Mandatory Requirements To Claim Input Tax Credits

Les Ventes et Façonnage de Papier Reiss Inc. v. The Queen, 2016 TCC 289

At issue was whether the taxpayer was entitled to claim Input Tax Credits (ITCs), where the invoice is that of an intermediary, in remitting net tax (GST/HST) under the Excise Tax Act.

The Court stated that at a minimum, the person who claims input tax credits MUST: (1) verify the continued validity of the tax registration number, and (2) the identity of the supplier (corporation, officers, and directors).  Failing this, good faith and honesty will not serve and the ITCs will not be claimable.

ANALYSIS

The Excise Tax Act permits a registrant to claim ITCs when the information required by Regulations is obtained, including the name of the supplier or intermediary being on the supporting documentation.   The Regulations define an “intermediary” as a “registrant who, acting as an agent of the person or under an agreement with the person, causes or facilitates the making of the supply by the person”. The name of the true supplier or his or her intermediary must appear on the invoice – Kosma‑Kare Canada Inc. v. Her Majesty the Queen, 2014 FCA 225.

The provisions of the ETA and the Regulations are mandatory with respect to claims for input tax credits – Her Majesty the Queen v. Salaison Lévesque Inc., 2014 FCA 296; Systematix Technology Consultants Inc. v. Her Majesty the Queen, 2007 FCA 226 (para 190).  Good faith in claiming ITCs is of no relevance (para 192), and neither is unfairness to the purchaser – Comtronic Computer Inc. v. Her Majesty the Queen, 2010 TCC 55 (para 193).

The name that appears on the invoice must be the supplier that made the supply or must be the mandatory or authorized representative of that supplier AND the person who issued the invoice must have an interest in issuing the invoice (para 195).

The person claiming ITCs must take risk management measures or else they bear the risk of fraud, identity theft, or wrongdoing (para 196).  This includes the duty of verification (para 197).

The burden of making a prima facie case that it acquired the supplies from the supplier whose name appears on the invoice and that it is not part of an invoice of convenience scheme rests with the taxpayer (paras 200-02).

The Court held that the only verification measure taken by the taxpayer was checking that the tax registration numbers were still valid (para 212). This was not enough, as the person claiming ITCs must ensure that the name on the invoice is that of the true supplier (para 214-15). A taxpayer is not, however, required to conduct verification to ensure that suppliers are in compliance with tax laws, but must conduct minimum verification which includes (para 218):

• searching the government’s website to confirm registration for tax;
• verifying the identity of the person with whom the person is doing business, which can include verifying the identity of directors and officers of corporations or individuals engaged in commercial activity.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Use of Land Split Between Commercial and Non-Commercial Activity

University of Calgary v The Queen, 2015 TCC 321

At issue was the application of Excise Tax Act subsection 169(1) – General input tax credit rule – in combination with Subsections 141.01(2), (3), and (5) – fair and reasonable rule and apportionment rules.

FACTS

The University of Calgary’s land, although predominantly used for educational purposes, is also used to provide various commercial and non-educational services to student, faculty, and the public. As such, it made both taxable and exempt supplies.  The Minister and the Appellant disagreed on the manner of allocating percentages of the exterior spaces as between commercial and non-commercial uses.

ANALYSIS

ETA subsection 169(1) contains the general rules for claiming input tax credits (ITCs).  This includes the ability to claim ITCs for GST paid on the acquisition of capital real property to the extent acquired for consumption, use or supply in the course of its commercial activity, and with respect to GST paid on improvements based on the extent to which the person was using the capital real property in the course of the person’s commercial activity immediately after the capital real property was last acquired by the person.

The ETA defines “business” and “commercial activity” in subsection 123(1), such that the definition of business is broader than that for commercial activity (para 92).  A business includes both the making of taxable and exempt supplies, but ITCs are only available for the making of taxable supplies.  Section 104.01 of the ETA allows for ITC apportionment between taxable and exempt supplies with respect of “indirect costs”.

“Indirect costs” include “administrative costs, overhead costs, and costs incurred in respect of common areas in or around the building” (para 96).  Subsections 141.01(2) and (3) clarify that in determining the ITCs of registrants who are involved in both taxable and exempt activities, one must attribute all costs of the registrant to the making of supplies (para 98):

• 141.01(2)(a) – deems a person to have acquired the property or service for the consumption or use in the course of commercial activities to the extent that the property or service is acquired for the purpose of making taxable supplies for consideration in the course of the business;
• 141.01(2)(b)(i) – deems a person to have acquired the property or service for consumption or use otherwise than in the course of commercial activities to the extent that the property or service is acquired for the purpose of making supplies in the course of a business that are not taxable supplies made for consideration (exempt supplies or  no or minimal consideration);
• 141.01(2)(b)(ii) – deems a person to have acquired the property or service for consumption or use otherwise than in the course of commercial activities to the extent that the property or service is acquired for a purpose other than the making of supplies in the course of a business (not related to business);

ETA s 141.01(2) looks at the purpose when acquiring the property or service, and all costs incurred by a person in the course of a business must be traced to a specific supply or multiple supplies (para 106).   Subsection 141.01(3) contains rules that apply to the actual, not intended, use of property or services.

Paragraphs 141.01(5)(a) and (b) deal with apportionment of property or services as amongst uses by looking at the extent to which they were (a) acquired for the purpose of consumption or use in, or (b) were actually  consumed or used in the course of making taxable supplies for consideration. They both require a fair and reasonable, as well as consistent, apportionment of costs.

What is “fair and reasonable” was addressed in Sun Life Assurance Company of Canada v. The Queen. 2015 TCC 37, where the TCC held that reasonableness requires the application of judgment and common sense, from the perspective of an objective observer with knowledge of all pertinent facts (para 112).  The tax authority cannot simply substitute its approach  for that of the taxpayer where there is more than one method that is fair and reasonable in the circumstances – the taxpayer is free to choose amongst equally fair and reasonable approaches (para 112).  See also British Columbia Ferry Services Inc. v. The Queen, 2014 TCC 305.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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