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HST CANNOT BE SET OFF AGAINST DEBTS OWNING

BCAA CONFIRMS HST CANNOT BE SET OFF AGAINST SUPPLIER’S DEBTS

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Many commercial agreements include broad rights of set-off, which sophisticated businesses use to net out liabilities between parties. While that seems straightforward in commercial terms, businesses run into problems when applying this practice to GST/HST. Under the Excise Tax Act, HST collected – or collectible – by a supplier is NOT the supplier’s money to begin with. Rather, it is money held in trust for the Crown.

In this Indirect Tax Report, we review a recent decision of the Court of Appeal for British Columbia (“BCCA”) confirming that HST cannot generally be discharged through contractual set-off, even where the underlying commercial debt is undisputed.

Glencore - Background

In Glencore Canada Corporation v. FTI Consulting Canada Inc., 2026 BCCA 167, Glencore Canada Corporation (“Glencore”) and Trevali Mining (New Brunswick) Ltd. (“TNB”) were parties to an agreement for the commercial sale of metal, which included a broadly worded set-off clause. When TNB failed to deliver minimum quantities of metal to Glencore in 2021 and 2022, Glencore incurred USD $12.9 million in unexpected costs (the “Replacement Cost”).

TNB later delivered further metal and invoiced Glencore USD $8.7 million plus CAD $1.5 million in HST (the “Invoices”). Glencore simply set off the HST-inclusive Invoice amounts against its Replacement Cost in accordance with its agreement and paid TNB nothing.

TNB became insolvent shortly after and never remitted the HST from the Invoices to the CRA. The CRA assessed TNB for the unremitted HST. When a receiver appointed over TNB’s assets (“Receiver”) came looking for that HST, it argued the HST portion could never have been validly set off in the first place since it was owed to the Crown, not to TNB. Glencore disagreed, relying on its contractual right of set-off.

The Receiver obtained an order from the Supreme Court of British Columbia for the payment of the HST for the Invoices and Glencore appealed to the British Columbia Court of Appeal (“BCCA”).

BCCA Decision

BCCA upheld the lower court’s order subject to one variation. The Court held that under the Excise Tax Act, Glencore owed the HST to TNB only in TNB’s capacity as the Crown’s agent, not in its own right. Accordingly, TNB had no claim against Glencore, and the “mutuality” required for set-off with respect to the HST was absent. Furthermore, the Court found that while section 224 allows a supplier to sue a recipient for unremitted tax once the supplier has itself paid that tax to the Crown, that section was not engaged as TNB never remitted the HST to the CRA.

The Court upheld the lower court’s order but varied it to exclude interest and penalties separately assessed against TNB for TNB’s own failure to remit.

Takeaways

The Glencore decision confirms that a broadly worded contractual set-off clause will not generally override the suppliers duty to hold GST/HST in trust for the CRA. Businesses relying on set-off provisions in their supply contracts should take stock of their exposure where HST is involved.

Glencore has sought leave to appeal to the Supreme Court of Canada, meaning that this may not be the final word on this issue. Where set-off or HST recovery issues arise, Experienced Tax Counsel can help.

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