Justice John Owen of the Tax Court of Canada has rendered one of the most important and potentially far-reaching decisions in 33 years of GST. While Fiera Foods Company v. The King, 2023 TCC 140 is about some other things, the Tax Court’s keen observations about GST “Information Requirements” is its most important part: they require sufficient evidence to be obtained prior to claiming input tax credits (“ITCs”), but do not specify or require the “form” of that evidence.
Background
Everyone knows that most Canadian goods and services are subject to GST/HST, ranging from 5% in Alberta to 13% in Ontario and up to 15T% in the Atlantic Provinces. But that GST/HST is only supposed to “stick” to the final consumer level. Every other recipient in the commercial distribution system (e.g., intermediate suppliers from manufactures to wholesalers to retailers) is supposed to get back all of the GST/HST paid on their business inputs, as ITCs.
The idea was that if you eliminated tax from the middle of the supply chain, where the final customer was in the US or abroad, you could ensure that Canadian goods were as competitive as possible on those international markets.
When first announced in the 1989 Technical Paper that introduced the GST System, the government indicated that ITCs could be obtained simply by ensuring a basic level of ITC information, that would “not interfere with vendors' actual pricing practices”. It was to be a “streamlined method” relying “on existing business records and invoicing practice”, and that as a “consequence, the GST will involve little, if any, change to existing billing practices” – a focus on actual information, rather than “form”.
When enacted, ETA 169(4) and its related regulations required GST registrants to obtain sufficient evidence in such form containing such information as will enable the amount of the ITC to be determined. CRA could specify (prescribe) the type of information but not(?) its form –something we first observed in a February 2013 Canadian Tax Highlights article on the Les Construcions Marabella case Queen (Vol 21, No 2).
30 Years of Reality
That is where the theory of an elegant value-added taxing system met the stark reality of CRA administrative practice. The CRA began to do the opposite, and to require ITC information to be in a form to its liking: sometimes on a single perfect invoice; sometimes signed or issued by the supplier; other times with other requirements.
The result: “Denial of ITCs for Lack of Sufficient Documentation” became the No. 1 Audit issue for the next 30 years – and a source of low-hanging fruit which the CRA exploited to deny ITCs to millions of intermediate suppliers. This defeated the policy underlying the new GST system, with every $1 of ITCs denied in this intermediate supply chain serving to make Canadian goods that much more expensive (and less competitive) on the international markets.
Commentary
Justice Owen’s decision helps rectify this and underscores that CRA is not permitted to specify the form of the documents kept or the information obtained. The GST registrant’s obligation is to obtain the information that the CRA requires, but reliability of the evidence is what is required, not the particular form (see para 282)!
In this light Fiera Foods is perhaps the most important ITC decision in 30 years and along with other recent decisions like CFI Funding Trust v The Queen, 2022 TCC 60, is a continued sign of hope for things to come.
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