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What is really required for GST ITC Claims?

For more years that we can remember, “ITC Documentation” has been a “Top 10” Audit Issue with Canada Revenue Agency GST Audits. This is a reference to the evidentiary requirements imposed by ss. 169(4) of the Excise Tax Act (ETA) and the Input Tax Credit Information (GST/HST) Regulations (the “ITC Regulations”) which the CRA has been prone to interpret as a “documentation requirement”, reviewing and disallowing ITCs claimed for “lack of required documentation”.

The law in this area is fortunately changing, with a recent decision of the Tax Court of Canada (TCC) Forestech Industries v. The Queen. (2009 TCC 591) providing a helpful review on the actual requirements of subsection 169(4) -- which pointedly are not exactly what many CRA auditors would have taxpayers believe.

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Both the “Large Corporation rules” in the Income Tax Act (the “ITA”) and the “Specified Person rules” under the Excise Tax Act (the “ETA”) are probably unfamiliar to most people other than experience tax practitioners.  However, they can impact the ability of large corporations to properly appeal income tax and GST issues, since if they are not complied with - to the letter - the government will take steps towards barring the taxapyer from further appealing the matter beyond the Canada Revenue Agency's Appeals Process. 

Generally, the overall effect of these provisions is to attempt to prevent a Specified Person (or a Large Corporation) from appealing to the Tax Court of Canada where the Notice of Objection does not contain certain required pieces of information.

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