29 August 2000 GST/HST Interpretation 32290 - Input Tax Credit Claims on Insurance Settlement

This is in reply to your e-mail concerning the claiming of input tax credits (ITCs) by a GST registrant on repair services related to an insurance claim. We offer our comments as follows:

Case #1: A GST registrant was invoiced only the GST amount by the repair company for work done with respect to an insurance claim while the insurance company was invoiced the repair amount. Two years later, when it was indicated to the registrant that this GST only invoicing was not acceptable for purposes of claiming an ITC, the registrant produced a manual revised invoice from the repair company showing the full repair cost plus GST. Pursuant to subsection 169(4) of the Excise Tax Act (the "Act") a registrant may not claim an input tax credit for a reporting period unless, prior to filing of the tax return in which the credit is claimed, the registrant has sufficient documentary evidence to support the claim including such information which is prescribed under the Input Tax Credit Information Regulations. Therefore, at the time the registrant originally claimed the ITC, the registrant was not eligible to claim the ITC as the registrant had not complied with the documentary requirements under subsection 169(4). However, at the time all of the conditions in section 169 are met, including the documentary requirements under subsection 169(4) (e.g., a valid revised invoice is issued), the registrant is eligible to claim the ITC. This is based on the assumption that the registrant is not prevented from claiming the ITC as a result of the limitations set out in subsection 225(4).

Whether or not the revised invoice is a valid invoice is a question of fact. The fact that the revised invoice is issued two years after the transaction is not a reason for determining that the invoice is not valid. In addition, if the registrant is the recipient of the repair services and the insurance company is merely paying an amount to the repair company to satisfy its obligations under the insurance policy with the insured (i.e., the registrant), there would be no requirement for the supplier to issue a credit note to the insurer when a revised invoice is issued. XXXXX (e.g., the registrant was the recipient of the repair service and liable to pay the consideration and the related GST in respect of that supply) and is acceptable documentary evidence for the registrant's ITC claim.

It is important to note that, under subsection 169(5), the Minister, or a designated officer or agent, may exempt a specified registrant from the requirements under subsection 169(4) where the Minister is satisfied that sufficient records otherwise exist to support any claim for an input tax credit. (A list of these designations is found in the May 5, 2000 News Release.) This ministerial discretion may be exercised where there are or will be sufficient records available to establish the particulars of a supply and the tax in respect of the supply.

Case #2: The invoice was made to the registrant for both the amount of the repair cost plus the related GST, indicating that the repair cost would be paid by the insurance company and the GST would be paid by the registrant. Subsection 169(1) of the Act provides in general that a registrant is entitled to claim an input tax credit equal to the tax paid or payable by it on inputs acquired for use in its commercial activities. Accordingly, in an insurance settlement, if the registrant contracts for the repair services with the repair company and is liable for the repair cost, the registrant is considered the recipient of the supply and is liable for the related GST. The registrant would be eligible to claim the related input tax credit even though the registrant may only pay the tax portion of the repair services and the balance of the repair cost is paid by the insurance company on its behalf, provided that other requirements for the ITC claim are also met in the circumstance.

We recognize that in situations involving the acquisition of supplies related to the settlement of a claim under an insurance policy, it may be difficult to determine who is the recipient of the supply and liable to pay the tax and consequently, who may be elgible to claim an ITC for the GST payable. However, this is in part the result of the supplier not fulfilling its obligations under subsection 223(2) to provide on the request of the registrant sufficient documentation to support an ITC claim and the registrant not fulfilling its obligations under subsection 169(4) to obtain this documentation prior to claiming an ITC.

Currently, we are in the process of reviewing and updating our memorandum entitled "The GST Treatment of Insurance Claims." XXXXX

I trust the above will be of assistance to you. Should you wish to discuss the issues further, please do not hesitate to contact Phil Tang at 954-1433 or myself at 952-9219.

Dawn Weisberg
A/Manager
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate