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GST/HST — input tax credits where CRA had cancelled supplier's GST registration

My client was a business that purchased a large quantity of inventory from "Xco" in 2015, and paid over $300,000 in HST to Xco. Of course, it claimed input tax credits (ITCs) to recover all this HST.

In 2019, the CRA audited my client for 2015 and proposed to deny these ITCs. According to the CRA's records, Xco's Business Number had been "closed" in February 2015, so the CRA said the invoices my client used were invalid, and the ITCs could not be claimed.

My client had a printout from the CRA's online GST/HST Registry, showing that Xco was registered, but it was from November 2016. The auditor refused to accept this printout, as it was from after the audit period. Yet a current check of the Registry showed now that the company was not registered on the same day in November 2016!

At this point the client asked me for help. Over the phone, I explained to the auditor that the November 2016 printout, combined with the current search, proved that the CRA had cancelled Xco's registration in 2017 or 2018, retroactive to 2015. Not only was it unfair to use this cancellation to deny my client the ITCs it had claimed in 2015, but it went against a reported case from Tax Court of Canada.

The auditor and her Team Leader insisted that CRA had no record of when the cancellation happened, only that it took effect in February 2015. They insisted that they were going to proceed with the assessment, but would allow me to make a submission in writing. The next week I sent them a detailed letter, explaining why the retroactive cancellation of Xco's registration could not take away my client's entitlements to ITCs already claimed. I cited the Tax Court decision, as well as my own published Editorial Comment on the case, and insisted that the matter be referred to senior officials in Ottawa if the auditor and Team Leader did not agree to allow the ITCs

The next day, the auditor called to say that the CRA would allow the ITCs.

Problem solved!

(2019)