This could be an extremely helpful decision for businesses dealing with multiple suppliers and trying to assess how much checking they must do on suppliers before safely claim input tax credits.
There were cues in this case that might have alerted this large institutional scrap metal dealer that something was wrong with these 12 suppliers. Some used the same business address. A few used the same person deliver their product. Neither of those facts lead Justice Rip to disqualify the business from input tax credits for nearly all the ITCs in issue.
In paragraphs 49-52, the Court discusses the law on “prete-nom” which is effectively an undisclosed principal in agency law. Rip J. then goes on to consider whether that undisclosed agency can support a claim of “intermediary” status for receipting purposes. (A registrant can use receipts issued in the name of an “intermediary” for claiming proper ITCs.) Here, the Crown tried to draw a distinction for shell corporations on the basis that they cannot of themselves make a supply. (Para. 54.) But Rip saw this distinction from the Systematix line of cases that emphasize how strict the receipting requirements are: “This is different from the registration numbers at bar: all the registration numbers here belonged to the persons purportedly making the supply to SNF.” (61.)
[65] Also, contrary to what was held in Systematix, SNF did verify whether the registration numbers were “bona fides”, verifying each supplier’s application and the Revenu Québec stamped acceptance, as well obtaining the addresses and telephone numbers, among other things of the 12 suppliers.
[66] … “sufficient evidence” containing the required information to apply for an ITC need not all be contained or described on a single document but may be provided on several documents together: Westborough Place Inc. v. The Queen.[FN16 — 2007, Paris J.]
[69] The Crown has not proven that the bulk of the invoices were accommodation or false invoices or that the supplies were not purchased by SNF for value, namely the amounts set out in the invoices. In fact, the evidence is to the contrary. …
[70] I am satisfied that the information contained on the scale tickets, invoices and other documents issued at the times of sales, as well as the information obtained by SNF on a supplier opening an account, ordinarily meets the requirements of subsection 169(4) of the Act and sections 2 and 3 of the Regulations. The problem is that the supplier named on the documents is a “prête-nom” and not the actual supplier. The Minister’s assumption that the suppliers were “prête-noms” has not been demolished. However, this does not settle the matter. If SNF made the necessary inquiries as to whether the person had a proper GST number, that was sufficient; …
Rip J. attributes fault to Revenu Québec for having been on notice at the time of registration for some of the suppliers that “all was not in order” while still issuing GST numbers. (75-76) Also, at para. 71, Rip J. affirms that businesses can be suppliers, at least in the scrap metal industry, without having scrap yards, employees or equipment. (Commonly, Revenu Quebec will note as a basis for denying ITCs and imposing penalties that the supplier had neither employee more equipment.
“[74] SNF reasonably assumed that the government authorities acted responsibly in issuing a registration number to each supplier.
[78] A government does not issue GST registration numbers haphazardly leaving it to businesses to determine the legitimacy of a supplier. The fact that a person has been issued a GST registration number announces to the world that this person has the right to collect GST. A registrant cannot itself be reckless in determining whether a supplier is legitimate or not. … However, neither the Act nor its regulations provide the registrant with any procedures to follow. For example, does the registrant have to make inquiries each time it purchases items from a supplier or is it sufficient to make inquiries, as SNF did, when the registrant prepares to make the first purchase from a supplier and an account is opened for the supplier? In my view it should be at the time the parties initiate their relationship, subject always to change if the registrant subsequently becomes aware that the supplier’s legitimacy is suspect. Making inquiries at each purchase may be a costly expense to a registrant and would impede the business process. … The taxing authority must bear some responsibility with respect to whom it appoints as agents.
This comment on the application of section 261 is a bit odd, though:
“[84] The appellant’s alternate submission, put forward as the appeal unfolded, that it is entitled to a rebate since it paid GST in error to Mr. Dubé Vanier and Ms. Bergeron, must fail. Any amount paid to Mr. Dubé Vanier as of September 17, 2010 was not paid as GST since he was no longer authorized to collect GST. He had ceased to be an agent of the Crown. The amounts paid to Ms. Bergeron were paid by error but by error due to SNF’s own negligence. I cannot view section 261 of the ETA as contemplating a rebate on an error caused by the author’s own inattention and carelessness.”
There may be some principled basis for Justice Rip’s view, but section 261 does not seem to draw a distinction for tax paid to someone who is not registered. Still, this point is not relevant to the decision and need not be given too much weight.
SNF LP v The Queen, 2015 TCC (Rip J.)