3533158 Canada – Federal Court finds that CRA was justified in not assessing returns which had ITC claims that had gone stale due to CRA requiring the returns to be refiled

After the taxpayer (“353”) learned from CRA that its US parent had been incorrectly claiming input tax credits (ITCs) that should have been claimed by 353, 353 filed a single global GST/HST return covering the period from August 1, 2012 to August 31, 2016 without allocating the reported items between reporting periods. At the filing time, all the claimed ITCs were within the four-year limitation period in s. 225(4) for claiming ITCs. After being informed by CRA five months later that the global return could not be processed, 353 promptly filed quarterly returns covering the same period. Shortly thereafter, CRA informed 353 that it could not process the returns for the three quarterly reporting periods covering the period up to April 30, 2013 (the “initial three quarters”) because the GST/HST registration of 353 was effective only from December 1, 2014. This registration-date issue was not resolved until over three months later, when CRA changed the effective date of the registration to August 1, 2012.

353 then refiled the returns for the initial three quarters, and CRA then assessed 353’s returns – but apparently not the initial three quarters. It refused to issue refunds for those quarters on the basis that the related (corrected) returns had not been filed within the four-year ITC limitation period under s. 225(4)(b), but processed the refund claims for the other returns.

353 brought a mandamus application before the Federal Court to compel the Minister to grant refunds in respect of the initial three quarters.

Régimbald J found that 353 had failed to establish a clear right to its refund claims. In particular, s. 296(4)(b) precluded the Minister, when assessing, to refund an overpayment of tax (attributable to an ITC) if, on that assessment date, such ITC could not have been claimed on that date in a return. The refund claims for the initial three quarters did not satisfy this test because the ITC claims on which they were based were beyond the four-year limitation period set out in s. 225(4). Régimbald J rejected 353’s submission that s. 296(4) so applied only to ITCs that had never been claimed by the registrant (and only identified by CRA on audit) on the basis inter alia that this would be inconsistent with s. 296(4)(b) referencing ITCs (generally) rather than only “allowable credits”) (re “new” ITCs).

Régimbald J stated:

[U]nder subsection 296(4), if the ITC is still allowable within the limitation period under subsection 225(4) (regardless of whether it was claimed at the time or “discovered” during the assessment), the ITC can be refunded because it remains eligible at the date of the assessment. However, if on the date of the assessment, the ITCs are no longer allowable, then the Minister cannot refund.

The fact that CRA had not assessed the initial three quarters may have precluded 353 from being able to require CRA to allow the ITC claims for those quarters pursuant to s. 296(2) – see Pawlak. Régimbald J essentially found that CRA was justified in not assessing the initial three quarters on the basis that the related ITCs claims were barred by s. 296(4)(b) – but did not discus the “trumping” of this provision by s. 296(2).

Neal Armstrong. Summaries of 3533158 Canada Inc. v. Canada (Attorney General), 2024 FC 1090 under ETA s. 296(4)(b), s. 123(1) – registrant, s. 238(1), Interpretation Act, s. 32, Federal Courts Act, s. 18.1(2).