Jean-Guillaume Shooner is a partner in the tax group of the Montreal office of Stikeman Elliott. (Courtesy: Stikeman Elliot LLP)
On June 9, 2022, the Tax Court of Canada (“TCC”) authorized Appeal by CFI Funding Trust (“CFI”) in connection with the input tax credits (“ITCs”) it claimed for prepaid rent in connection with the securitization of automobile dealership leases. The dispute arose when the Canada Revenue Agency (“CRA”) denied CFI’s ITC claims because it believed that CFI had failed to meet the minimum documentation requirements under subsection 169(4) of the Excise Tax Act (the “ETA”).
In allowing CFI’s appeal, Judge Robert J. Hogan concluded that the supporting documents did not need to be issued or signed by the supplier and that the information could also be obtained by oral or electronic communication.
As part of its commercial activities, CFI is involved in the securitization of car dealership leases. From December 1, 2013 to December 31, 2018 (the “Relevant Period”), CFI entered into various Master Concurrent Lease Agreements (“MCLA”) with car dealerships (the “Offenders”). Under the MCLAs, CFI financed the vehicle leases concluded between the Authors and the customers (the “Initial Leases”) and received cumulative leases on the Initial Leases (the “Cumulative Leases”). Pursuant to the MCLA, CFI was required to prepay part of the rent due under the competing leases (the “Prepaid Rent”). CFI and the Offerors considered the prepaid rent to be a taxable supply subject to GST/HST and, as such, mutually agreed that CFI would first claim the applicable ITCs on the prepaid rent, after which CFI would simply transfer the amounts recovered from the tax authorities to the originators as payment of the GST/HST on the prepaid rent.
During the Relevant Period, CFI also received administrative services from Corpfinance International Limited (“Corpfinance”), which included the preparation of various spreadsheets relating to prepaid rent and related GST/HST. CFI relied in particular on these spreadsheets to claim the corresponding ITCs.
When the CRA audited CFI, it first found that the prepaid rent was an exempt supply of a “financial service” and therefore denied CFI’s CFI claims. The CFI appealed the ARC assessment. The CRA eventually admitted that the supplies were taxable, but nevertheless denied the ITC claims because the documentation provided by the CFI did not meet the minimum requirements of subsection 169(4) of the ETA and the Input Tax Credits Information (GST/HST) Regulations (the rule “).
The issue on appeal was whether CFI had met the documentation requirements under subsection 169(4) of the ETA and the Regulations to claim ITCs on prepaid rent during the relevant period (para. 25).
Prescribed form of supporting documents
Pursuant to paragraph 169(4)(a) of the ETA, a registrant cannot claim an ITC unless they have “obtained sufficient evidence such shape containing information such as help determine the amount of the input tax creditincluding any prescribed information” [our italics]. Section 2 of the Regulations defines “supporting documents” as follows:
the form in which the information prescribed by Article 3 [of the Regulations] is contained, and understand
- a bill,
- a receipt,
- a credit card receipt,
- a debit note,
- a ledger or account book,
- a written contract or agreement,
- any record contained in a computerized or electronic data retrieval or storage system, and
- any other document validly issued or signed by a registrant in respect of a supply made by the registrant in respect of which tax is paid or payable; [our italics]
The Crown’s position was that paragraph (h) establishes a general requirement that supporting documents must be issued or signed by a supplier. Since CFI’s exhibits included a set of spreadsheets prepared by Corpfinance rather than the Offerors, they were not in the prescribed form (para. 30).
For its part, CFI maintains that the wording of paragraph (h) establishes that the documents must only be issued or signed by the supplier when they do not fall within the meaning of “form” of the preamble to the definition or of the “forms “listed” in sub-paragraphs (a) to (g) (para. 31).
The TCC accepted the CFI’s position, holding that the word “form” should have a broad meaning (para. 48). The TCC argued that the use of the word “includes” in the Rules establishes a non-exhaustive list of documents that are in the prescribed form (para. 37). Thus, as long as a document contains the information required under section 3 of the Regulations, it is in the prescribed form. This interpretation is consistent with subsection 169(4) of the ETA, which requires that the evidence presented in order to claim the ITC be in a form that “will enable the amount of the [ITC] to be determined”. Further, in reviewing the CRA’s prior public statements, the TCC noted that the CRA has long held that the word “form” should have a broad meaning (para. 42). For example, the CRA has stated that reverse invoicing — originating from the acquirer rather than the supplier — can satisfy ITC claim requirements, provided it contains the required information (para. 44). notes the TCC, if the CRA’s position is correct in this case, it means that its earlier public position on reverse billing is therefore invalid (para. 45).
Recognizing the benefits of electronic record keeping (para. 38), the TCC held that the spreadsheets prepared by Corpfinance can also satisfy the documentation requirements. It also held that how a registrant obtains the prescribed information does not matter for the purposes of subsection 169(4) of the ETA, as long as the registrant obtains that information before claiming the ITCs (para. 41) .
Sufficiency of evidence
To claim ITCs in respect of prepaid rent, CFI had to establish that it had obtained all of the “prescribed information” pursuant to section 3 of the Regulations. As its supplies amounted to more than $150, CFI had to demonstrate that the supporting documents contained “(i) the name of the initiator; (ii) the date the HST became payable; (iii) the nature of the taxable supply; (iv) the Offeror’s HST registration number; and (v) the amount of prepaid rent” (para. 50).
Therefore, CFI must have obtained the prescribed information before filing its ITC claims under subsection 169(4) of the ETA. Under the MCLAs, concurrent leases did not become effective until each initiator provided CFI with a copy of the original leases, which contained all of the information necessary to calculate the prepaid rent due as well as the lease number. HST record of the offeror (paragraphs 54-57). . Therefore, the TCC concluded that CFI had all the information necessary to calculate the prepaid rent due before it was paid (para. 61). In addition, TCC stated that CFI provided a spreadsheet showing the total amount of prepaid rent paid to originators during the relevant period, including HST due. This meant that CFI had access to this information because it was stored on its own internal computer server (§ 63).
In light of the foregoing, the TCC allowed the appeal and referred the matter back to the Minister of National Revenue for reconsideration and reassessment (para. 71).
Key points to remember
- The facts of this case illustrate how the CRA will unfortunately sometimes contradict itself and waive “the [its] published positions ‘simply’ because it may be convenient to do so in a particular case. (para. 45)
- In order to satisfy the documentation requirements under ETA subsection 169(4), it should not matter how the information is obtained by the recipient of a supply and, more importantly, it need not be issued or signed by the supplier.
This decision also recognizes the validity of the computerized record from the beneficiary, or its administrative agent, for the purpose of satisfying the minimum requirements for ITC documentation.
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Jean-Guillaume Shooner is a partner in the tax group of the Montreal office of Stikeman Elliott. The author would like to acknowledge the support and assistance of Danielle Maor, legal intern. This article first appeared on the Stikeman Elliott LLP Knowledge Hub and originally appeared on www.stikeman.com. All rights reserved. Top image: iStock. Author photo courtesy of Stikeman Elliot LLP.