Since the inception of the GST/HST in 1991, the Canada Revenue Agency (“CRA”) has taken what we consider to be a strict approach to the documentary/information requirements under section 169(4) of the Excise Tax Act (“ETA”), which must be met in order to claim input tax credits (“ITCs” and the “ITC Information Requirements”). This approach has likely lead to millions if not billions of ITC denials, leaving GST/HST registrants unable to recover GST/HST paid on their business inputs, and leaving the costs of their goods and services artificially too high – because of this unrecoverable GST/HST left embedded in the system.

In what we regard as potentially the most important case in decades, the Tax Court of Canada’s (“TCC”) decision in CFI Funding Trust (2022 TCC 60) underscores that CRA’s strict approach is overly technical and incorrect!

ITC Information Requirements

Unlike other jurisdictions that have similar multi-stage tax systems in place, Canada’s GST/HST was not meant to require sweeping changes to billing practices or a parallel “tax invoice” system in order to claim ITCs. The point was to have the required information readily available for auditors to verify claims, while at the same time ensuring a straight-forward ITC system, requiring only the end-users of goods and services to paid GST/HST.   Disruption of existing commercial practices was not intended.

ETA 169(4) thus works to simply require a registrant wishing to claim an ITC to:

“obtain sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined, including any such information as may be prescribed”

The section permits the government to prescribe additional “information” that may be required, but notably does NOT allow the government to specify the “form” of the sufficient evidence. When one reads the CRA’s Input Tax Credit Information (GST/HST) Regulations (the “Regulations”), which prescribe this information, one become immediately confused – because the government does in fact attempt to prescribe the formats for the information, by defining “supporting documentation” (i.e., the “form” of prescribed information) to include things like invoices, receipts, debit notes, etc.

CFI Funding Trust

The CFI Funding Trust case arose in this context, with the taxpayer’s ITCs disallowed by CRA on the basis that its documentation did not satisfy the ITC Information Requirements!

At the Tax Court of Canada (“TCC”) the CRA argued that the ITC Information Requirements actually required documents originating from and/or be signed by the original supplier. Since CFI’s “information” was not in “document” format (it was recorded in spreadsheets prepared by the taxpayer’s administrative agent, and did not emanate from the supplier at all, so much as from the electronic transactions between the parties), the CRA rejected it and argued that it was insufficient.

In a decision that will have far-reaching effect (we believe), the TCC rejected the CRA’s position and ruled that the ITC Information Requirements could be satisfied by this sort of “electronic information”, and that the requirement for “signed documentation” – if such a requirements actually exists* – did not apply to electronic information.

*While likely left to be dealt with by the Tax Court another day, we believe that any regulation as to required “form” is unlawful, and in legal jargon ultra vires the CRA’s powers to regulate, since its power to regulate extends only to information (not the form of the information).

Commentary

We regard CFI Funding as a potential game-changer and that it will positively impact many GST/HST registrants seeking ITCs for the GST/HST paid on their business inputs. CRA can still be expected to resist the implications of this case, but like a set of dominoes beginning to fall, this case will likely start a wave that the CRA will ultimately be required to follow.

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