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GST/HST — input tax credits on bulk purchases of iPhones

My client, "Xco", bought large quantities of electronic goods such as iPhones and iPads at retail stores, and sold them outside Canada, to buyers in Hong Kong, Dubai and other markets. As the stores did not permit bulk purchases, Xco's owners, and people they hired as agents for this purpose, would go in and buy a few at a time, whatever the store would permit. Some purchases were made with Xco's corporate credit and debit cards, others with gift cards that Xco had purchased, and some with the agent's credit card and then reimbursed.

The CRA assessed Xco to deny over $125,000 of input tax credits (ITCs) on the grounds that the store invoices did not show Xco's name. I filed a Notice of Objection, explaining that the invoices, in conjunction with Xco's other records including Agency agreements, employment records and banking records, correctly showed the name of Xco's "duly authorized agent or representative" in each case, as well as the other required information.

The CRA Appeals Officer was initially going to disallow the objection and grant none of the ITCs, in light of a reported Tax Court of Canada decision (which I had strongly criticized in a published Editorial Comment, long before Xco became my client). I made further submissions, explaining in detail why the Tax Court decision was manifestly wrong and why the Appeals Officer's understanding of the issues was wrong, and insisting that the matter be referred to Headquarters for review. This was done. Three years later, the CRA agreed to allow $100,000 of the ITCs, as I had successfully demonstrated that the agents met the CRA's administrative definition of "agent", and that the ITC documentation met the requirements of the applicable regulations.

Problem largely solved!

(2020)