It’s Harsh and Unfair but it’s the Law

Validating Supplier HST Registration Numbers

The outcome of a recent court case involving Computronic Computer Inc. [Comtronic Computer Inc. v. The Queen (2010 TCC 55)] serves as an important reminder that businesses should always validate the GST/ HST registration numbers of their suppliers in order  to prevent the disallowance of ITCs or input tax refunds based on invalid registration numbers.

 Computronic operated a wholesale computer parts and computer assembly business.  The invoices from the suppliers had valid GST numbers, but the numbers belonged to third parties that did not appear on the invoice.  The Tax Court of Canada was compelled to follow the strict position taken by the Federal Court of Appeal in another case [Systematix Technology Consultants Inc. v. Canada (2007 FCA 226)] with the result that it disallowed the input tax credit even though the purchaser paid the GST in good faith.

Section 164 of the Excise Tax Act requires a purchaser to substantiate its input tax credit (ITC) claim by obtaining from the suppler the information prescribed in the Input Tax Credit Information (HST/GST) Regulations, including the name of the supplier and the GST registration number assigned to it.

 Clearly this is a harsh and unfair application of the law.  Nevertheless, it is the law.

 The upshot of all this is that businesses need to establish procedures to manage the risk related to GST/HST.  The registration numbers of  suppliers need to be verified when set up and on an ongoing basis.  Supplier invoices with GST/HST over a certain dollar figure should be verified on an individual basis.

CRA has set up an on-line GST/HST Registry  where business can validate the GST/HST number of a suppliers: http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/gsthstrgstry/menu-eng.html

 [This information is from the September 2010 edition of  "Tax Matters @EY'   http://www.ey.com/CA/en/Services/Tax/TaxMatters-Sept-2010  and from the July 2010 edition of  "Tax for the Owner -Manager"  Volume 10, Number 3 published by the Canadian Tax Foundation.]
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