In a January 29, 2016 Tax Court of Canada case (SNF S.E.C. vs. H.M.Q., 2013-1207(GST)G), CRA had denied over $500,000 of ITCs, and assessed penalties and interest, in respect of GST and QST paid to welve suppliers. Unknown to the taxpayer, the suppliers did not remit the tax.
The taxpayer, a scrap metal dealer, obtained evidence of prospective suppliers’ GST and QST registration prior to accepting them as suppliers.


Taxpayer wins – mostly :The  taxpayer  must  use  reasonable  procedures  to verify  that  suppliers  are  valid  registrants,  their registration  numbers  actually  exist  and  are  in  the name  of  that  person.  The  Court  held  that  the taxpayer’s  procedures  (reviewing  the  suppliers’ registrations,  stamped  by  Revenue  Quebec)  were generally  sufficient  to  meet  the  documentation requirements  (Excise Tax Act Subsection 169(4)).  It was  not  relevant  that  some  suppliers  did  not  have scrapyards  and/or  vehicles  to  carry  on  scrap  businesses,  nor  that payment  was often made  in cash, making it difficult to verify the suppliers’ revenues.  The taxpayer could not be expected to query government officialsto ensure that GST registrations were properly issued.However, in respect of one supplier, the facts showed that the taxpayer had been  sloppy  to the point of  gross negligence  in accepting evidence of registration where it was clear that the  registered supplier  was not acting on their own account. Those ITCs were properly denied, and the related gross negligence penalty upheld.As  well,  one  purchase  was  made  on  the  date  the  supplier’s registration was cancelled, so the supplier was not a registrant on that date, and the  ITC  was properly denied.  However, the related  gross negligence  penalty  was  reversed,  based  on  the  due  diligence undertaken in respect of the supplier previously.

Finally, the Court held that a  rebate for  GST/HST paid in error  (Excise Tax Act Subsection 261(19)) does not apply where the error arises due to the taxpayer’s negligence, or because the payment is made to a nonregistrant, including a supplier whose registration has been cancelled.The  purpose  of  the  rebate  is  not  to  allow  the  taxpayer  to  recover GST/HST from the Crown when the erroneous payment to the supplier results from taxpayer’s failure to exercise proper care and attention.


In  a July 11, 2017  Federal Court of Appeal  case (Club Intrawest vs. H.M.Q.,  A-249-16),  at  issue  was  what  portion  of  resort  fees  paid  by members of the Intrawest program would be  subject to GST.  Fees  paid provided access  to resorts in Canada, the U.S., and Mexico.  The fees were  used  primarily  to  administer  the  program,  maintain  the properties, and build a  reserve fund.  The taxpayer had argued that the portion of the fee related to the properties outside of Canada should not be  subject to GST/HST  according to the place of supply rules  in Section 142 of the Excise Tax Act.

In the original Tax Court of Canada case (Intrawest vs. H.M.Q., 2012-3401(GST)G), the Court found that the fees were for a single supply of service,  and  that  part  of  the  service  was  provided  in  Canada, therefore GST/HST was applicable to the entire fee.

Taxpayer wins-Generally, once it has been determined that there is a single supply, the entire charge  is either subject to  GST/HST or not.  The Federal Court of Appeal  determined,  that  even  though  the  service  was  paid  in  a  single payment,  an  alternative  approach  was  required  to  recognize  that ultimately the services  were distinct:  services provided inside Canada and those provided outside. These were two separate supplies, so the single supply provisions did not apply.

The  Federal  Court  of  Appeal  agreed  that  the  taxpayer’s  original proposal  to charge GST/HST based on the proportion of costs in Canada to  the  total  membership  costs  would  more  fairly  and  reasonably reflect the nature of the supply.

AGENCY AGREEMENT In a June 9, 2017 Tax Court of Canada case (572256 Ontario Ltd. vs. H.M.Q.,  2015-4326(GST)I),  the  Court  reviewed  whether  an  entity’s management  contract  to  maintain  real  property  of  the  taxpayer constituted an  agency agreement.  If it did, the taxpayer was eligible to claim input tax credits  for purchases made by the management entity.

Taxpayer wins The  management  agreement  identified  the  property  manager  as an agent of the property owners. This status was questioned because the manager  had  acquired  the  parking  area  related  to  the  other  real estate.  Although  no  written  documentation  existed  to  support  the relationship,  the  Court  concluded  that  the  parking  area  was  held  as  a bare  trustee,  and  the  manager  acted  as  agent  in  respect  of  that property  as  well.  The  taxpayer  was,  therefore,  entitled  to  input  tax credits.