Federal Appeal


Goods and Services Tax

Input tax credits

“Credit” in s. 232 of Income Tax Act means operation by which sum was put at disposal of someone else

Registrant made partial payments towards purchase price and HST for goods that were not delivered after vendor cancelled contracts. Vendor declared bankruptcy, did not remit HST collected from registrant’s payments and did not refund amounts owing under credit memos. Minister of National Revenue disallowed input tax credits relating to contracts that were cancelled pursuant to s. 232(3)(c) of Excise Tax Act, with effect that there was no deduction for HST paid by registrant that was to be refunded. Tax Court judge dismissed registrant’s appeal, concluding that s. 232(1) of Act applied on basis that there was overpayment of tax which was credited to registrant by credit memos. Judge concluded that “credit” in s. 232 of Act meant acknowledgement of sum owed. Judge determined that registrant’s actions in acknowledging validity of credit memos, by relying on them to recover potion of amount owed from vendor, were fatal to its appeal. Judge rejected registrant’s public policy argument. Registrant appealed. Appeal allowed. Section 232 of Act did not apply to transactions as HST was not credited to registrant. Judge erred in concluding that “credit” in s. 232(1) of Act took its meaning from commercial terms “credit note” and “credit memorandum”. Context and purpose of legislation suggested that narrow meaning of “credit” was intended. Registrant’s treatment of credit memos in context of recovery efforts had no bearing on issue of meaning of “credit” in s. 232 of Act. Term “credit” in s. 232 of Act meant operation by which sum was put at disposal of someone else. Vendor did not put funds at disposal of registrant when it issued credit memos, so tax was not credited to registrant. Vendor was never in position to satisfy credit memos.

North Shore Power Group Inc. v. Canada (2018), 2018 CarswellNat 22, 2018 FCA 9, David Stratas J.A., Judith M. Woods J.A., and J.B. Laskin J.A. (F.C.A.); reversed (2017), 2017 CarswellNat 72, 2017 TCC 1, Randall S. Bocock J. (T.C.C. [General Procedure]).

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