Section 169 - Input Tax Credits

Subsection 169(1) - General Rule for Credits

Cases

Canada v. General Motors of Canada Limited, [2009] GSTC 64, 2009 FCA 114

services for pension plans represented compensation costs relating to taxable sales

The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its unionized employees. It was the recipient of portfolio advisory services as it rather than the plans was contractually liable to pay the advisors' fees, and the Crown did not dispute that it also "acquired" those services if s. 167.1 did not apply to deem those services to instead have been acquired by the plans (which it did not).

These services also satisfied the requirement in s. 169(1) that they have been acquired by it in the course of its commercial activities. As noted by the Campbell, J below, its employee compensation program was a necessary adjunct to its making taxable sales, and it was contractually obligated to maintain the plans as part of that program.

Haggart v. Canada, 2003 FCA 446

legal costs of shareholder too remote

GST on legal services supplied to the applicant to enable him and his company to obtain damages from a bank for wrongfully calling in a loan to the company, thereby forcing it out of business, was not eligible for an input tax credit given that the applicant had not established a connection, direct or indirect, between his purchase of the legal services and any ongoing supply of taxable services. This conclusion was supported by the finding made by the Alberta Court of Appeal in upholding the award of damages made to the applicant that the damages were more accurately characterized as compensation for the total destruction of the business, rather than for loss of profit.

London Life Insurance Co. v. Canada, [2000] GSTC 111 (FCA)

leasehold construction services were acquired for supply of leasehold improvements to landlord

Under the terms of its leases, the Appellant, whose principal buisness was providing exempt financial services, undertook leasehold improvements to the leased premises at a cost of about $2.1 million and received tenant improvement allowances from its landlords of approximately $2.2 million.

The availability of an ITC was governed by s. 169(1)(c) rather than (b) because (under the definition of "improvement" in s. 123(1)), the cost of the improvements was not included in their adjusted cost base for purposes of the Income Tax Act because an election was made under s. 13(7.4) of the Income Tax Act to reduce the capital cost of the improvements by the amounts paid by the landlords.

Full ITCs were available under s. 169(1)(c) because the Appellant was supplying the leasehold improvements to the landlords for the leasehold improvement allowances, which was a commercial activity. Rothstein JA stated (at para. 33):

Certainly, the ultimate purpose of London Life is to lease improved premises for its financial services business of providing exempt supplies. But when the leasing transactions are considered independently, London Life is supplying the leasehold improvements to the landlords for the consideration of the leasehold improvement allowances. In turn, the landlords are providing the improved leased premises to London Life for its financial services business.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Improvement 100
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) leasehold construction services were acquired for supply of leasehold improvements to landlord 167
Tax Topics - Statutory Interpretation - Interpretation Bulletins, etc. 50

Canada v. 398722 Alberta Ltd., [2000] GSTC 32 (FCA)

overraching commercial-activity purposes did not detract from first-order exempt rental use

In order to receive approval under the Town of Banff bylaws for the development and operation of a 63-unit hotel in Banff, the respondent was required to build a 4-unit apartment building. In finding that the respondent was not entitled to input tax credit for the GST payable by it upon completion and first leasing of the apartment building Sharlow J.A. noted (at p. 32-8 to 32-9) that the definition of "commercial activity" recognized that a business may consist of a number of components each of which is integral to the business as a whole but nonetheless required "that any part of the business that consists of making exempt supplies be notionally severed", and further stated (at p. 32-9):

"It should not and does not matter whether the acquisition is motivated by the prospect of receiving rent or, as in the respondent's case, is the fulfillment of a legal obligation that must be met in order to accomplish another business objective."

Midland Hutterian Brethren v. Canada, [2000] GSTC 109 (FCA)

In finding that heavy cloth purchased by a Hutterian colony (which was engaged in a farming business) to be made into work clothes for its members was eligible for the ITCs claimed by the colony for 50% of the GST payable on the purchases, Malone J.A. indicated (at para. 25):

Once an item is found to be acquired and used in connection with the commercial activities of a GST registrant and that item directly or indirectly contributes to the production of articles or the provision of services that are taxable, then an ITC is available using the formula in that subsection.

In a dissenting opinion, Evans J.A. agreed with the majority that "for the goods to be acquired for use 'in the course of commercial activities', there must be a functional connection between the needs of the business and the goods" (para. 31), but disagreed as to whether the connection was sufficient on the present facts.

See Also

Praesto Consulting UK Ltd v HM Revenue and Customs, [2019] EWCA Civ 353

a company was entitled to input tax credits for VAT on legal-fee invoices addressed only to its executive

Mr Ranson, a former employee of an information technology consultancy (“CSP”), resigned to set up a competing company ("Praesto"), where he was joined by three other former employees of CSP. CSP commenced action only against Mr Ranson and the other three employees, alleging breach of the terms of his employment and/or fiduciary duties in setting up Praesto and competing with CSP through Praesto, and alleged misuse of a contact list. The law firm acting in defending the CSP action (“Sintons”) addressed the eight invoices in issue to Mr Ranson alone respecting the conduct of the litigation from its commencement of proceedings up to and including the Court of Appeal (which reversed the finding below of liability of Mr Ransom). The invoices were paid by Praesto. Sintons had declined a request to address its invoices to Praesto.

The availability to Praesto of an input tax credit for the VAT included in the Sintons invoices turned on a VAT provision providing such a credit for “VAT on the supply to him [the taxable person] of any goods or services being … goods or services used or to be used for the purpose of any business carried on or to be carried on by him.” HMRC assessed to recover the input tax credit of £79,932 claimed by Praesto.

Hamblen, LJ found no error of law in the FTT’s conclusion that the invoices related to services supplied by Sintons to Praesto, stating (at paras 37, 42, 43, and 45):

[T]here was throughout a joint retainer whereby Sintons was being instructed by and acting on behalf of both Mr Ranson and Praesto. … [B]oth Mr Ranson and Praesto would be entitled to Sintons' services and both would be jointly and severally liable for Sintons' fees. That is a legal relationship involving reciprocal performance.

… The real value of CSP's claim was an account of Praesto's profits. CSP was seeking to put Praesto out of business as its competitor. …

The FTT was satisfied and found that the litigation was effectively being brought against Mr Ranson and Praesto, even though Praesto had not been joined to the proceedings. That reflected the economic reality. It was also borne out by CSP's stated intention to join Praesto if and when Mr Ranson's liability for breach of fiduciary duty was established… .

… It may be that another tribunal might not have reached the same conclusions, but the FTT was clearly entitled to reach the conclusions which it did on the material before it.

LJ Hamblen further found that the FTT made no error of law in concluding that the services supplied by Sintons had a direct and immediate link to Praesto's taxable activities.

In a dissenting reasons, Sir Terence Etherton MR stated (at paras 86 and 88):

The personal belief of Mr Ranson and the understanding of Sintons that CSP was "attacking" Praesto, as well as Mr Ranson, and seeking to put Praesto out of business do not establish the requisite objective direct and immediate link to Praesto's economic activity as a whole. …

… The objective link between those services and the success of Praesto's business was not direct but indirect and was not immediate but consequential. It is well established that payment of costs by the taxpayer for a service provided to a third party instructed by the taxpayer, which is in the economic interests of the taxpayer, may not satisfy the objective direct and immediate link test: Airtours … ..

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) legal fees addressed to executive were paid by company to protect its business 226

International Hi-tech Industries Inc. v. The Queen, 2018 TCC 240

no contractual nexus between ITC claimant and supplier

The business of the appellant (“IHI”) included the construction of buildings using prefabricated panels. One of its key shareholders had developed technology relating to a building construction process, with the rights to such technology being acquired by a corporation (“RAR”) initially owned by him and ultimately by other members of his family. RAR applied for and acquired various patents around the world.

In finding that IHI was not entitled to claim input tax credits for the GST on various invoices that it paid but which were addressed to RAR by a patent agent (“Fetherstonhaugh”), Sommerfeldt J stated (at paras. 28-29, 32):

To claim an ITC, a claimant must be contractually liable to pay the supplier for the property or service that is the subject of the particular supply. Furthermore, such contractual liability should be based on a contract between the supplier and the recipient, rather than a contract between the recipient and one of its related corporations.

… IHI did not provide any evidence to establish that IHI (rather than RAR) acquired the services provided by Fetherstonhaugh (so as to come within the wording of subsection 169(1) of the ETA), nor did it provide any evidence of an agreement or other contractual arrangement between IHI and Fetherstonhaugh that required IHI to pay for those services. …

As noted in Garmeco, to qualify for ITCs, a claimant “must demonstrate … that it acquired the goods and services for consumption or use in the course of its own commercial activity [emphasis added].”

Thimo v. The Queen, 2017 TCC 164

criminal defence fees incurred to protect reputation rather than re suspended business

Operations at an individual’s swimming school were suspended as a result of charges brought against him respecting alleged misconduct with a 15-year old female instructor – and he incurred significant fees in obtaining an acquittal. Although Favreau J accepted that the individual intended to resume the operations of his business when possible, he nonetheless found that, as the legal fees were “incurred to defend the Appellant’s reputation” (para. 28), the legal services did not qualify as being acquired in the course of commercial activities and for the purpose of making taxable supplies, so that no ITCs were available.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) no ITCs respecting services of criminal counsel which permitted an individual to resume a business 230

572256 Ontario Limited v. The Queen, 2017 TCC 108 (Informal Procedure)

property acquired and maintained as agent for registrant

Paris J found that, notwithstanding the absence in evidence of a written agency agreement, a corporation (SVO) had purchased property as agent for the taxpayer and others, so that the taxpayer’s pro rata portion of the maintenance and upkeep expenses of SVO entitled it to claim input tax credits. In this regard, Paris J relied on the passage in Scott, The Law of Trusts (also quoted in De Mond) stating:

If [a person] undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with the title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation that predominates, and the principles of agency, rather than the principles of trust, are applicable.

Neal Armstrong. Summary of 572256 Ontario Ltd. v. The Queen, 2017 TCC 108 under General Concepts – Agency.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency property found to be held as agent notwithstanding missing written agreement 290

Le Groupe PPP Ltée v. The Queen, 2017 TCC 2, briefly aff'd 2018 FCA 123

payer of auto “warranty” claim did not benefit from the auto supply

A Quebec company (“PPP”) through car dealers offered motor vehicle replacement “warranties,” which, in the event of the loss of the vehicle through accident or theft, would cover the difference between the depreciated value of the vehicle (which was covered by the regular insurer) and the cost of a new replacement vehicle. The consumer who had purchased the PPP warranty was required to acquire the new replacement vehicle from the dealer, and the dealer was paid directly by PPP.

After first finding that PPP was not entitled to input tax credits under s. 175.1 respecting the claims paid by it, Tardif J also found that PPP was not entitled to ITCs under s. 169, stating (at paras. 97, 108, 110 and 120-121 , TaxInterpretations translation):

… [T]he vehicle acquired through the partial disbursement [the other part being covered by the primary insurer] does not profit or benefit the appellant since only the consumer takes advantage of the acquisition of the replaced property. …

[T]he acquiror of the taxable supply is not the appellant but the consumer who benefits from the contract reimbursing for the full price… .

The argument that the dealer must do a lot of work…to prepare and present the claim to the appellant is quite unconvincing… .

… [T]o claim that the payment made by the appellant as a result of a claim is a transaction between the appellant and the dealer and a taxable economic activity is without merit.

In accordance with the FCA's pronouncements, only the person for whose benefit a supply is made may claim and obtain the related ITC…

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 175.1 “warranties” funding the incremental cost of a new vehicle after complete loss of old vehicle likely were insurance policies and were not re quality, fitness or performance 327
Tax Topics - General Concepts - Illegality whether a product was an insurance policy did not turn on whether the provider was a properly licensed insurer 197

Gemeente Woerden (Municipality of Woerden) v. Staatsecretaris van Financiën (Secretary of State for Finance, Netherlands), C:2016:466 (European Court of Justice (10th Chamber) )

full ITC for sale at 10% of cost

The named Netherlands municipality did not provide two buildings constructed by it to the mostly VAT-exempt building users (e.g., schools) directly. Instead, after a newly-formed non-profit foundation was interposed between it and the users, it sold the buildings to the foundation at 10% of its cost and reported VAT on that below-FMV selling price. In finding that the municipality was entitled to essentially full credit for its VAT costs in constructing the buildings. President Biltgen stated:

[I]f the supply price is lower than the cost price, the [input tax] deduction cannot be limited in proportion to the difference between the supply price and the cost price, even if the supply price is considerably lower than the cost price, unless it is purely symbolic. … The fact that that purchaser allows parts of the building…to be used without charge is of no importance… .

B.C. Sky Train is similar.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(1.1) sale of a building at 10% of cost to an intermediary for 90% non-taxable use entitled the vendor to full ITCs 399

630413NB Inc. v. The Queen, 2016 TCC 156 (Informal Procedure)

no business of assuming litigation

A group of four corporations and their ultimate individual shareholder were unsuccessful in generating input tax credits for GST/HST on legal fees by assigning the rights to the proceeds of the actions to a fifth group company in consideration for that company assuming obligations for the legal fees. Ouimet J found the arrangement to be insufficiently business-like to qualify as a business of the fifth company.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Business alleged business of assuming litigation not caried out in business-like manner 253

Airtours Holidays Transport Ltd. v. HMRC, [2016] UKSC 21

firm paying for PwC accounting services was not entitled to a credit for the VAT because PwC was not contractually obligated to it

In 2002, the appellant (“Airtours”), which was in financial difficulty, instigated the preparation of a report by an accounting firm (“PwC”) to satisfy around 80 lenders (the “Institutions”) that its proposed restructuring and refinancing proposals were viable. PwC was appointed to produce the report pursuant to an engagement letter (the “Letter”) which was signed both by the “Engaging Institutions” and Airtours. The report was instrumental in securing a successful restructuring.

S. 24(1) of the Value Added Tax Act 1994 defined “input tax” as, inter alia, “VAT on the supply to [a taxable person] of any goods or services” which are “used or to be used” for a business “carried on by him”. Ss. 26(1) and (2) provided that the amount of allowable input tax is that which is “attributable to” taxable “supplies … made or to be made by the taxable person in the course or furtherance of his business.”

The Letter clearly obligated PwC to supply services to the Institutions (at Airtours’ expense). At issue was whether PwC was contractually obligated to Airtours to provide its report and other services to the Institutions, so that the VAT on the PwC fees paid by Airtours qualified under s. 24(1) as “VAT on the supply to [it] of any…services.”

Lord Neuberger found (at para 23) “that PwC’s commitment to provide the services described in the Contract was a contractual commitment to the “Engaging Institutions”, and not to Airtours” on the basis that the Letter was addressed only to the Engaging Institutions (and was signed by Airtours only to be bound by its obligation to pay fees) and it provided that the report was for their sole use (with Airtours only to be provided with potentially redacted copy) and with a duty of care owed by PwC only to the Institutions.

Lord Neuberger stated (at para 50:

[I]t appears clear that, where the person who pays the supplier is not entitled under the contractual documentation to receive any services from the supplier, then, unless the documentation does not reflect the economic reality, the payer has no right to reclaim by way of input tax the VAT in respect of the payment to the supplier.

In his dissenting reasons, Lord Clarke stated (at para. 64) that “two distinct supplies of services were being provided by PwC within the same overall transaction,” (at para. 66) that “Airtours was at least as much a beneficiary of the services provided by PwC as were the Banks,” and that in his view it was agreed in the Letter “that PwC owed a duty of care both to the Banks and to Airtours” (para. 75).

In his concurring dissent, Lord Carnwath stated (at para. 82, citing Loyalty Management [2013] UKSC 15 at para 67) that “the normal expectation is that a commercial business paying a supplier is paying for a right to something, even if that something is a supply to another party,” and (at para.84):

It is legitimate to ask what would have happened if, having paid its £200,000 on 2 November in the expectation of receiving a draft PwC report 13 days later, Airtours had been faced with a failure by PwC to do anything. On Lord Neuberger’s interpretation of the contract it would have had no enforceable right of any kind. I find that impossible to accept, either as a matter of ordinary contractual construction, or still less of economic reality.

Andrei 95 Holdings Ltd. v. The Queen, 2015 TCC 224 (Informal Procedure)

legal fees for litigation respecting minority shareholdings were ineligible for input tax credits notwithstanding their being a source of management fees

The taxpayer was denied ITCs in respect of legal fees on the basis that it did not incur the legal fees in the course of any commercial activity. It and its 75% shareholder (Mr. Mazilescu) owned between them 50% of the shares of two companies: a manufacturing company (“Waycon”); and a company (“JAV”) which owned the related buildings. An arm’s length individual John O’Connell and entities controlled by him owned the other 50% of the shares of Waycon and JAV. A further company, (“OMH”), which distributed Waycon’s products, was owned equally by O’Connell, Mrs. Mazilescu and a third individual. The taxpayer received management fees of $34,000 and $90,000 in 2008 and 2009 from Waycon, and of $100,000 from OMH in 2010.

After Mr. Mazilescu and O’Connell had been carrying out negotiations to have one of them buy out the other, but in January 2011, O’Connell sued various defendants including the taxpayer and the Mazilescus for breach of a shareholders’ agreement prohibiting competition with Waycon. This litigation was settled with O’Connell buying out Mr. Mazilescu and the taxpayers’s interest in Waycon, JAV and another related company.

In rejecting the taxpayer’s position that its legal fees were incurred in relation to its management services business, Paris J stated (para 21): “The legal fees incurred by the Appellant up to the time O’Connell applied for the Anton Piller Order in January 2011 were incurred for the purpose of negotiating a separation of Mr. Mazilescu’s and O’Connell’s business interests by way of a buyout of one or the other’s shares.” Paris further stated (at paras 22 &23):

Since shares are financial instruments as that term is defined in subsection 123(1) of the Act, and since supplies of financial instruments are exempt supplies under the Act, no ITCs in respect of inputs to supplies of financial instruments are available under subsection 169(1). This is because the making of exempt supplies is excluded from the definition of “commercial activities” …

Also, I find that the legal fees incurred by the Appellant in the course of litigation commenced in January 2011 have not been shown to have been related to or connected with any commercial activity carried on by the Appellant.

Bijouterie Almar Inc. v. The Queen, 2010 TCC 618, [2010] GSTC 181

Vendor had capacity to provide goods

The Minister disallowed the ITCs claimed for $15 million of gold jewellery purchases made over four years on the grounds inter alia that the appellant had not purchased the gold jewellery. Lamarre J. fouind that the appellant had displaced the Ministere's assumption by demonstrating that the supplier had sufficient inventory to supply the appellant.

Other locations for this summary
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iv) "assorted gold jewellery" was sufficient description of bulk purchase

Lavoie v. The Queen, 2014 DTC 1104 [at 3218], 2014 TCC 68

cottage used 10 days for personal use and 160 days for business was primarily for business use

The taxpayer's uncontradicted evidence was that his cottage in PEI was used approximately 170 days in a given year, only 10 of which were solely for personal use. C Miller J found that the cottage was used primarily for business purposes and, having no evidence as to how the losses were calculated, allowed them in full (para. 28).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) deducting home renovations tenuously related to home office was not grossly negligent 188
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h) cottage used 10 days for personal use and 160 days for business was primarily for business use 55

PDM Royalties Limited Partnership v. The Queen, 2013 TCC 270

internal agreement to allocate IPO costs was ineffective/services consumed rather than re-supplied

The limited partnership units of the appellant were held by a sub-trust (the "Trust") of an income fund (the "Fund"). Unit subscription proceeds received by the Fund on its initial public offering ("IPO") and on a subsequent private placement of Fund units were used to acquire debt and units of the Trust, which in turn subscribed for LP units of the appellant. The appellant used those proceeds to acquire intellectual property and related rights to be used by it in a pizza franchising business.

Before completion of the IPO, the Fund, Trust, appellant and its general partner entered into a "Financing Agreement" in which they agreed that all financing expense in connection with the IPO, other than the underwriters' fee, were to be incurred on behalf of the appellant; and at the same time the appellant entered into an "Administration Agreement" with the Fund in which it agreed to administer the Fund and "as agent of the Fund" to pay for all outlays and expenses incurred by it in such administration.

V. Miller J found that, as pursuant to the Administration Agreement, various expenses (principally relating to the IPO and private placement) were incurred by the appellant as agent for the Fund, the appellant was not the recipient of the related services and was not entitled to input tax credits therefor (para. 31). The Financing Agreement did not render the appellant the recipient of such supplies as the supplies were not made pursuant to that agreement (para. 26), nor could it be construed as causing there to be a re-supply of the services by the Fund to the appellant, as the services were consumed by the Fund (para. 32).

Furthermore, even if the appellant was the recipient of the supplies, the expenses would have been incurred by it so that it could receive money from the Trust in exchange for issuing LP units, which constituted the making of an exempt supply (para. 42).

There also were various deficiencies in the invoices of the suppliers. V. Miller J stated (para. 51):

[W]here an invoice represented services to both the Appellant and the Fund and I could not ascertain the portion payable by the Appellant, I did not allow the ITC involved.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 2 - Intermediary no allocation on invoices 123
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient intragroup expense-bearing agreement did not change the recipient of services rendered on IPO 276

WHA Ltd. v. Revenue and Customs Commissioners, [2013] UKSC 24, [2013] 2 All ER 908

mere paymaster did not acquire repair services

The appellant (WHA) was an affiliate of an English company (NIG) which issued motor breakdown insurance to car owners. The NIG policies indicated that "the insurer is undertaking to meet the cost of repairs…:it is not undertaking responsibility for the repairs themselves" (para. 27). The role of WHA encompassed "the negotiation, investigation, adjustment, settlement and payment of claims…[and not] the carrying out of repairs" (para. 33). When there was a claim, there was an implied agreement between the garage and WHA under which WHA agreed to pay for the repair work insofar as it was covered by the policy and authorized by WHA; and there was an implied agreement between the insured and the garage under which the insured: authorized the garage to examine the vehicle; and agreed to pay for the work insofar as it was not covered by the policy (para. 38).

WHA had taken the position that it was receiving a supply of repair services from the garage (with a view to deducting input tax on the basis that it was receiving such repair services for the purpose of making supplies to a Gibralter affiliate). In rejecting this position (so that WHA was not entitled to such deductions), Lord Reed stated (at para. 56-57):

If NIG were to perform the contract by itself paying the garage, that would be an example of third party consideration….[T]he garage supplies a service to the insured by repairing his or her vehicle, and NIG meets the cost of that supply because it has undertaken to the insured that it will do so….

WHA's role …is to act as the paymaster of costs falling within the cover provided by the policies. The interposition of WHA does not, by some alchemy, transmute the discharge of the insurer's obligation to the insured into the consideration for a service provided to the reinsurer's agent.

HMRC v. Aimia Loyalty UK Ltd, [2013] UKSC 15

The appellant ("LMUK" ) operated a loyalty card programme. Card-holding customers ("collectors") would swipe LMUK's card during purchases at participating retailers ("sponsors") and receive points which could be redeemed at participating businesses ("the redeemers") for goods or services, or for a price reduction in goods or services. Whenever a redeemer accepted loyalty points, it became entitled to payment from LMUK for accepting those points. Those payments were less than the compensation paid to LMUK by the sponsors for issuing points to the collectors as customers of the sponsors.

The Court found that the payment of LMUK to a redeemer was consideration for a supply of services by the redeemer to LMUK itself, rather than representing third-party consideration for a supply of goods or services by the redeemer to the collector. Accordingly, LMUK was entitled to a deduction of input VAT (the British equivalent of an ITC) on the payments made by it to the redeemer. Lord Reed SCJ stated (at paras. 80-81):

In accepting points, which have no inherent value, in exchange for goods or services, the redeemer is acting in a manner which is only explicable because of its agreement with LMUK, under which LMUK will pay it for doing so. LMUK pays it for doing so because its business is dependent on redeemers accepting points in exchange for the provision of goods and services. The only economically realistic explanation of LMUK's behaviour is the value to LMUK itself of the redeemers' acceptance of points in exchange for the provision of goods and services.

Reluxicorp Inc. v. The Queen, [2011] GSTC 138, 2011 TCC 336

allocation based on relative exempt and taxable revenues

The registrant was a hotel company that paid franchise fees to a hotel franchise ("Marriott") in the United States. Marriott's fees were based on gross room revenues. Lamarre J. found that, because 30% of the registrant's revenue was from exempt stays (i.e. exceeding one month), 30% of the franchise fees were not incurred in respect of a "commercial activity" as defined in s. 123(1). Accordingly, she affirmed the Minister's assessment, which was made on the basis that the provision by Marriott of franchise rights was an "imported taxable supply" under s. 217, for which the registrant was liable to pay GST on the consideration paid on the basis that 30% of the franchise fees was not eligible for an input tax credit. The registrant was unable to demonstrate that the franchise fees pertained only to the short-term stays.

Lyncorp International Ltd. v. The Queen, 2010 DTC 1351 [at 4335], 2010 TCC 532, aff'd 2012 DTC 5032 [at 6684], 2011 FCA 352

The taxpayer, owned and operated by Mr. Mullen, invested in shares and made non-interest bearing loans to a number of corporate ventures to which Mr. Mullen provided management services free of charge by him or the taxpayer. The taxpayer claimed input tax credits on expenses relating to the operation of a private jet, which were incurred primarily in connection with Mr. Mullen making visits to the offices of these ventures.

V. Miller J. found that the taxpayer could not claim input tax credits on the flight expenses that related to the business ventures rather than any business carried on directly by the taxpayer. She stated at para. 81:

This is a unique situation of a company incurring costs (inputs) to provide free services for its business ventures. In such circumstances, the company can best be viewed as the ultimate consumer - the end of the line: no [input tax credits] are available, as there is no further commercial activity of the company.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 147

General Motors of Canada Limited v. The Queen, [2008] GSTC 41, 2008 TCC 117, aff'd [2009] GSTC 64, 2009 FCA 114

recipient acquires the services

The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its employees. It directed the trustee of the plans to pay the fees of third party portfolio advisors out of the trust assets. As it was the Appellant who was contractually obligated to pay those fees, and as s. 267.1 did not deem the portfolio advisory services to have been acquired by the trust, the Appellant was the recipient of those services. Campbell J stated (at paras. 50-52):

It appears that, where a person is the recipient of the supply, the Act expressly contemplates that GST is payable by that person.

…[S]ection 168 provides that:

Tax … is payable by the recipient on … the day the consideration for the supply becomes due.

While the amendment to subsection 169(1) in April 1997 replaced the phrase “supplied to” with the term “acquires”, a determination as to who is the recipient of the supply remains directly relevant in dealing with the question “was GST payable by GMCL?” I do not believe that the 1997 amendment replaced the focus on the central determination in this appeal of which party is contractually liable to pay GST pursuant to the Agreements.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service 91
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient employer was recipient of portfolio advisory fees for employees' pension fund 76

Y S I's Yacht Sales International Ltd v. The Queen, 2007 TCC 306

Woods, J. accepted that an agreement pursuant to which the appellant ("YSI") agreed to contract with suppliers in connection with refurbishing a yacht and to charge the other party to the contract ("Platinum") a 5% mark-up on some of the purchases, did not establish an agency relationship between YSI and Platinum. Woods, J. noted (at para. 35) that whether YSI acquired goods and services on its own behalf on behalf of Platinum depended on the parties' mutual intention and that, accordingly, the essential question was whether Platinum agreed to be bound by YSI's agreements with suppliers. Accordingly, YSI was entitled to claim input tax credits respecting GST on purchases made by it in reconditioning the yacht.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency 91

Kretztechnik AG v Finanzamt Linz, [2005] EUECJ C-465/03, [2006] BVC 66 (ECJ (1st Chamber))

costs of raising share capital were traceable to taxable outputs

Kretztechnik raised capital through a share issue. The issue of shares did not constitute a supply of services, but it was held that the cost of supplies acquired in connection with the raising of the capital formed part of its general overheads and, therefore, were component parts of the price of its products. On that basis, the supplies had a direct and immediate link with the whole economic activity of the taxpayer, and VAT on those supplies was deductible. The Court stated (paras. 34 et seq):

[34] The deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT ...

[35] It is clear from the last-mention condition that, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction. Thus, the right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct …

[36] In this case, in view of the fact that, first, a share issue is an operation not falling within the scope of the [Directive] and, second, that operation was carried out by Kretztechnik in order to increase its capital for the benefit of its economic activity in general, it must be considered that the costs of the supplies acquired by that company in connection with the operation concerned form part of its overheads and are therefore, as such, component parts of the price of its products. Those supplies have a direct and immediate link with the whole economic activity of the taxable person ...

[37] It follows that ... Kretztechnik is entitled to deduct all the VAT charged on the expenses incurred by that company for the various supplies which it acquired in the context of the share issue carried out by it, provided, however, that all the transactions carried out by that company in the context of its economic activity constitute taxed transactions. A taxable person who effects both transactions in respect of which VAT is deductible and transactions of which it is not may ... deduct only that proportion of the VAT which is attributable to the former transactions'.

A & W TradeMarks Inc. v. The Queen, 2005 TCC 493 (Informal Procedure)

fees incurred in connection with parent’s issuing units, with proceeds used in the registrant’s business, were eligible

The appellant, which became a wholly-owned subsidiary of a new income fund (the “Fund”), incurred $78,000 in fees directly to an investment dealer, law firms and a printing company in connection with the IPO of the Fund. The $83M proceeds of the IPO were used by the Fund to subscribe for debt and equity of the appellant which, in turn, used those proceeds to acquire trade marks from another A & W company for licensing back to that company. In finding that the GST on these fees was eligible for input tax credits, Little J stated (at para. 11):

[T]he Appellant acquired the goods and services to enable it to borrow money in order to carry on its commercial activities. I have therefore concluded that the goods and services were acquired by the Appellant for use in its commercial activities.

Edible What Candy Corp. v. R., [2002] GSTC 33 (TCC)

The taxpayer was found to have made a misrepresentation attributable to neglect when it claimed input tax credits for GST incurred before it became registered for GST purposes notwithstanding professed confusion over the interpretation of s. 171 of the ETA.

BJ Services Co. Canada v. The Queen, [2002] GSTC 124 (TCC)

white knight costs

A Canadian public company ("Nowsco") that was engaged in the provision of oil field services incurred significant fees for services rendered by financial advisors and a law firm in connection with seeking a "white knight" following the commencement of a takeover bid for its shares, as a result of which it was able to secure a higher price for its shares from the original bidder. Miller J. found that even if he considered that the primary purpose of Nowsco in incurring these fees was to maximize shareholder value, this purpose did not take the inputs outside the realm of commercial activity for purposes of s. 169 given that a public company will suffer adverse financial consequences if it does not behave as commercially expected, and there was a secondary purpose of maintaining the ongoing viability and economic health of the company.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) s. 141.01 was apportionment provision not applying where registrant only making taxable supplies 177

Customs and Excise Commissioners v. Redrow Group plc, [1999] UKHL 4, [1999] 2 All ER 13, [1999] 1 WLR 408

As an incentive to purchasers of its new homes, a residential home developer entered into agreements with prospective purchasers and real estate agents selected by it under which it agreed to pay the agent's fee plus VAT in connection with a sale of the existing purchaser's home, provided that the purchaser completed a purchase of a new home. In finding that the VAT paid on the agent's fee qualified for deduction as input tax in respect of the supply to the developer of services, Lord Hope indicated (at p. 6) that the matter was to be looked at from the standpoint of the person who is claiming the deduction by way of input tax and, that the relevant question was:

"Was something being done for him for which, in the course of furtherance of the business carried on by him, he has had to pay a consideration which has attracted VAT? The fact that someone else, in this case, the prospective purchaser, also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction."

Similarly, Lord Millet stated (at 418 WLR):

Once the taxpayer has identified the payment the question to be asked is: did he obtain anything - anything at all – used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services.

Hleck, Kanuka, Thuringer v. The Queen, [1994] GSTC 46 (TCC)

In finding that GST on an airline ticket purchased by a law firm in order for the wife of one of its partners to attend a conference with him, was creditable, Bell TCJ. stated (at p. 46-7):

"The test set out under the Act is more liberal that the test for deductibility of a business expense under the Income Tax Act. Expenditures made for the purpose of gaining or producing income from a business are, by definition, made in the course of commercial activity. However, those made in the course of commercial activity are not, necessarily, made for the purpose of gaining or producing income from a business."

P & O (Dover) Ltd. v. Commissioners of Customs and Excise, [1992] V.A.T.T.R. 221

The appellant along with seven individual employees was charged with manslaughter in connection with the sinking of its vessel. The appellant's own counsel formed the view that the success or failure of the prosecution of the appellant depended largely on the success of the prosecution of the individual employees. It was found that the legal services of the separate counsel representing the employees were used for the purpose of the appellant's business for purposes of s. 14(3) of the Value Added Tax Act 1985 given the various business benefits that the appellant derived from its successful defence of the charges against it.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient employer the recipient of criminal counsel services 150

Turner v. Customs and Excise Commissioners, [1992] BTC 5082 (Q.B.D.)

The appellant, who was ordered to pay the costs of the winning side in an unsuccessful lawsuit including VAT, was not entitled to a credit for input tax under s. 14 of the Value Added Tax Act 1983 because there were no "goods or services used or to be used for the purpose of any business carried on or to be carried on by him" for the purposes of that provision.

Administrative Policy

17 May 2017 Interpretation 174642

ultimate exempt use did not deny ITCs

Shortly before the occupancy of a newly constructed apartment complex (expected to be predominantly occupied by students), LP#1 purchases the building from the developer. As this taxable sale occurs before any unit is occupied, and LP#1 acquired the building for the purpose of leasing it to another partnership (LP#2) rather than an individual, LP#1 will qualify as a builder for GST/HST purposes. That “headlease” will not be exempt because more that 10% of the units will be occupied for short-term stays (under the month) during the regular academic year, and with over 90% short-term occupancy in the summer months.

Given the taxability of its supplies to LP#2 “LP#1 may also be eligible to claim ITCs in respect of the tax paid or payable on property or services acquired for consumption, use or supply in the course of making these taxable supplies of the Residence to LP#2.” In this regard, CRA stated

[A]lthough LP#2 may be making some supplies of apartment units within the Residence that may be exempt under section 6 of Part I of Schedule V to the ETA, this will not affect LP#1’s eligibility for a full ITC on the acquisition of the Residence in this circumstance.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 191 - Subsection 191(3) headlease structure of a student residence avoided triggering self-supply rule 473
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 6.11 headlease of MURC not exempt where used by lessee more than 10% in short-term rentals 124
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 5 claiming of ITC generated subsequent taxable sale 148

13 December 2017 Interpretation 187306

acquisition of property entails ownership transfer

Before going on to reject the proposition that an ITA s. 16.1 election had the effect of deeming the lessee to have acquired the leased property as capital property, CRA stated:

In general, in order for property to have been acquired by a person, there must have been a sale of the property to the person. … If there is no transfer of ownership of a particular property, we do not consider a supplier to have sold, and a recipient to have purchased, the property. …

Accordingly, property leased from a lessor is generally not considered to have been acquired for income tax purposes and, as such, is not treated as capital property for purposes of the ITA or, by extension, the ETA.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 225.1 - Subsection 225.1(2) - B s. 16.1 election does not cause a leased property to be a capital property 281
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Capital Property s. 16.1 election did not deem leased property to be capital property 50

2 August 2017 Ruling 182285

Ontario electricity rebate does not reduce ITCs

The Ontario Rebate for Electricity Consumers Act, 2016 (Ontario Rebate Act), provides financial assistance to certain Ontario electricity recipients by means of an 8% reduction in the amount payable for electricity. The 8% rebate amount is shown as a separate line item that reduces the total amount payable for electricity after the HST has been calculated and applied. How does the rebate impact input tax credits and recaptured ITCs?

After ruling that the rebate “has no impact on claiming ITCs recapturing ITCs,” CRA stated:

The rebate amount is not a reduction in the consideration charged by the supplier for the supply of electricity. The supplier retains the full amount of the consideration charged in respect of the supply. The 13% HST is still payable on the invoice amount, and as such is required to be remitted by the supplier.

Therefore, where a person is eligible to claim an ITC in respect of the HST paid or payable, to the extent that the electricity is acquired in the course of the person’s commercial activities, the person may claim the full amount of tax charged. Furthermore, where a person is required to recapture ITCs, the amount subject to recapture is the provincial portion of the tax charged.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration Ontario electricity rebate does not reduce the consideration for the supply 71

28 April 2017 Interpretation 154249

payor of licence fees did not acquire licence and, therefore, was not recipient of supply of licence

An ATM provider (the Vendor) agreed that X’s acquisition of the Vendor's ATMs would be financed by Vendor selling the ATMs to Lessor, with Lessor then leasing the ATMs to X. Lessor was not licensed the related software by Vendor but nonetheless agreed to pay the software licence fees of the Vendor. CRA stated:

In determining who the recipient of a supply is, and who may therefore be entitled to an ITC for any tax payable on the supply, it is necessary to determine whether the supply is acquired by a person on its own behalf or as an agent on behalf of another person. The [recipient] definition refers to ‘consideration for the supply’. However, in the present case, the [Lessor] has not acquired any supply of software licences, and is therefore not entitled to claim any ITC for the tax paid for them.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient failure of person contractually liable to pay software licence fees to acquire a licence indicated it was an agent rather than recipient 319

10 February 2017 Ruling 162056

the purchase of an IP royalty gives rise to non-creditable GST/HST to the investor

A Canadian registrant (Investor) enters into an agreement with a Canadian corporation (Corporation 1) under which it pays lump sums in consideration for the right to receive monthly royalties calculated as a percentage of intellectual property (IP) related revenue streams of Corporation 1. CRA ruled that the lump sums so paid are consideration for the taxable supply to Investor of intangible personal property (the right to the royalty payments).

However, when Corporation 1 makes the subsequent Royalty Payments to Investor pursuant to the right that Investor has acquired, Investor is not considered to be making a taxable supply in exchange for those payments. Since Investor is not making supplies under the agreement, it would not be entitled to claim ITCs for GST/HST paid or payable on related inputs.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security royalty agreement is not a debt security unless a minimum royalty is specified 259
Tax Topics - Excise Tax Act - Section 182 - Subsection 182(1) buyout of royalty agreement not subject to s. 182 176
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity receipt of royalty not considertion for a taxable supply 117

14 October 2016 Interpretation 170549

agent could not claim ITCs

ACo and BCo, which were co-tenants of a property in construction held through a Nominee, signed an agency agreement in which Nominee was designated as the agent of ACo and BCo and which provided that the Nominee was the authorized agent and representative of ACo and BCo including for the claiming of input tax credits – and the Nominee made such claims prior to the end of the period of administrative tolerance expressed in GST/HST Notice 284. In rejecting this approach, CRA stated:

[I]t is the principal who is entitled to claim any input tax credits on the supplies acquired by the agent on behalf of the principal. … The statement in the agency agreement stating that the Nominee will claim ITCs on inputs purchased in its capacity as agent does not extinguish ACo and BCo’s potential right to claim the ITCs under the ETA, nor does it result in the Nominee being entitled to claim ITCs.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 273 - Subsection 273(1) Westcan test for JV, co-tenancy was JV 176
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) - Paragraph 240(3)(a) nominee accepted as registrant 156
Tax Topics - General Concepts - Agency co-owners required to report pro rata portions of sale made by their agent 195

26 February 2015 CBA Roundtable, Q. 33

ITCs can be claimed for pre-registration periods
(full text available with membership password at http://www.cba.org/Sections/Commodity-Tax,-Customs-and-Trade/Resources)

Can a person claim input tax credits in a reporting period after its registration in respect of GST/HST paid in periods where the person was a registrant but not registered for GST/HST assuming it is otherwise within the limitation period? CRA responded:

[A] person can claim input tax credits (ITCs) in a return filed for a reporting period after it becomes registered in respect of GST/HST paid in reporting periods during which the person was a registrant, but not registered for GST/HST, assuming it is otherwise within the applicable ITC limitation period under subsection 225(4)…and all other legislative conditions have been met, including the ITC documentary requirements.

Under subsection 169(1)… one of the conditions for claiming an ITC is that the person must be a registrant during the reporting period in which the GST/HST becomes payable by the person… . A “registrant” is defined under subsection 123(1)… to mean a person who is registered, or who is required to be registered, for GST/HST purposes.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 225 - Subsection 225(1) ITCs for prior unregistered periods 36

GST/HST Technical Information Bulletin B-032 “Expenses Related to Pension Plans” 17 November 2015

investment management services provided to a pension plan viewed as supplied to the employer, and on-supplied to the plan

Where an employer retains an investment manager for the company pension plan, and the pension plan pays the manager directly, CRA considers there to be a double supply of a service from the manager to the employer, and by the employer to the plan, so that the employer generally may claim an ITC for the HST payable to the manager, and is required to collect a corresponding HST amount from the plan.

Memorandum (New Series) 8-3 "Calculating Input Tax Credits" August 2014

First-order v. second-order supplies

27. Where inputs are acquired, imported or brought into a participating province for consumption or use for the purpose of making a particular supply (the first-order supply), and the first-order supply is made for the purpose of making another supply (the secondary supply), it is the tax status of the first-order supply that determines whether the inputs are for consumption or use in a commercial activity.

Direct allocation method

49. The method that allocates inputs directly to activities should yield fair and reasonable results. Specifically, where it is possible to record the actual consumption or use of a particular input in making taxable supplies for consideration and otherwise, this is a reasonable method to apply. Where this is not possible, allocation factors could be applicable under the direct allocation method.

50. Where an allocation factor is used, it should directly approximate the use of the particular input in making taxable supplies for consideration and otherwise using a systematic approach and an appropriate allocation base. [Then gives example of snow removal costs being allocated between exempt and commercial real estate properties on relative square footage of cleared driveways for each property type].

Input-based method

52. An input-based method may be used to apportion ITCs for those inputs that cannot be allocated… using the direct allocation method. For this method to be considered fair and reasonable by the CRA, property and services that can be attributed using the direct allocation method must represent a significant part of the registrant's overall inputs.

53. The input-based allocation method is the use of an input-based formula to allocate those remaining inputs that cannot be allocated using the direct allocation method (e.g., the ratio of taxable inputs allocated to taxable activities using the direct allocation method as compared to total inputs allocated using the direct allocation method).

Output-based method

54. An output-based method is only appropriate when an analysis shows that the outputs generated by a person will give a reasonable approximation of the use of inputs in those activities. The method can use such items as:

  • the number of transactions processed (e.g., purchase orders and sales orders);
  • the number of telephone enquiries;
  • revenues; or
  • some other reasonable measure relating to the outputs of the registrant.

55. An output-based method can be used if the registrant can substantiate that:

  • the method is fair and reasonable in the circumstances; and
  • the method reasonably reflects the use or intended use of the inputs.
Revenue-based method

56. A revenue-based method uses the ratio of revenue from making taxable supplies for consideration to total revenues to determine the ITC eligibility. …

57. A revenue-based method should be used with caution

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(5) 376

GST/HST Notice "Bare Trusts, Nominee Corporations and Joint Ventures" February 2014

acquisitions of agent those of principal

After noting that "a trustee of a bare trust, for example, a nominee corporation, may act as an agent of the participants in a joint venture by performing certain activities on their behalf," CRA stated:

Generally, an agent is considered to be an extension of the principal and makes or acquires supplies on behalf of the principal who for GST/HST purposes is considered to have made or acquired the supplies. Therefore, it is the principal that is generally required to charge and account for the tax on the supplies made by the agent…[and] who is entitled to claim any input tax credits on the supplies acquired by the agent on behalf of the principal.

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 26.

no ITC for tax paid in error
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

An Ontario purchaser ("Ontario Co") remitted HST to a Quebec supplier ("Quebec Co," a GST registrant) on the basis of its view that the place of supply of a purchase of goods was in Ontario, but Quebec Co (which now is insolvent) did not remit the provincial component of the HST on the basis of a view that the place of supply was in Quebec. Ontario Co claimed an ITC.

CRA stated that "Ontario Co is not entitled to claim an ITC for any amount paid in error… ."

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 222 - Subsection 222(1) deemed trust re HST collected in error 128
Tax Topics - Excise Tax Act - Section 225 - Subsection 225(1) HST collected in error 128

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 23 ("Pre-Incorporation Contracts")

available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

In response to a question on pre-incorporation contracts, CRA stated that even in jurisdictions where the corporate legislation did not address such contracts:

CRA may accept the accounting for pre-incorporation transactions by a newly formed corporation which has adopted a written contract made in its name or on its behalf before it came into existence based on the intention and actions of the parties, and on a case-by-case basis.

To the extent that the adoption of a pre-incorporation contract is in connection with acquiring or establishing the commercial activities of a newly formed corporation, paragraph 141.1(3)(a) of the ETA will deem the adoption of that contract to be done in the course of the corporation's commercial activities.

Where property and services are acquired by a corporation prior to it becoming a GST/HST registrant, the corporation is precluded from claiming ITCs on those property or services, except as provided for under section 171… .

24 June 2011 Headquarters Letter Case No. 126708

application of primary use and operative extent rules to City complex improvement

After using a property partly to generate revenues from commercial activities and partly from exempt activities (programs geared to children under 14), a City constructs a multi-use recreational complex on the property.

CRA rules that the City will be eligible to claim full ITCs with respect to the construction of the complex provided that the construction costs form an improvement to the property, immediately after the property was last acquired by the City, the City was using the property primarily (more than 50%) i its commercial activities, and at the time tax in respect of the improvements is paid or becomes payable, the property is used primarily in commercial activities of the City.

In its explanation, CRA noted that the complex would generally be considered an improvement to the property (so that para. (b) of B of s. 169(1) would be relevant), and that ss. 169(1), 209(1) and 199(4) would apply provided that

where an election under s. 211 is not in effect in respect of capital real property, a municipality is entitled to full ITCs on the acquisition of an improvement to capital real property only if, at the time tax in respect of the improvement is paid or becomes payable, the capital real property is used primarily in commercial activities of the municipality.

Furthermore:

Subsection 141.01(3) provides that a person is considered to use property (e.g., capital real property) in commercial activities only to the extent that the property is used for the purpose of making taxable supplies for consideration....

CRA also rules on the availability of ITCs for acquisitions of capital personal property and operating property or services.

7 June 2011 Headquarters Letter Case No. 132324

de facto importer

A Canadian company enters into an agreement with a non-resident registered service provider for its equipment to be refurbished outside Canada, with the equipment then being returned to Canada by the non-resident acting as importer of record and paying the GST on importation. Given that the Canadian company is the de facto importer, it is the only person entitled to claim ITCs for such GST, which would require it to obtain copies of the customs documentation from the non-resident.

24 February 2011, CBA/CRA GST Round Table, Q. 15 - "Amalgamation & Successor Corp's ITC Entitlement"

if predecessor denied ITC, Amalco may be able to claim basic tax content

In a corporate reorganization involving a GST registrant that is engaged exclusively in commercial activities, assets are first transferred to a NewCo who immediately thereafter is amalgamated with another corporation ("SuccessorCorp") who will use the assets exclusively in a commercial activity. After noting the CRA position that NewCo may not be eligible to register or claim ITCs, the question was asked whether SuccessorCorp would be entitled to claim ITCs for GST that was payable by NewCo. CRA responded:

It appears that NewCo will not be engaged in commercial activity as defined in subsection 123(1) of the ETA. As a result, SuccessorCorp would not be eligible to claim ITCs with respect to the property that NewCo acquired unless SuccessorCorp is using the property in commercial activity and a change-in-use provision applies. For example, if all other conditions of the provisions are met, SuccessorCorp may be eligible to claim ITCs on the change of use of capital personal property under subsection 199(3) and of capital real property under subsection 206(2) based on the basic tax content of the property.

16 March 2009 Interpretation Case No. 110027

A real estate nominee not only holds legal title to project real property but also, at the direction of the beneficial owners, enters into arrangements to maintain, develop, improve, manage or sell the project. CRA indicated that provided the nominee is a bare trustee, the beneficial owners rather than the nominee would be entitled to claim ITCs, including in respect of the commercial activities conducted by the nominee as their agent.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) 75

GST New Memorandum 8.1, ITCs—General Eligibility Rules, May 2005

Meaning of “acquire”

9. The word “acquire” is not defined in the Act. The ordinary dictionary definition of the term “acquire” is to get, obtain, have control over or possess. With respect to property, relevant case law indicates that property is acquired by obtaining ownership or such normal aspects of ownership as possession, use or risk.

Acquiror usually recipient

62. … The person that is eligible to claim the ITC for the tax paid or payable on the property or service is usually the recipient.

Words and Phrases
acquire

P-112R "Assessment of Tax Payable where a Purchaser is Insolvent" 9 March 2000

assessment of insolvent purchaser for tax but no ITC denial

Where a registrant which hads claimed ITCs for accounts payable goes bankrupt, and the supplier then claims a bad debt deduction in computing net tax, the ITC will not be denied, but the "the registrant may be assessed for the tax payable that was not paid to the supplier."

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 296 - Subsection 296(1) - Paragraph 296(1)(b) assessment of insolvent purchaser 134

12 April 2000 Interpretation No. 8394

look to first-order supply on sale-leaseback

Respecting the construction by a corporation of a facility and its sale to a subsidiary for lease back to that corporation for use by it in activities that entitled it to no or partial ITCs for the GST on the rents, CRA stated that it is its "position on sale-leaseback transactions that one must look to the first-order supply, not the ultimate intended use, for purposes of determining ITC entitlement."

16 August 1994 Headquarter Letter

"To be entitled to an ITC in respect of Division III tax, the person must be the de facto importer of the good (i.e., the person who caused the goods to be imported). Although the person listed as the importer of record on the B3 provides prime facie evidence that the person is the de facto importer, such evidence can be reversed through other evidence."

14 July 1997 Ruling R-11595-1 95 GAPR 425

GST paid for various services provided to a corporation relating to its issuance of bonds to Canadian residents and non-resident investors would be non-creditable given that the proceeds were used to make loans to Canadian social housing not-for-profit groups and given that the corporation did not qualify as a financial institution (so that no zero-rating would be available).

GST/HST Technical Information Bulletin B-068 "Bare Trusts" Amended 10 January 2005

[A] bare trust is not engaged in commercial activities and is not entitled to claim ITCs. Instead, the beneficial owners are entitled to claim ITCs for the GST on expenses relating to their commercial activities. These expenses may be incurred by the bare trust acting as their agent.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) bare trustee required to register if it charges fees 56
Tax Topics - General Concepts - Agency 216

GST/HST Policy Statement P-045: Butterfly Transactions 9 November 1992 (Obsolete February 2012)

registration of subsidiary of butterfly transferee corporation

Can a corporation ("Newco") which was incorporated solely for the purposes of facilitating the transfer of property between two other corporations, and which will be wound-up into another corporation ("Successorco") immediately after the transfer (i.e. Newco may exist for a very brief period as a separate entity), register and claim input tax credits on tax paid on the acquisition of such property? Revenue Canada stated:

Revenue Canada will allow, on an administrative basis, Newco to register and to be eligible for ITCs provided that no loss of revenue will result (i.e. the assets are ultimately destined for use exclusively in the course of the commercial activity of the ultimate owning corporation). As a result, if Corporation A (from which Newco acquires the property) used the assets exclusively in the course of its commercial activities and if Successorco will use the assets exclusively in the course of its commercial activities, we will permit Newco to register and then claim ITCs in respect of GST paid on the transfer of the assets from Corporation A to Newco. Should the ITC not be claimed by Newco prior to the wind-up, Successorco would be entitled to claim the ITC after the wind-up by virtue of the fact that paragraph 272(a) deems the other corporation (Successorco) to be a continuation of the particular corporation (Newco) for the purposes of applying the provisions of Part IX in respect of property or a service acquired by the other corporation as a consequence of the wind-up; however, it will be necessary for Newco to have been registered prior to the wind-up under section 272.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 272 deemed no-supply on wind-up denies ITC to predecessor 64

GST M 400-1-2 "Documentary Requirements" under "Types of Input Tax Credits"

"'Exclusively' means 90 per cent or more consumption, use or supply in the course of commercial activities".

GST M 300-7 "Value of Supply" under "Nil Consideration"

The deeming by s. 153(3) of a supply to be made for nil consideration does not alter the status of the supply as a taxable supply for other purposes, e.g., ITC purposes.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) 23

Element B

Paragraph (b)

See Also

1378055 Ontario Limited v. The Queen, 2019 TCC 149

services respecting proposed development of a property did not constitute a use of the property

The appellant (“137ON”), which was a corporation owned by members or affiliates of the Foley family that owned 10 residential rental properties, including a house on a 10 acre parcel (the “Subject Property”) which it was seeking to develop as a commercial storage site, received services from individuals or companies associated with the Foley family in connection with such property development. Sommerfeldt J stated (at para. 49):

… [A]s 137ON was still endeavouring to obtain the requisite approvals to construct a storage container facility on the Subject Property, it had not yet begun to use the Subject Property in the course of its commercial activities. Accordingly, paragraph (b) in the description of factor B in subsection 169(1) of the ETA is not applicable, with the result that paragraph (c) of that description is the applicable provision. Paragraph (c) requires a determination of the extent (expressed as a percentage) to which 137ON acquired the services of Mark Foley, Deborah Foley, Cole Foley and Lanmark for consumption or use in the course of its commercial activities as distinct from its residential rental activities.

Words and Phrases
use
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 138 - Subsection 138(1) 2-part test applied for admitting documents after trial 122
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iii) statement of terms of payment was implied 172
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(b) - Subparagraph 3(b)(i) failure to quote registration number was fatal 92
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) oral testimony sufficient to determine allocation of invoice between prospective commercial development activity and current exempt residential rental activity 179
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) - Element B - Paragraph (c) invoices allocated between commercial and exempt activities based on general oral testimony 151

Paragraph (c)

See Also

1378055 Ontario Limited v. The Queen, 2019 TCC 149

invoices allocated between commercial and exempt activities based on general oral testimony

Individuals within the same extended family and a corporation controlled by family trusts sent vaguely worded invoices to a family company (the appellant, or “137ON”) for services rendered, without giving any allocation between the portion that related to 137ON’s exempt activity of earning exempt residential rentals, and its commercial activity of trying to get one of the residential sites developed as a commercial storage site.

Sommerfeldt J concluded on the basis of relatively sparse oral testimony on this point that 75% of the invoices rendered (other than invoices rendered by a family member who was responsible for administering the residential rental activity and whose services were found to be only 25% commercial) related to the commercial development activity (which did not particularly progress in the years in question) rather than to the exempt residential rental activity, so that, subject to invoice-documentation issues, input tax credits were available as to the indicated percentages.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 138 - Subsection 138(1) 2-part test applied for admitting documents after trial 122
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) - Element B - Paragraph (b) services respecting proposed development of a property did not constitute a use of the property 177
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iii) statement of terms of payment was implied 172
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(b) - Subparagraph 3(b)(i) failure to quote registration number was fatal 92
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) oral testimony sufficient to determine allocation of invoice between prospective commercial development activity and current exempt residential rental activity 179

Subsection 169(2) - Credit for Goods Imported to Provide Commercial Service

Administrative Policy

21 October 2004 Headquarter Letter RITS 38435

Where a registrant imports tangible personal property of an unregistered non-resident for the purpose of providing storage services to the non-resident, an ITC for Division III tax payable on the importation is available.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 179 - Subsection 179(2) 88

GST M 300-9 "Imported Services and Intangible Property"

When an imported taxable supply is used partly in a commercial activity, registrants will be able to claim an input tax credit on the GST payable on that part of the supply for use in a commercial activity.

Subsection 169(4) - Required Documentation

Cases

Systematix Technology Consultants Inc. v. Canada, 2007 FCA 226, aff'g 2006 TCC 277

must obtain registration number in advance

The appellant provided IT services through subcontractor consultants. The consultants in issue variously did not provide registration numbers on their invoices, did not have registration numbers, or used invalid registration numbers. The appellant was not entitled to ITCs in respect of these invoices. Sexton JA stated (at para. 4):

We are of the view that the legislation is mandatory in that it requires persons who have paid GST to suppliers to have valid GST registration numbers from those suppliers when claiming input tax credits.

See Also

Construction S.Y.L. Tremblay Inc. v. Agence du revenu du Québec, 2018 QCCA 552

failure of invoices to describe supply was in itself sufficient to deny credit

In the federal Construction S.Y.L. Tremblay case, Bédard J found that house-repair invoices, that did not give the house address or describe the precise nature of the work performed (and that were rendered in the name of entities that did not remit the GST), failed to satisfy the requirements of s. 3 of the Input Tax Credit Information (GST/HST) Regulations, so that the appellant’s related input tax credit claims were properly denied – and also found (at para. 25) that “the appellant did not truly acquire the supplies for which it claimed ITCs.”

The appellant then sought to establish its eligibility for input tax refunds for the QST on the same invoices in a Court of Quebec action with the assistance of 19 witnesses. Thibault JCA agreed with the finding of the Court of Quebec below that allowing this action to proceed would be an abuse of process, given that the new evidence would not solve the defective nature of the invoices that the appellant had received.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Stare Decisis Court of Quebec not bound by Tax Court decisions/stare decisis does not preclude relitigation where unfairness would otherwise result 208
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iv) failure of invoices to describe the supplies could not be remedied by testimony 397
Tax Topics - General Concepts - Abuse of Process taxpayer’s attempt to relitigate an adverse TCC decision in the Court of Quebec was an abuse of process given that the new evidence to be tendered did not address its defective invoices 386

Agence du revenu du Québec v. Stamatopoulos, 2018 QCCA 474

burden shifted to ARQ once taxpayer showed that it had business dealings with suppliers named in invoices

A taxpayer (Stamatopoulos) serviced clothing manufacturers by securing sewing services for clothes that then were delivered to the manufacturer. He checked the GST and QST registration numbers of the subcontractors and paid the invoices delivered in their name to him once he, in turn, had been paid by the manufacturer. The QST paid by him was not remitted by the subcontractors, and the ARQ position was that he was not entitled to input tax refunds because the persons in whose names the invoices were issued were not the persons who had actually rendered the sewing services to him.

In confirming the position below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming ITRs, Marcotte JCA proceeded on the basis that (para. 54, TaxInterpretations translation):

[W]here the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices properly emanated from a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.”

The ARQ had not met this onus.

She also noted that it did not matter whether the subcontractors with whom Stamatopoulos had dealt had in fact provided the sewing services, because the Quebec equivalent of the Input Tax Credit Information (GST/HST) Regulations provided that a good invoice could also be issued by an intermediary.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 2 - Intermediary ARQ failed to establish that a named supplier to the taxpayer did not act as a supplier or intermediary 422
Tax Topics - General Concepts - Onus onus shifted to ARQ once the taxpayer had demonstrated that he had business deaings with issuer of mooted invoice 199

Barlis 06 - Investimentos Imobiliários e Turísticos SA v. Autoridade Tributária e Aduaneira, [2016] EUECJ C-516/14 (European Court of Justice (Fourth Chamber))

requirement to grant credit if registrant provides non-invoice back-up

Barlis, which operated hotels in Portugal, was denied the deduction of input tax respecting legal services on the basis that the four invoices received by it from the law firm (for example, in one invoice, only stating “Fees for legal services rendered until the present date,” i.e., not describing the period covered) did not satisfy the documentary requirements under the local (Portuguese) VAT law. Although Barlis submitted annexes giving a more detailed description of the legal services, these also were rejected on the basis that they were not documents “equivalent” to invoices.

Article 226 of Directive 2006/112 required the disclosure on invoices of inter alia:

(6) the quantity and nature of the goods supplied or the extent and nature of the services rendered;

(7) the date on which the supply of goods or services was made or completed…in so far as that date can be determined and differs from the date of issue of the invoice;

Article 219 provided that any document or message that amends and refers specifically and unambiguously to the initial invoice shall be treated as an invoice.

On a referral, and after first finding that the invoices themselves did not satisfy the documentary requirements, the Court found (at paras 42, 43, 44, and 45):

The Court has held that the fundamental principle of the neutrality of VAT requires deduction of input VAT to be allowed if the substantive requirements are satisfied, even if the taxable persons have failed to comply with some formal conditions. Consequently, where the tax authorities have the information necessary to establish that the substantive requirements have been satisfied, they cannot, in relation to the right of the taxable person to deduct that tax, impose additional conditions which may have the effect of rendering that right ineffective for practical purpose… .

It follows that the tax authorities cannot refuse the right to deduct VAT on the sole ground that an invoice does not satisfy the conditions required by Article 226(6) and (7) of Directive 2006/112 if they have available all the information to ascertain whether the substantive conditions for that right are satisfied.

…[T]he authorities … must also take account of the additional information provided by the taxable person. That conclusion is confirmed by Article 219 of Directive 2006/112, which treats as an invoice any document or message that amends and refers specifically and unambiguously to the initial invoice.

…[I]t is therefore for the referring tribunal to take into account all the information included in the invoices at issue and in the annexes produced by Barlis in order to ascertain whether the substantive conditions for its right to deduct VAT are satisfied.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iv) mere technical non-compliance with VAT requirements for complete invoices should not prevent input tax claims 150

SNF L.P. v. The Queen, 2016 TCC 12

ITCs where reasonable efforts to verify suppliers and registration numbers, where GST not remitted

The appellant ("SNF"), which carried on a metal recycling business, acquired metal scrap from 12 suppliers, who were registered for GST and QST purposes. It paid them GST and QST in addition to the purchase price. However, for the reporting periods in issue (from January 1, 2009 to September 30, 2010) they did not remit the collected tax.

Rip J found (at para. 65) that (in contrast to Systematix):

SNF did verify whether the registration numbers were "bona fides", verifying each supplier's application and the Revenu Québec stamped acceptance, as well obtaining the addresses and telephone numbers, among other things of the 12 suppliers.

Although each supplier named in the invoices was “a 'prête‑nom' and not the actual supplier” (i.e., each supplier acted on behalf of an undisclosed principal), he stated (at para. 81):

That...suppliers may not have carried on a business or were "prête‑noms" does not, on the facts, affect the appellant's right to claim ITCs.

Finding that SNF had made reasonable efforts to ensure that the suppliers and the GST registration numbers on invoices and in its files were legitimate for 11 of the 12 suppliers, Rip. J. stated (at para. 70):

If SNF made the necessary inquiries as to whether the person had a proper GST number, that was sufficient; and it did, except in the case of Valerie Bergeron... SNF did not follow its own procedures in opening an account for Ms. Bergeron.

In denying ITCs for purchases from the 12th supplier, Rip. J. stated (at paras. 78-79):

When Revenu Québec or the Canada Revenue Agency issues a GST registration number to a person, that person becomes an agent of the Crown. The taxing authority must bear some responsibility with respect to whom it appoints as agents.

Nevertheless, a registrant purchasing supplies or services from a person must use reasonable procedures to verify that the person is a valid registrant, that the registration number actually exists and that the number is registered in the name of that person. In addition, if the registrant suspects the person's legitimacy as a supplier, then the registrant purchases supplies at its own risk. SNF suffered such risk when it dealt with Ms. Bergeron.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 2 - Intermediary intermediary need not carry on business and may be a nominee 125
Tax Topics - Excise Tax Act - Section 261 - Subsection 261(1) no rebate entitlement for an error caused by the applicant’s own inattention and carelessness 104
Tax Topics - General Concepts - Agency "prête‑nom" contract is a valid contract 197

Tan v. The Queen, 2015 TCC 121 (Informal Procedure)

obligation to file registration numbers upheld, notwithstanding that the registrants and the Minister would not provide them

The appellant incurred expenditures for her restaurant business, for which several of her suppliers provided her with receipts but did not and would not provide a registration number. Masse DJ agreed with the Minister that, without the registration number, the taxpayer's claim for ITCs on those supplies must fail. The appellant argued that the registration numbers were facts the Minister already possessed (and would not provide them to her, citing taxpayer confidentiality). However, this argument did not overcome the strict requirement (see Systematix) that the appellant provide registration numbers before a claim for ITCs could be made (para. 17). Moreover, the Minister should not be imposed with the administrative burden of providing registration numbers in a registrant's stead (para. 20).

Constructions Marabella Inc. v. The Queen, 2012 TCC 397 (Informal Procedure)

The registrant's sole shareholder and president ("Mirabella") was a building contractor who subcontracted various elements of construction. Mirabella was aware that one of his new subcontractors (Archambault) was having problems with the authorities and was short on funds, so he paid Archambault's invoices promptly. The invoices did not represent amounts payable to Archambault, but rather to three GST-registered corporations unrelated to him. The corporations were involved in a false invoicing scheme, and none of them in fact provided supplies or services to the registrant, or were equipped to do so.

Batiot D.J. affirmed the Minister's decision to deny the registrant input tax credits for the invoices, on the basis that the registrant did not meet the requirements of s. 169(4)(a) of the Excise Tax Act. Under s. 3(c) of the Input Tax Credit Information Regulations, a registrant is required to identify the registration number of its supplier. Batiot D.J. stated that "the supplier's name must match the registration number, and the supplier must in fact be the supplier" (para. 27).

Although the registrant was innocent of any participation in Archambault's scheme, this was insufficient to make out a due diligence defence. On the contrary, the registrant was aware that Archambault was having trouble with the authorities and yet accepted without question that his invoices were accurate. Batiot D.J. cited Corporation de L'École Polytechnique v. Canada, 2004 FCA 127, for the proposition that (FCA para. 29):

The due diligence defence, which requires a reasonable but erroneous belief in a situation of fact, is thus a higher standard than that of good faith, which only requires an honest, but equally erroneous, belief.

Comtronic Computer Inc. v. The Queen, 2010 TCC 55

no ITC where registration number for wrong supplier

The GST registration number of the supplier shown on the invoices provided to the Appellant ("Comtronic") was not that of the suppliers but was a validly issued number belonging to someone else. Comtronic paid for the supplies together with GST but the supplier never remitted the GST. Boyle J held that not only did s. 169(4) of the Act require that the registrant have obtained the GST registration number of the supplier, but it must be the number which had been assigned to that supplier. After quoting Systematix, he stated (at paras. 26, 33):

Given the wording of paragraph 169(4)(a), as well as the Reasons for Judgment of Archambault J. in the Tax Court ( 2006 TCC 277 (CanLII), [2006] G.S.T.C. 120) with which the Federal Court of Appeal agreed, I take the court's reference to "valid GST registration numbers from those suppliers" to mean GST registration numbers validly assigned to those suppliers.

… I am unable to see how the broad wording of the relevant provisions and the interpretation thereof by the Federal Court of Appeal that the wording is mandatory and should be strictly enforced, and which requires that the ITC claimant have the registration number assigned to the supplier, should result in any different outcome in this case

Key Property Management Corporation v. The Queen, 2004 TCC 210

documentary requirements mandatory

The appellant appealed the denial of several ITCs for legal services; some of the denials were upheld due to lack of documention. In this regard, Bowie J. stated (at para. 14):

The whole purpose of paragraph 169(4)(a) and the Regulations is to protect the consolidated revenue fund against both fraudulent and innocent incursions. They cannot succeed in that purpose unless they are considered to be mandatory requirements and strictly enforced. The result of viewing them as merely directory would not simply be inconvenient, it would be a serious breach of the integrity of the statutory scheme.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service - Paragraph (c) maintenance employees working for indeterminate group companies were not their employees 247
Tax Topics - General Concepts - Agency maintenance employees working for indeterminate group companies were not hired as agent for those companies 162

San Clara Holdings Ltd. v. The Queen, [1995] E.TC 6 (TCC)

The registrant was prohibited from claiming input tax credits in respect of amounts paid by it to subcontractors who had not provided their GST registration numbers to the registrant. Lamarre J.TCC concluded on the evidence that the subcontractors were small suppliers under the Act for the period in issue.

Administrative Policy

May 2015 Alberta CPA Roundtable, GST Q. 6

no invoice required for on-supply covered by s. 156 election

In a corporate group, on entity (Corp A) makes the purchases and then journal entries transfer the expense over to the correct entity (Corp B). Corp A claims ITCs on its purchases and does not charge GST to Corp B as there is a s. 156 election in place. Should an invoice be issued to support Corp A claiming the ITCs as it has made a taxable supply to Corp B? CRA responded:

Where Corp A pays an amount for a good or service and is the recipient of the supply and then resupplied the good or service to Corp B, Corp A should have the documentary requirements under subsection 169(4) and the Regulations to claim the ITCs. The documentation requirements of subsection 169(4) are for the acquisition of the goods by the person claiming the ITC. There is no documentary requirement under subsection 169(4) for the supply between Corp A and Corp B. There should be sufficient documentation or information in the books and records to support that a resupply of the good or service was made.

20 December 2012 Ruling Case No. 145166

As a result of delays in processing accounts payable invoices, two companies do not have monthly input tax credit accruals in their accounts that reflect all the invoices that have been received at that point. In response to a submission that the companies should be able to claim ITCs in their returns based on a conservative estimate of the ITC's for each month that had not yet been recorded, CRA stated:

There are no provisions in the ETA that provide for the claiming of ITCs based on an estimate of the amount of tax that may become payable and on the assumption that the required documentary requirements are met….The CRA does not accept your proposed methodology to address the administrative and processing delays inherent in the companies' respective bookkeeping practices.

16 August 1994 Headquarter Letter

In a situation where an unregistered non-resident was listed as the importer of record, and it supplied goods to a registrant who wishes to obtain an ITC under s. 180, CCRA indicated that "a copy of the B3 Customs Coding Form will be considered sufficient evidence for purposes of paragraph 169(4)(a) and subparagraph 180(a)(ii) of the Act ... . An agreement in writing between the supplier and the recipient of the commercial service, or other relevant documents which will provide sufficient evidence in determining the identity of the supplier and the recipient of the commercial service and verify that the non-resident caused the transfer of the physical possession of the goods to the resident will also constitute sufficient documentary evidence."

GST M 400-1-2 "Documentary Requirements"

Subsection 169(5) - Exemption

Administrative Policy

8 March 2018 CBA Commodity Tax Roundtable, Q.15

CRA has discretion to waive requirement for contemporaneously valid vendor registration number

After noting that, to comply with s. 169(4)(a), the registration number supplied by a vendor “must be valid at the time the tax in respect of the supply becomes payable by the recipient or is paid by the recipient without having become payable,” CRA went on to state:

[U]nder subsection 169(5), the Minister is given discretionary power in certain circumstances to exempt a specified registrant, a specified class of registrants, or registrants in general from the documentary and information requirements stated in subsection 169(4), if the Minister is satisfied that there is, or will be, sufficient evidence to establish the particulars of a supply and the tax paid or payable in respect of the supply. The Minister may also specify the terms and conditions for applying such an exemption.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(b) - Subparagraph 3(b)(i) subject to s. 169(5), supplier’s registration number must be valid on due date 272

GST M 400-1-2 "Documentary Requirements" under "Meals and Entertainment - Reimbursements"

Discussion of simplified "6/106" method for claiming ITCs re meal and entertainment expenses.