Due Diligence Defence for GST Input Tax Credits

Saturday, January 26, 2013

Case Citation

9183-2899 Québec Inc. c. La Reine [TCC] [CanLII]

Summary

The facts of this case are many and murky.

The appellant claimed input tax credits for the purpose of its GST account from invoices from 9183-7302 Quebec Inc. CRA didn’t believe the invoices were valid. The murky nature of the business lead the court to believe the invoices were questionable; however, it did not view it as a scheme to illegally benefit from an improper ITC but as a mistake of the appellant. Its conclusion rested on the question: did the company exercise due diligence to avoid the error?

For reasons based on case law of this issue, the court decided the taxpayer did exercise reasonable due diligence and allowed the ITC.

Note: The case is reported in French. This write-up is based on my translation.

Issue

[1] The appellant appeals from an April 6, 2010 assessment and a total amount of $5,398.35 (including interest) for the period 1 July 2007 to 28 February 2009. The respondent was denied (possibly) an input tax credit (ITC) of $4,861.62 for the purchase of spare parts and car accessories from 9183-7302 Quebec Inc. (Supplier). As indicated on invoices: this Supplier was unable to deliver these supplies to the appellant and they were therefore mere bills of convenience and the appellant had no right to the ITC.

ITA / ETA

None.

Cases Cited

Amiante Spec Inc. v. Canada (2009 FCA 139) [FCA] [CanLII]
Comtronic Computer Inc. v. The Queen, 2010 TCC 55
Corporation polytechnic v. Canada , 2004 FCA 127
Joseph Ribkoff Inc. c. The Queen , 2003 CCI 397
Systematix technology consultants inc. v. Canada , 2007 FCA 226
Orly Automobiles Inc. v. Canada (2005 FCA 425) [TCC] [CanLII]

Analysis

[14] The respondent does not deny that these transactions took place and that these car parts have changed hands, it simply says that the supplier was not 9183-7302 Quebec Inc., but some other supplier who remains unknown to him since that 9183-7302 Québec Inc. lacked the physical means to do this kind of business or transaction. It had no warehouse or employee, or administrative services or transportation, or sub-processing, and it was only supplier invoices of convenience, therefore the GST number attached to 9183-7302 Québec Inc. is invalid for these transactions. In fact, this number has been removed in December 2009 as a result of this audit investigation began in March 2009 by Mr. Serge Giroux.

[21] There is no evidence or suggestion that the appellant was in collusion with the supplier in a scheme of convenience described by the respondent. From the point of view of Mr. Laferrière [appellant owner], the company had trade relations with the Supplier for almost 18 months, fundamental work, a supplier of required goods, cheap, by cheque, without credit or guarantee.

[22] Justice Trudel in Amiante Spec Inc. v. Canada, 2009 FCA 139 (CanLII) , 2009 FCA 139, states, in paragraph 23:

A prima facie case is one “supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. It may be contrasted with conclusive evidence which excludes the possibility of the truth of any other conclusion than the one established by that evidence” (Stewart v. Canada, [2000] T.C.J. No. 53, paragraph 23).

In paragraph 24, Justice Trudel, referring to Orly Automobiles Inc. v. Canada, 2005 FCA 425 (CanLII) , 2005 FCA 425, said:

[...] The burden of proof on the taxpayer should not be overturned lightly or arbitrarily [...]

and that the taxpayer:

[...] Know how and why his company works as it is and not otherwise. He knows and has information that the Minister does not have. It has information [...] which are within his reach and over which it has control (ibid.).

[26] These facts amply demonstrate the assumptions of the respondent, the basis of the assessment in this case: 9183-7302 Québec Inc. provided invoices of accommodation or convenience, and could not be described as invoices issued to the appellant. The appellant has made a mistake.

The court then addresses this question: did the company exercise due diligence to avoid the error?

Decision

[46] Given the circumstances existing at the time of these transactions, the appellant exercised reasonable due diligence to avoid the mistake which has now been charged by the respondent, relying on the representations of them.

[47] The appeal is allowed.

Note

A paragraph beginning with a number in square brackets is a direct quote from the case.