Section 169

Two bakery plants of the appellant were staffed in significant part by temporary workers (“TWs”), who were sourced from third parties (the “Agencies”), which solicited for the TWs and directed them to the appellant and used part of the payments from the appellant on their invoices to pay the TWs in cash without taking or remitting source deductions. They pocketed rather than remitting the HST collected by them. CRA denied the appellant’s ITC claims.

Owen J found that the appellant “chose to ignore the obvious signs that the Agencies were not treating the TWs as employees and/or were not meeting the obligations of an employer” (para. 215) - but nonetheless concluded that the appellant was entitled to its ITC claims given his finding (at para. 236) that the “Agencies provided a supply to the Appellant that comprised soliciting and directing TWs to the Appellant and paying the TWs for the services provided by those TWs to the Appellant” so that “the supply provided by each Agency to the Appellant, the Agency was a ‘supplier”, and the Appellant was a ‘recipient’.”

Owen J also stated (at para. 253) that the “addition to an input tax credit of amounts that are paid without having become payable captures situations in which a person has paid the tax prior to the time the rules in the ETA cause the amount to become payable (e.g., a prepayment of tax)” and (at para. 259):

[S]ubsection 169(1) does not require that the tax payable by the person that acquires the supply be payable to a particular person. Subsection 169(1) simply requires that the tax in respect of a supply be payable by the person.

The Minister denied the input tax credit (“ITC”) claims of Amex Bank of Canada’s (“Amex”) for its 2002 to 2012 taxation years for GST/HST paid on expenses arising in connection with the administration and operation of Amex’s Membership Rewards Program (“MRP”), including expenses (”Reward Expenses”) incurred for the purpose of providing its cardholders who were members of the MRP (“Members”) with rewards on the redemption of points earned by them mostly through making purchases on their cards.

Hogan J, before dismissing the appeal, stated (at paras. 59) that “all of the elements and components of the MRP are inherently intertwined and connected with the exempt supply of financial services made by the Appellant to its Members and merchants” and noted in this regard (also at para. 59) that the Members accumulated points and obtained rewards through use of their cards and that, conversely, enrolment in the MRP of a cardholder alone offers no benefits by itself and that points could only be earned and redeemed for benefits if the card was used by the Member to pay for goods or services. Furthermore, the facts pointing to “all of the elements and components of the MRP [being] elements of a composite supply also establish that the predominant element of that supply is the extension of credit by Amex to a Member” (an exempt supply) (para. 68). Hogan J further found (at para. 82) that Amex incurred “the Reward Expense for the purpose of earning greater merchant discount revenue in its credit card business.”

Mr Ranson, a former employee of an information technology consultancy (“CSP”), resigned to set up a competing company ("Praesto"), where he was joined by three other former employees of CSP. CSP commenced action only against Mr Ranson and the other three employees, alleging breach of the terms of his employment and/or fiduciary duties in setting up Praesto and competing with CSP through Praesto, and alleged misuse of a contact list. The law firm acting in defending the CSP action (“Sintons”) addressed the eight invoices in issue to Mr Ranson alone respecting the conduct of the litigation from its commencement of proceedings up to and including the Court of Appeal (which reversed the finding below of liability of Mr Ransom). The invoices were paid by Praesto. Sintons had declined a request to address its invoices to Praesto.

The availability to Praesto of an input tax credit for the VAT included in the Sintons invoices turned on a VAT provision providing such a credit for “VAT on the supply to him [the taxable person] of any goods or services being … goods or services used or to be used for the purpose of any business carried on or to be carried on by him.” HMRC assessed to recover the input tax credit of £79,932 claimed by Praesto.

Hamblen, LJ found no error of law in the FTT’s conclusion that the invoices related to services supplied by Sintons to Praesto, stating (at paras 37, 42, 43, and 45):

[T]here was throughout a joint retainer whereby Sintons was being instructed by and acting on behalf of both Mr Ranson and Praesto. … [B]oth Mr Ranson and Praesto would be entitled to Sintons' services and both would be jointly and severally liable for Sintons' fees. That is a legal relationship involving reciprocal performance.

… The real value of CSP's claim was an account of Praesto's profits. CSP was seeking to put Praesto out of business as its competitor. …

The FTT was satisfied and found that the litigation was effectively being brought against Mr Ranson and Praesto, even though Praesto had not been joined to the proceedings. That reflected the economic reality. It was also borne out by CSP's stated intention to join Praesto if and when Mr Ranson's liability for breach of fiduciary duty was established… .

… It may be that another tribunal might not have reached the same conclusions, but the FTT was clearly entitled to reach the conclusions which it did on the material before it.

LJ Hamblen further found that the FTT made no error of law in concluding that the services supplied by Sintons had a direct and immediate link to Praesto's taxable activities.

In a dissenting reasons, Sir Terence Etherton MR stated (at paras 86 and 88):

The personal belief of Mr Ranson and the understanding of Sintons that CSP was "attacking" Praesto, as well as Mr Ranson, and seeking to put Praesto out of business do not establish the requisite objective direct and immediate link to Praesto's economic activity as a whole. …

… The objective link between those services and the success of Praesto's business was not direct but indirect and was not immediate but consequential. It is well established that payment of costs by the taxpayer for a service provided to a third party instructed by the taxpayer, which is in the economic interests of the taxpayer, may not satisfy the objective direct and immediate link test: Airtours … ..

The business of the appellant (“IHI”) included the construction of buildings using prefabricated panels. One of its key shareholders had developed technology relating to a building construction process, with the rights to such technology being acquired by a corporation (“RAR”) initially owned by him and ultimately by other members of his family. RAR applied for and acquired various patents around the world.

In finding that IHI was not entitled to claim input tax credits for the GST on various invoices that it paid but which were addressed to RAR by a patent agent (“Fetherstonhaugh”), Sommerfeldt J stated (at paras. 28-29, 32):

To claim an ITC, a claimant must be contractually liable to pay the supplier for the property or service that is the subject of the particular supply. Furthermore, such contractual liability should be based on a contract between the supplier and the recipient, rather than a contract between the recipient and one of its related corporations.

… IHI did not provide any evidence to establish that IHI (rather than RAR) acquired the services provided by Fetherstonhaugh (so as to come within the wording of subsection 169(1) of the ETA), nor did it provide any evidence of an agreement or other contractual arrangement between IHI and Fetherstonhaugh that required IHI to pay for those services. …

As noted in Garmeco, to qualify for ITCs, a claimant “must demonstrate … that it acquired the goods and services for consumption or use in the course of its own commercial activity [emphasis added].”

Operations at an individual’s swimming school were suspended as a result of charges brought against him respecting alleged misconduct with a 15-year old female instructor – and he incurred significant fees in obtaining an acquittal. Although Favreau J accepted that the individual intended to resume the operations of his business when possible, he nonetheless found that, as the legal fees were “incurred to defend the Appellant’s reputation” (para. 28), the legal services did not qualify as being acquired in the course of commercial activities and for the purpose of making taxable supplies, so that no ITCs were available.

Paris J found that, notwithstanding the absence in evidence of a written agency agreement, a corporation (SVO) had purchased property as agent for the taxpayer and others, so that the taxpayer’s pro rata portion of the maintenance and upkeep expenses of SVO entitled it to claim input tax credits. In this regard, Paris J relied on the passage in Scott, The Law of Trusts (also quoted in De Mond) stating:

If [a person] undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with the title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation that predominates, and the principles of agency, rather than the principles of trust, are applicable.

Neal Armstrong. Summary of 572256 Ontario Ltd. v. The Queen, 2017 TCC 108 under General Concepts – Agency.

A Quebec company (“PPP”) through car dealers offered motor vehicle replacement “warranties,” which, in the event of the loss of the vehicle through accident or theft, would cover the difference between the depreciated value of the vehicle (which was covered by the regular insurer) and the cost of a new replacement vehicle. The consumer who had purchased the PPP warranty was required to acquire the new replacement vehicle from the dealer, and the dealer was paid directly by PPP.

After first finding that PPP was not entitled to input tax credits under s. 175.1 respecting the claims paid by it, Tardif J also found that PPP was not entitled to ITCs under s. 169, stating (at paras. 97, 108, 110 and 120-121 , TaxInterpretations translation):

… [T]he vehicle acquired through the partial disbursement [the other part being covered by the primary insurer] does not profit or benefit the appellant since only the consumer takes advantage of the acquisition of the replaced property. …

[T]he acquiror of the taxable supply is not the appellant but the consumer who benefits from the contract reimbursing for the full price… .

The argument that the dealer must do a lot of work…to prepare and present the claim to the appellant is quite unconvincing… .

… [T]o claim that the payment made by the appellant as a result of a claim is a transaction between the appellant and the dealer and a taxable economic activity is without merit.

In accordance with the FCA's pronouncements, only the person for whose benefit a supply is made may claim and obtain the related ITC…

The named Netherlands municipality did not provide two buildings constructed by it to the mostly VAT-exempt building users (e.g., schools) directly. Instead, after a newly-formed non-profit foundation was interposed between it and the users, it sold the buildings to the foundation at 10% of its cost and reported VAT on that below-FMV selling price. In finding that the municipality was entitled to essentially full credit for its VAT costs in constructing the buildings. President Biltgen stated:

[I]f the supply price is lower than the cost price, the [input tax] deduction cannot be limited in proportion to the difference between the supply price and the cost price, even if the supply price is considerably lower than the cost price, unless it is purely symbolic. … The fact that that purchaser allows parts of the building…to be used without charge is of no importance… .

B.C. Sky Train is similar.

A group of four corporations and their ultimate individual shareholder were unsuccessful in generating input tax credits for GST/HST on legal fees by assigning the rights to the proceeds of the actions to a fifth group company in consideration for that company assuming obligations for the legal fees. Ouimet J found the arrangement to be insufficiently business-like to qualify as a business of the fifth company.

In 2002, the appellant (“Airtours”), which was in financial difficulty, instigated the preparation of a report by an accounting firm (“PwC”) to satisfy around 80 lenders (the “Institutions”) that its proposed restructuring and refinancing proposals were viable. PwC was appointed to produce the report pursuant to an engagement letter (the “Letter”) which was signed both by the “Engaging Institutions” and Airtours. The report was instrumental in securing a successful restructuring.

S. 24(1) of the Value Added Tax Act 1994 defined “input tax” as, inter alia, “VAT on the supply to [a taxable person] of any goods or services” which are “used or to be used” for a business “carried on by him”. Ss. 26(1) and (2) provided that the amount of allowable input tax is that which is “attributable to” taxable “supplies … made or to be made by the taxable person in the course or furtherance of his business.”

The Letter clearly obligated PwC to supply services to the Institutions (at Airtours’ expense). At issue was whether PwC was contractually obligated to Airtours to provide its report and other services to the Institutions, so that the VAT on the PwC fees paid by Airtours qualified under s. 24(1) as “VAT on the supply to [it] of any…services.”

Lord Neuberger found (at para 23) “that PwC’s commitment to provide the services described in the Contract was a contractual commitment to the “Engaging Institutions”, and not to Airtours” on the basis that the Letter was addressed only to the Engaging Institutions (and was signed by Airtours only to be bound by its obligation to pay fees) and it provided that the report was for their sole use (with Airtours only to be provided with potentially redacted copy) and with a duty of care owed by PwC only to the Institutions.

Lord Neuberger stated (at para 50:

[I]t appears clear that, where the person who pays the supplier is not entitled under the contractual documentation to receive any services from the supplier, then, unless the documentation does not reflect the economic reality, the payer has no right to reclaim by way of input tax the VAT in respect of the payment to the supplier.

In his dissenting reasons, Lord Clarke stated (at para. 64) that “two distinct supplies of services were being provided by PwC within the same overall transaction,” (at para. 66) that “Airtours was at least as much a beneficiary of the services provided by PwC as were the Banks,” and that in his view it was agreed in the Letter “that PwC owed a duty of care both to the Banks and to Airtours” (para. 75).

In his concurring dissent, Lord Carnwath stated (at para. 82, citing Loyalty Management [2013] UKSC 15 at para 67) that “the normal expectation is that a commercial business paying a supplier is paying for a right to something, even if that something is a supply to another party,” and (at para.84):

It is legitimate to ask what would have happened if, having paid its £200,000 on 2 November in the expectation of receiving a draft PwC report 13 days later, Airtours had been faced with a failure by PwC to do anything. On Lord Neuberger’s interpretation of the contract it would have had no enforceable right of any kind. I find that impossible to accept, either as a matter of ordinary contractual construction, or still less of economic reality.

The taxpayer was denied ITCs in respect of legal fees on the basis that it did not incur the legal fees in the course of any commercial activity. It and its 75% shareholder (Mr. Mazilescu) owned between them 50% of the shares of two companies: a manufacturing company (“Waycon”); and a company (“JAV”) which owned the related buildings. An arm’s length individual John O’Connell and entities controlled by him owned the other 50% of the shares of Waycon and JAV. A further company, (“OMH”), which distributed Waycon’s products, was owned equally by O’Connell, Mrs. Mazilescu and a third individual. The taxpayer received management fees of $34,000 and $90,000 in 2008 and 2009 from Waycon, and of $100,000 from OMH in 2010.

After Mr. Mazilescu and O’Connell had been carrying out negotiations to have one of them buy out the other, but in January 2011, O’Connell sued various defendants including the taxpayer and the Mazilescus for breach of a shareholders’ agreement prohibiting competition with Waycon. This litigation was settled with O’Connell buying out Mr. Mazilescu and the taxpayers’s interest in Waycon, JAV and another related company.

In rejecting the taxpayer’s position that its legal fees were incurred in relation to its management services business, Paris J stated (para 21): “The legal fees incurred by the Appellant up to the time O’Connell applied for the Anton Piller Order in January 2011 were incurred for the purpose of negotiating a separation of Mr. Mazilescu’s and O’Connell’s business interests by way of a buyout of one or the other’s shares.” Paris further stated (at paras 22 &23):

Since shares are financial instruments as that term is defined in subsection 123(1) of the Act, and since supplies of financial instruments are exempt supplies under the Act, no ITCs in respect of inputs to supplies of financial instruments are available under subsection 169(1). This is because the making of exempt supplies is excluded from the definition of “commercial activities” …

Also, I find that the legal fees incurred by the Appellant in the course of litigation commenced in January 2011 have not been shown to have been related to or connected with any commercial activity carried on by the Appellant.

The Minister disallowed the ITCs claimed for $15 million of gold jewellery purchases made over four years on the grounds inter alia that the appellant had not purchased the gold jewellery. Lamarre J. fouind that the appellant had displaced the Ministere's assumption by demonstrating that the supplier had sufficient inventory to supply the appellant.

The taxpayer's uncontradicted evidence was that his cottage in PEI was used approximately 170 days in a given year, only 10 of which were solely for personal use. C Miller J found that the cottage was used primarily for business purposes and, having no evidence as to how the losses were calculated, allowed them in full (para. 28).

The limited partnership units of the appellant were held by a sub-trust (the "Trust") of an income fund (the "Fund"). Unit subscription proceeds received by the Fund on its initial public offering ("IPO") and on a subsequent private placement of Fund units were used to acquire debt and units of the Trust, which in turn subscribed for LP units of the appellant. The appellant used those proceeds to acquire intellectual property and related rights to be used by it in a pizza franchising business.

Before completion of the IPO, the Fund, Trust, appellant and its general partner entered into a "Financing Agreement" in which they agreed that all financing expense in connection with the IPO, other than the underwriters' fee, were to be incurred on behalf of the appellant; and at the same time the appellant entered into an "Administration Agreement" with the Fund in which it agreed to administer the Fund and "as agent of the Fund" to pay for all outlays and expenses incurred by it in such administration.

V. Miller J found that, as pursuant to the Administration Agreement, various expenses (principally relating to the IPO and private placement) were incurred by the appellant as agent for the Fund, the appellant was not the recipient of the related services and was not entitled to input tax credits therefor (para. 31). The Financing Agreement did not render the appellant the recipient of such supplies as the supplies were not made pursuant to that agreement (para. 26), nor could it be construed as causing there to be a re-supply of the services by the Fund to the appellant, as the services were consumed by the Fund (para. 32).

Furthermore, even if the appellant was the recipient of the supplies, the expenses would have been incurred by it so that it could receive money from the Trust in exchange for issuing LP units, which constituted the making of an exempt supply (para. 42).

There also were various deficiencies in the invoices of the suppliers. V. Miller J stated (para. 51):

[W]here an invoice represented services to both the Appellant and the Fund and I could not ascertain the portion payable by the Appellant, I did not allow the ITC involved.

The appellant (WHA) was an affiliate of an English company (NIG) which issued motor breakdown insurance to car owners. The NIG policies indicated that "the insurer is undertaking to meet the cost of repairs…:it is not undertaking responsibility for the repairs themselves" (para. 27). The role of WHA encompassed "the negotiation, investigation, adjustment, settlement and payment of claims…[and not] the carrying out of repairs" (para. 33). When there was a claim, there was an implied agreement between the garage and WHA under which WHA agreed to pay for the repair work insofar as it was covered by the policy and authorized by WHA; and there was an implied agreement between the insured and the garage under which the insured: authorized the garage to examine the vehicle; and agreed to pay for the work insofar as it was not covered by the policy (para. 38).

WHA had taken the position that it was receiving a supply of repair services from the garage (with a view to deducting input tax on the basis that it was receiving such repair services for the purpose of making supplies to a Gibralter affiliate). In rejecting this position (so that WHA was not entitled to such deductions), Lord Reed stated (at para. 56-57):

If NIG were to perform the contract by itself paying the garage, that would be an example of third party consideration….[T]he garage supplies a service to the insured by repairing his or her vehicle, and NIG meets the cost of that supply because it has undertaken to the insured that it will do so….

WHA's role …is to act as the paymaster of costs falling within the cover provided by the policies. The interposition of WHA does not, by some alchemy, transmute the discharge of the insurer's obligation to the insured into the consideration for a service provided to the reinsurer's agent.

The appellant ("LMUK" ) operated a loyalty card programme. Card-holding customers ("collectors") would swipe LMUK's card during purchases at participating retailers ("sponsors") and receive points which could be redeemed at participating businesses ("the redeemers") for goods or services, or for a price reduction in goods or services. Whenever a redeemer accepted loyalty points, it became entitled to payment from LMUK for accepting those points. Those payments were less than the compensation paid to LMUK by the sponsors for issuing points to the collectors as customers of the sponsors.

The Court found that the payment of LMUK to a redeemer was consideration for a supply of services by the redeemer to LMUK itself, rather than representing third-party consideration for a supply of goods or services by the redeemer to the collector. Accordingly, LMUK was entitled to a deduction of input VAT (the British equivalent of an ITC) on the payments made by it to the redeemer. Lord Reed SCJ stated (at paras. 80-81):

In accepting points, which have no inherent value, in exchange for goods or services, the redeemer is acting in a manner which is only explicable because of its agreement with LMUK, under which LMUK will pay it for doing so. LMUK pays it for doing so because its business is dependent on redeemers accepting points in exchange for the provision of goods and services. The only economically realistic explanation of LMUK's behaviour is the value to LMUK itself of the redeemers' acceptance of points in exchange for the provision of goods and services.

The registrant was a hotel company that paid franchise fees to a hotel franchise ("Marriott") in the United States. Marriott's fees were based on gross room revenues. Lamarre J. found that, because 30% of the registrant's revenue was from exempt stays (i.e. exceeding one month), 30% of the franchise fees were not incurred in respect of a "commercial activity" as defined in s. 123(1). Accordingly, she affirmed the Minister's assessment, which was made on the basis that the provision by Marriott of franchise rights was an "imported taxable supply" under s. 217, for which the registrant was liable to pay GST on the consideration paid on the basis that 30% of the franchise fees was not eligible for an input tax credit. The registrant was unable to demonstrate that the franchise fees pertained only to the short-term stays.

The taxpayer, owned and operated by Mr. Mullen, invested in shares and made non-interest bearing loans to a number of corporate ventures to which Mr. Mullen provided management services free of charge by him or the taxpayer. The taxpayer claimed input tax credits on expenses relating to the operation of a private jet, which were incurred primarily in connection with Mr. Mullen making visits to the offices of these ventures.

V. Miller J. found that the taxpayer could not claim input tax credits on the flight expenses that related to the business ventures rather than any business carried on directly by the taxpayer. She stated at para. 81:

This is a unique situation of a company incurring costs (inputs) to provide free services for its business ventures. In such circumstances, the company can best be viewed as the ultimate consumer - the end of the line: no [input tax credits] are available, as there is no further commercial activity of the company.

The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its employees. It directed the trustee of the plans to pay the fees of third party portfolio advisors out of the trust assets. As it was the Appellant who was contractually obligated to pay those fees, and as s. 267.1 did not deem the portfolio advisory services to have been acquired by the trust, the Appellant was the recipient of those services. Campbell J stated (at paras. 50-52):

It appears that, where a person is the recipient of the supply, the Act expressly contemplates that GST is payable by that person.

…[S]ection 168 provides that:

Tax … is payable by the recipient on … the day the consideration for the supply becomes due.

While the amendment to subsection 169(1) in April 1997 replaced the phrase “supplied to” with the term “acquires”, a determination as to who is the recipient of the supply remains directly relevant in dealing with the question “was GST payable by GMCL?” I do not believe that the 1997 amendment replaced the focus on the central determination in this appeal of which party is contractually liable to pay GST pursuant to the Agreements.

Woods, J. accepted that an agreement pursuant to which the appellant ("YSI") agreed to contract with suppliers in connection with refurbishing a yacht and to charge the other party to the contract ("Platinum") a 5% mark-up on some of the purchases, did not establish an agency relationship between YSI and Platinum. Woods, J. noted (at para. 35) that whether YSI acquired goods and services on its own behalf on behalf of Platinum depended on the parties' mutual intention and that, accordingly, the essential question was whether Platinum agreed to be bound by YSI's agreements with suppliers. Accordingly, YSI was entitled to claim input tax credits respecting GST on purchases made by it in reconditioning the yacht.

Kretztechnik raised capital through a share issue. The issue of shares did not constitute a supply of services, but it was held that the cost of supplies acquired in connection with the raising of the capital formed part of its general overheads and, therefore, were component parts of the price of its products. On that basis, the supplies had a direct and immediate link with the whole economic activity of the taxpayer, and VAT on those supplies was deductible. The Court stated (paras. 34 et seq):

[34] The deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT ...

[35] It is clear from the last-mention condition that, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction. Thus, the right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct …

[36] In this case, in view of the fact that, first, a share issue is an operation not falling within the scope of the [Directive] and, second, that operation was carried out by Kretztechnik in order to increase its capital for the benefit of its economic activity in general, it must be considered that the costs of the supplies acquired by that company in connection with the operation concerned form part of its overheads and are therefore, as such, component parts of the price of its products. Those supplies have a direct and immediate link with the whole economic activity of the taxable person ...

[37] It follows that ... Kretztechnik is entitled to deduct all the VAT charged on the expenses incurred by that company for the various supplies which it acquired in the context of the share issue carried out by it, provided, however, that all the transactions carried out by that company in the context of its economic activity constitute taxed transactions. A taxable person who effects both transactions in respect of which VAT is deductible and transactions of which it is not may ... deduct only that proportion of the VAT which is attributable to the former transactions'.

The appellant, which became a wholly-owned subsidiary of a new income fund (the “Fund”), incurred $78,000 in fees directly to an investment dealer, law firms and a printing company in connection with the IPO of the Fund. The $83M proceeds of the IPO were used by the Fund to subscribe for debt and equity of the appellant which, in turn, used those proceeds to acquire trade marks from another A & W company for licensing back to that company. In finding that the GST on these fees was eligible for input tax credits, Little J stated (at para. 11):

[T]he Appellant acquired the goods and services to enable it to borrow money in order to carry on its commercial activities. I have therefore concluded that the goods and services were acquired by the Appellant for use in its commercial activities.

The taxpayer was found to have made a misrepresentation attributable to neglect when it claimed input tax credits for GST incurred before it became registered for GST purposes notwithstanding professed confusion over the interpretation of s. 171 of the ETA.

A Canadian public company ("Nowsco") that was engaged in the provision of oil field services incurred significant fees for services rendered by financial advisors and a law firm in connection with seeking a "white knight" following the commencement of a takeover bid for its shares, as a result of which it was able to secure a higher price for its shares from the original bidder. Miller J. found that even if he considered that the primary purpose of Nowsco in incurring these fees was to maximize shareholder value, this purpose did not take the inputs outside the realm of commercial activity for purposes of s. 169 given that a public company will suffer adverse financial consequences if it does not behave as commercially expected, and there was a secondary purpose of maintaining the ongoing viability and economic health of the company.

As an incentive to purchasers of its new homes, a residential home developer entered into agreements with prospective purchasers and real estate agents selected by it under which it agreed to pay the agent's fee plus VAT in connection with a sale of the existing purchaser's home, provided that the purchaser completed a purchase of a new home. In finding that the VAT paid on the agent's fee qualified for deduction as input tax in respect of the supply to the developer of services, Lord Hope indicated (at p. 6) that the matter was to be looked at from the standpoint of the person who is claiming the deduction by way of input tax and, that the relevant question was:

"Was something being done for him for which, in the course of furtherance of the business carried on by him, he has had to pay a consideration which has attracted VAT? The fact that someone else, in this case, the prospective purchaser, also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction."

Similarly, Lord Millet stated (at 418 WLR):

Once the taxpayer has identified the payment the question to be asked is: did he obtain anything - anything at all – used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services.

In finding that GST on an airline ticket purchased by a law firm in order for the wife of one of its partners to attend a conference with him, was creditable, Bell TCJ. stated (at p. 46-7):

"The test set out under the Act is more liberal that the test for deductibility of a business expense under the Income Tax Act. Expenditures made for the purpose of gaining or producing income from a business are, by definition, made in the course of commercial activity. However, those made in the course of commercial activity are not, necessarily, made for the purpose of gaining or producing income from a business."

The appellant along with seven individual employees was charged with manslaughter in connection with the sinking of its vessel. The appellant's own counsel formed the view that the success or failure of the prosecution of the appellant depended largely on the success of the prosecution of the individual employees. It was found that the legal services of the separate counsel representing the employees were used for the purpose of the appellant's business for purposes of s. 14(3) of the Value Added Tax Act 1985 given the various business benefits that the appellant derived from its successful defence of the charges against it.

The appellant, who was ordered to pay the costs of the winning side in an unsuccessful lawsuit including VAT, was not entitled to a credit for input tax under s. 14 of the Value Added Tax Act 1983 because there were no "goods or services used or to be used for the purpose of any business carried on or to be carried on by him" for the purposes of that provision.

The ARQ denied input tax credits claimed by Axamit for its 2015 year regarding GST charged by its landlord, because Axamit had not provided the ARQ with any document issued by the landlord as the ARQ considered to be required by the definition in the Input Tax Credit Information (GST/HST) Regulations of “supporting documentation.” However, Gagnon J accepted the testimony of Axamit’s president that it had provided the landlord’s GST registration number to its external accountants in 2013, i.e., before they prepared its 2015 return and claimed the ITC.

In allowing Axamit’s appeal, he followed the finding in CFI Funding (quoted at para. 45) that s. 169(4) “simply provides that the registrant must have obtained the prescribed information in a form that will allow the ITCs to be determined” and that “[h]ow that information is obtained does not matter,” and further stated (at para. 50, TaxInterpretations translation) that “it does not appear appropriate that the scope of general wording of the preamble to the definition of supporting documentation in the Regulations be limited to the enumeration following the preamble.”

A securitization trust (“CFI”) used a concurrent lease structure under which it became the concurrent (head) lessee of automobiles from automobile dealer and sublessor of the automobiles to the dealership customers, and financed the automobile dealers by prepaying rents under the head leases. Before finding that CFI had satisfied the documentary requirements for claiming ITCs for the HST on the rent prepayments, and in rejecting the Crown position that various CFI spreadsheets did not satisfy its alleged requirement that “a supporting document … must originate from or be signed by the [supplier]” (para. 30), Hogan J stated (at paras. 38, 40 and 48):

[T]he broad term “form” was used in subsection 169(4) of the Act and section 2 of the Regulations because Parliament was mindful of the benefits of paperless record keeping. …

[I]nformation stored on a registrant’s computer server qualifies as supporting documentation. …

[T]he Regulations do not set out a general requirement for the supporting documentation to be issued or signed by the supplier. The definition of “supporting documentation” only requires the document to be issued or signed by the supplier where the documentation does not fit within one of the document types outlined in paragraphs (a) to (g) [of the “includes” definition of “supporting documentation”] or fall within the meaning of “form” as set out in the preamble to the definition.

The taxpayer, which was engaged in the business of providing professional cleaning services, began to pay GST to its cleaning staff after they were found at 2009 TCC 340 to be independent contractors rather than employees. The taxpayer’s president “learned” from the CRA website that the taxpayer was required to obtain the workers’ business number, which it did, whereas it did not obtain GST/HST registration numbers from them and, in fact, most of them were small suppliers who were not registrants.

Owen J applied Systematix to find that this failure to obtain prescribed information (the registration numbers) meant that the taxpayer was not entitled to claim input tax credits (ITCs) for the GST/HST paid by it to the workers.

In the federal Construction S.Y.L. Tremblay case, Bédard J found that house-repair invoices, that did not give the house address or describe the precise nature of the work performed (and that were rendered in the name of entities that did not remit the GST), failed to satisfy the requirements of s. 3 of the Input Tax Credit Information (GST/HST) Regulations, so that the appellant’s related input tax credit claims were properly denied – and also found (at para. 25) that “the appellant did not truly acquire the supplies for which it claimed ITCs.”

The appellant then sought to establish its eligibility for input tax refunds for the QST on the same invoices in a Court of Quebec action with the assistance of 19 witnesses. Thibault JCA agreed with the finding of the Court of Quebec below that allowing this action to proceed would be an abuse of process, given that the new evidence would not solve the defective nature of the invoices that the appellant had received.

A taxpayer (Stamatopoulos) serviced clothing manufacturers by securing sewing services for clothes that then were delivered to the manufacturer. He checked the GST and QST registration numbers of the subcontractors and paid the invoices delivered in their name to him once he, in turn, had been paid by the manufacturer. The QST paid by him was not remitted by the subcontractors, and the ARQ position was that he was not entitled to input tax refunds because the persons in whose names the invoices were issued were not the persons who had actually rendered the sewing services to him.

In confirming the position below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming ITRs, Marcotte JCA proceeded on the basis that (para. 54, TaxInterpretations translation):

[W]here the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices properly emanated from a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.”

The ARQ had not met this onus.

She also noted that it did not matter whether the subcontractors with whom Stamatopoulos had dealt had in fact provided the sewing services, because the Quebec equivalent of the Input Tax Credit Information (GST/HST) Regulations provided that a good invoice could also be issued by an intermediary.

Barlis, which operated hotels in Portugal, was denied the deduction of input tax respecting legal services on the basis that the four invoices received by it from the law firm (for example, in one invoice, only stating “Fees for legal services rendered until the present date,” i.e., not describing the period covered) did not satisfy the documentary requirements under the local (Portuguese) VAT law. Although Barlis submitted annexes giving a more detailed description of the legal services, these also were rejected on the basis that they were not documents “equivalent” to invoices.

Article 226 of Directive 2006/112 required the disclosure on invoices of inter alia:

(6) the quantity and nature of the goods supplied or the extent and nature of the services rendered;

(7) the date on which the supply of goods or services was made or completed…in so far as that date can be determined and differs from the date of issue of the invoice;

Article 219 provided that any document or message that amends and refers specifically and unambiguously to the initial invoice shall be treated as an invoice.

On a referral, and after first finding that the invoices themselves did not satisfy the documentary requirements, the Court found (at paras 42, 43, 44, and 45):

The Court has held that the fundamental principle of the neutrality of VAT requires deduction of input VAT to be allowed if the substantive requirements are satisfied, even if the taxable persons have failed to comply with some formal conditions. Consequently, where the tax authorities have the information necessary to establish that the substantive requirements have been satisfied, they cannot, in relation to the right of the taxable person to deduct that tax, impose additional conditions which may have the effect of rendering that right ineffective for practical purpose… .

It follows that the tax authorities cannot refuse the right to deduct VAT on the sole ground that an invoice does not satisfy the conditions required by Article 226(6) and (7) of Directive 2006/112 if they have available all the information to ascertain whether the substantive conditions for that right are satisfied.

…[T]he authorities … must also take account of the additional information provided by the taxable person. That conclusion is confirmed by Article 219 of Directive 2006/112, which treats as an invoice any document or message that amends and refers specifically and unambiguously to the initial invoice.

…[I]t is therefore for the referring tribunal to take into account all the information included in the invoices at issue and in the annexes produced by Barlis in order to ascertain whether the substantive conditions for its right to deduct VAT are satisfied.

The appellant ("SNF"), which carried on a metal recycling business, acquired metal scrap from 12 suppliers, who were registered for GST and QST purposes. It paid them GST and QST in addition to the purchase price. However, for the reporting periods in issue (from January 1, 2009 to September 30, 2010) they did not remit the collected tax.

Rip J found (at para. 65) that (in contrast to Systematix):

SNF did verify whether the registration numbers were "bona fides", verifying each supplier's application and the Revenu Québec stamped acceptance, as well obtaining the addresses and telephone numbers, among other things of the 12 suppliers.

Although each supplier named in the invoices was “a 'prête‑nom' and not the actual supplier” (i.e., each supplier acted on behalf of an undisclosed principal), he stated (at para. 81):

That...suppliers may not have carried on a business or were "prête‑noms" does not, on the facts, affect the appellant's right to claim ITCs.

Finding that SNF had made reasonable efforts to ensure that the suppliers and the GST registration numbers on invoices and in its files were legitimate for 11 of the 12 suppliers, Rip. J. stated (at para. 70):

If SNF made the necessary inquiries as to whether the person had a proper GST number, that was sufficient; and it did, except in the case of Valerie Bergeron... SNF did not follow its own procedures in opening an account for Ms. Bergeron.

In denying ITCs for purchases from the 12^th supplier, Rip. J. stated (at paras. 78-79):

When Revenu Québec or the Canada Revenue Agency issues a GST registration number to a person, that person becomes an agent of the Crown. The taxing authority must bear some responsibility with respect to whom it appoints as agents.

Nevertheless, a registrant purchasing supplies or services from a person must use reasonable procedures to verify that the person is a valid registrant, that the registration number actually exists and that the number is registered in the name of that person. In addition, if the registrant suspects the person's legitimacy as a supplier, then the registrant purchases supplies at its own risk. SNF suffered such risk when it dealt with Ms. Bergeron.

The appellant incurred expenditures for her restaurant business, for which several of her suppliers provided her with receipts but did not and would not provide a registration number. Masse DJ agreed with the Minister that, without the registration number, the taxpayer's claim for ITCs on those supplies must fail. The appellant argued that the registration numbers were facts the Minister already possessed (and would not provide them to her, citing taxpayer confidentiality). However, this argument did not overcome the strict requirement (see Systematix) that the appellant provide registration numbers before a claim for ITCs could be made (para. 17). Moreover, the Minister should not be imposed with the administrative burden of providing registration numbers in a registrant's stead (para. 20).

The registrant's sole shareholder and president ("Mirabella") was a building contractor who subcontracted various elements of construction. Mirabella was aware that one of his new subcontractors (Archambault) was having problems with the authorities and was short on funds, so he paid Archambault's invoices promptly. The invoices did not represent amounts payable to Archambault, but rather to three GST-registered corporations unrelated to him. The corporations were involved in a false invoicing scheme, and none of them in fact provided supplies or services to the registrant, or were equipped to do so.

Batiot D.J. affirmed the Minister's decision to deny the registrant input tax credits for the invoices, on the basis that the registrant did not meet the requirements of s. 169(4)(a) of the Excise Tax Act. Under s. 3(c) of the Input Tax Credit Information Regulations, a registrant is required to identify the registration number of its supplier. Batiot D.J. stated that "the supplier's name must match the registration number, and the supplier must in fact be the supplier" (para. 27).

Although the registrant was innocent of any participation in Archambault's scheme, this was insufficient to make out a due diligence defence. On the contrary, the registrant was aware that Archambault was having trouble with the authorities and yet accepted without question that his invoices were accurate. Batiot D.J. cited Corporation de L'École Polytechnique v. Canada, 2004 FCA 127, for the proposition that (FCA para. 29):

The due diligence defence, which requires a reasonable but erroneous belief in a situation of fact, is thus a higher standard than that of good faith, which only requires an honest, but equally erroneous, belief.

The GST registration number of the supplier shown on the invoices provided to the Appellant ("Comtronic") was not that of the suppliers but was a validly issued number belonging to someone else. Comtronic paid for the supplies together with GST but the supplier never remitted the GST. Boyle J held that not only did s. 169(4) of the Act require that the registrant have obtained the GST registration number of the supplier, but it must be the number which had been assigned to that supplier. After quoting Systematix, he stated (at paras. 26, 33):

Given the wording of paragraph 169(4)(a), as well as the Reasons for Judgment of Archambault J. in the Tax Court ( 2006 TCC 277 (CanLII), [2006] G.S.T.C. 120) with which the Federal Court of Appeal agreed, I take the court's reference to "valid GST registration numbers from those suppliers" to mean GST registration numbers validly assigned to those suppliers.

… I am unable to see how the broad wording of the relevant provisions and the interpretation thereof by the Federal Court of Appeal that the wording is mandatory and should be strictly enforced, and which requires that the ITC claimant have the registration number assigned to the supplier, should result in any different outcome in this case

The appellant appealed the denial of several ITCs for legal services; some of the denials were upheld due to lack of documention. In this regard, Bowie J. stated (at para. 14):

The whole purpose of paragraph 169(4)(a) and the Regulations is to protect the consolidated revenue fund against both fraudulent and innocent incursions. They cannot succeed in that purpose unless they are considered to be mandatory requirements and strictly enforced. The result of viewing them as merely directory would not simply be inconvenient, it would be a serious breach of the integrity of the statutory scheme.

The registrant was prohibited from claiming input tax credits in respect of amounts paid by it to subcontractors who had not provided their GST registration numbers to the registrant. Lamarre J.TCC concluded on the evidence that the subcontractors were small suppliers under the Act for the period in issue.

Although the appellant did not obtain GST/HST registration numbers from any of its suppliers (the “Subcontractors”), CRA allowed it to claim ITCs for those payments (the “Allowed Payments”) of the Subcontractors who in fact were registrants. Owen J stated (at para. 112):

Since the evidence is that the Appellant did not obtain a registration number from any Subcontractor, I infer from this concession that the Minister has exercised her authority under subsection 169(5) to waive the information requirements in subsection 169(4) and the Information Regulations for the Allowed Payments.

A professional corporation’s orthodontics practice claimed input tax credits on the basis of an administrative arrangement of CRA with the Canadian Dental Association under which orthodontists filed their GST returns using 35% of the patient’s total treatment cost as an estimate of the consideration for the supply of the orthodontic appliance (which was zero-rated), with only the balance treated as exempt - and with a requirement, when the annual results became available at year end, to reconcile their 35% ITC estimate with their actual taxable supplies. However, in the view of CRA, the corporation did not comply with the requirement under this policy to “identify the consideration for the zero-rated supply of the appliance separately from the consideration for the exempt supply of services” (the agreement with the patient stated that “[o]ur orthodontic fee includes a portion, up to 35%, relating to the value of orthodontic appliances,” but the invoices contained no allocation between the services and device. Accordingly, CRA disallowed the corporation’s input tax credit claims – effectively on the basis that there was a single supply of exempt orthodontic services.

Before going on to confirm the corporation’s position that it made both exempt and zero-rated supplies to its patients on a 65/35 basis, so that the zero-rated supplies generated ITCs, Wong J stated (at para. 44):

… [T]he arrangement itself would fall under the discretionary powers granted to the Minister by subsection 169(5) … . By virtue of the arrangement, the Minister is using her statutory discretion to exempt orthodontists from certain requirements of subsection 169(4), and to specify terms and conditions of the exemption. …