed Regulations are to apply to supplies made after April 23, 1996. "Intermediary" is defined as: "'Intermediary' of a person, in respect of a supply, means a registrant who causes or facilitates the making of the supply by the person." For example, if a sales representative for a supplier without being the agent of that supplier makes a taxable supply on behalf of that supplier, the recipient claiming an input tax credit who has obtained the registration number of the sales representative would meet the relevant documentary requirement.

There is no requirement that the evidence needed to support an input tax credit claim be contained in a single document. It is not uncommon, particularly where written agreements are concerned, that primary documentation will need to be supplemented by additional material. For example, a contract for services may specify the particulars concerning the supplier, recipient, the terms of payment and the like, but the consideration and tax may be determined only on a periodic basis and documented in separate invoices. The agreement and invoice together will be satisfactory evidence in order to claim the input tax credit.

Some registrants, particularly during the early days of the GST, avoided printing their registration number on every invoice and receipt, simply notifying clients of their registration number in a letter or notice. This, combined with an agreement or invoice that contained the remaining required information, will also be satisfactory evidence to claim the input tax credit

Consequently, where the substantive conditions for claiming an input tax credit provided for in subsection 169(1) (including that tax be payable by the claimant) are met, the input tax credit related to a supply can be claimed in the reporting period where the required documentation has been obtained. The required information can be distributed in many documents inasmuch as it is clear the these documents relate to the supply that is the object of the input tax credit claim. If the registration number has not been obtained, no input tax credit may be claimed validly.

The onus is on the claimant to obtain sufficient evidence for making an input tax credit claim, including obtaining prescribed information. As the registration number of the supplier or the intermediary of the supplier in making the supply are prescribed information, an incorrect registration number does not meet the documentary requirements for claiming the related input tax credit.

This position is supported by the following jurisprudence (all judgments were rendered by the Tax Court of Canada):

Jadam Holdings Inc v The Queen, [1996] 2885 ETC, judgment rendered November 1, 1996.

Kenneth S Douglas v The Queen, [1996] 2853 ETC, judgment dated May 30, 1996.

Metro Exteriors Ltd v The Queen, [1995] 2889 ETC, judgment dated October 23, 1995.

San Clara Holdings Ltd v The Queen, [1995] 2801 ETC, judgment dated December 2, 1994

Conclusion

We will be revising the responses to the noted Questions and Answers to reflect these points. Thank you for bringing this to our attention.

If you have any questions, please do not hesitate to call the undersigned at (613) 952-8815.

Raymond Labelle
A/Rulings Officer
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Att.