Department of Finance of Canada : The Department of Finance Clarifies GST/HST Rules Following Court Decision

January 17, 2014 at 05:45 pm

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Proposed amendments to prevent input tax credit claims that exceed tax actually paid

January 17, 2014 - Ottawa, Ontario - Department of Finance

The Department of Finance today released proposed amendments to the Excise Tax Act that reaffirm the policy that a person cannot claim input tax credits in respect of an amount of Goods and Services Tax/Harmonized Sales Tax (GST/HST) that has already been recovered by the person from a supplier.

The ability to claim input tax credits that exceed the amount of tax that was actually paid is not consistent with the fundamental structure of any value-added tax, including the GST/HST. The proposed amendments, which are in response to a recent decision by the Tax Court of Canada, are intended to reduce taxpayer uncertainty and potential revenue losses, as well as clarify that certain importers are not allowed to recover an amount of GST/HST if another person could also recover the same amount.

The proposed amendments will generally apply as of the day the provisions being amended originally came into force. However, the proposed amendments will not affect any case that has already been decided by the courts. Interested parties are invited to provide comments on the draft legislative proposals by February 17, 2014. Please send your comments to consultitccti@fin.gc.ca or to:

Tax Policy Branch
Department of Finance
140 O'Connor Street
Ottawa, Ontario
K1A 0G5

Quick Facts

Under the Excise Tax Act, businesses can generally claim input tax credits to recover any GST/HST that they pay to acquire property or services for use in their commercial activities.
However, in a recent decision by the Tax Court of Canada, a business was allowed to claim input tax credits in respect of amounts of GST that the business had already recovered from suppliers through credit notes.
This clarification is intended to ensure that the legislation provides for the application of input tax credits in respect of amounts of GST/HST as intended, as generally understood by suppliers and taxpayers, and as administered by the Canada Revenue Agency.

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