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GST — input tax credits justified

My client, an excavation contractor, was assessed for over $150,000 of GST, penalty and interest over a six-year period. His records were a mess, and his books were done by a small accounting firm that did not pay enough attention to his GST returns.

The accounting firm filed a Notice of Objection, claiming that my client should be allowed input tax credits (ITCs). In dealing with the appeals officer, the accountant did not make the client's case clearly or well, and had very limited success. The appeals officer allowed only a small fraction of the ITCs requested.

I was contacted shortly before the expiry of the deadline for appealing to the Tax Court. I filed an appeal, not with any intention of going to Court, but so as to be able to settle the case before trial.

I reviewed my client's files in detail. He had a large box with over a thousand invoices which had never been properly reviewed or tabulated. I designed a detailed spreadsheet that could be used to support the ITC claims, and retained an accounting clerk who spent several weeks constructing the spreadsheet from the original records.

I then sent a detailed submission to the Department of Justice lawyer who was representing Revenue Canada. He referred the file back to Revenue Canada, who had an auditor come to my office to review the original records and examine the spreadsheet on his computer.

The auditor agreed with my submissions and calculations, and so the Justice lawyer agreed to my settlement proposal. Over $46,000 of additional ITCs were allowed, reducing the total owing, including penalty and interest, by close to $100,000.

(1999)