Entrepôt Frigorifique – Tax Court of Canada finds no obligation of a registrant claiming ITCs to perform supplementary due diligence on its suppliers

The appellant (Frigo) was assessed beyond the normal four-year ETA assessment period to deny input tax credits (ITCs) for GST charged to it by placement agencies though which Frigo had been supplied with temporary workers. The Crown took the position that the agencies which, although registered for GST purposes, had not remitted the GST collected by them from Frigo, were not the actual suppliers of the temporary workers, and that Frigo was complicit in their stratagem to misappropriate GST; and, in particular, alleged that Frigo had sufficient information to be put on guard so that it should have engaged in supplementary inquiries (rather than merely having checked that they had valid GST registrations) before paying the placement agencies’ invoices.

In rejecting this position, Boyle J stated:

I cannot interpret the ETA and the Regulations as imposing an undeclared obligation on every Canadian business purchasing commercial supplies to exercise additional due diligence with respect to each of its duly registered suppliers, which would include, as claims the respondent in this case, the examination of the physical establishment of the new supplier, its agreements with its personnel, its intention to use subcontractors to carry out the supply, and more — all without even being able to know if the duly registered and verified supplier is in arrears in the payment of GST collected, employee withholding taxes or provincial sales tax, or is otherwise not complying with its tax obligations.

Neal Armstrong. Summary of Entrepôt Frigorifique International Inc. v. The King, 2024 CCI 78 under ETA s. 169(4).