An ITC claim must be supported by information prescribed in subsection 164(4) of the Excise Tax Act and in the Input Tax Credit Information (GST/HST) Regulations. The TCC in Les Pro-Poseurs Inc. (2011 TCC 113) recently considered whether invoices provided by the taxpayer to support its ITCs met the information requirements. The decision reconfirms that the ETA's and the regulations' information requirements are mandatory, not directory, and that compliance is compulsory if one wishes to claim ITCs.
In Les Pro-Poseurs, the appellant was a construction contractor that subcontracted out its work overflow. For the relevant period, the CRA rejected the appellant's claims for ITCs related to supplies of property and services purportedly acquired from a number of "dubious" suppliers (the subcontractors). The appellant appealed to the TCC.
The minister submitted that the invoices provided by the appellant to support its ITCs failed to meet the information requirements because they did not contain sufficient information to allow identification of the alleged supplies and determination of the ITC amount. The minister found that the subcontractors did not have staff or equipment to make the alleged supplies, some of them were untraceable, and some were in default to Revenu Québec with respect to several tax statutes. On the basis of those findings, the minister further submitted that the invoices were false because the subcontractors could not have provided the supplies to the appellant. Furthermore, because the subcontractors cashed most of their cheques from the appellant at cheque-cashing businesses, which charged an "astronomical commission," the minister suggested that the invoices in question were invoices "of convenience," having been prepared merely in order to allow the appellant to inappropriately claim ITCs.
At the TCC, the appellant submitted that the minister erred in concluding that the invoices were fictitious on the basis of his profile of the subcontractors and that, on the evidence, the appellant had established a prima facie case that the subcontractors actually provided it with the supplies. Although some of the prescribed information did not appear on the invoices, the appellant said that those strict requirements should not be imposed because most of the construction workers involved did not have "a gift for writing" and that the supporting documents met the industry standard.
The main issue before the TCC was whether the appellant was entitled to the ITCs claimed. The court first considered whether the appellant actually acquired the supplies from the subcontractors; it drew a negative inference from the fact that the appellant did not call witnesses (such as the subcontractors' officers and employees) who could have testified in support of the appellant's position. In determining whether the appellant's evidence made out a prima facie case that demolished the minister's assumptions in making the assessment, the TCC concluded that the testimony of the appellant's witnesses was either deficient or not credible in establishing that the subcontractors actually made the supplies to the appellant.
The TCC then considered whether the invoices provided by the subcontractors met the information requirements. The court concurred with its earlier views in Key Property Management Corporation (2004 TCC 210) and Davis (2004 TCC 662) to the effect that the legislative and regulatory requirements were mandatory and must be strictly enforced: the whole purpose of the provisions was (as stated in Key Property) "to protect the consolidated revenue fund against both fraudulent and innocent incursions." The court said that the invoices provided by the subcontractors did not meet the information requirements because they did not contain the information necessary to allow the minister to identify the work carried out by the subcontractors. Because the evidence weighed against the appellant, the TCC concluded that the appellant could not claim the ITCs related to those invoices issued by the subcontractors.
The courts have set a very high bar for anyone attempting to get around the mandatory information requirements for ITC claiMs. The TCC in Pro-Poseurs stressed that "[i]t is for the Court and not the industry to determine what the legislator means by 'description of each supply sufficient to identify it.'" The decision is a red flag for all businesses: to perfect an ITC claim, the best prescription is to ensure that each invoice issued by a supplier contains all the prescribed information.
Robert G. Kreklewetz and Jenny Siu
Millar Kreklewetz LLP, Toronto