Profession > Tax Focus
ITC Claims
Check the validity of suppliers’ GST numbers to avoid costly mistakes.
FROM: MAR-APR 2007 ISSUE | BY R. JASON RICHE
GST legislation requires that supporting documentation be obtained for an input tax credit (ITC) claim – notably the supplier’s GST registration number. The reason? In order for an ITC to be processed, the supplier must remit the GST collected to the Canada Revenue Agency. Ensuring the supplier is registered to collect and remit GST goes a long way toward making sure this payment loop occurs.
Recent events, however, have resulted in a rather onerous requirement on the recipient to verify not only that the supplier is registered for GST, but also that the GST number provided by the supplier is valid on the date of the requisite transaction. Not checking your suppliers’ GST numbers may well result in denied ITCs.
In March 2006, Systematix Technology Consultants Inc. v R. was the latest case to consider the issue at the Tax Court of Canada. The taxpayer, Systematix, was assessed for claiming ITCs without having adequate supporting documentation. Specifically, invalid GST numbers were provided by certain suppliers. Based on a very literal interpretation of the legislation and regulations, Systematix argued that the GST number need not be valid, it only need be assigned. The court, however, took a purposive approach noting that if Systematix’s interpretation were accepted, it would result in a “curious outcome” where invalid GST numbers could be relied on to claim ITCs. Accordingly, the court held that the supplier’s GST number had to be valid at the time of the supply (or, at the latest, when the recipient’s GST return was filed).
Checking the Numbers
In April 2006, the CRA launched a GST Web registry www.cra-arc.gc.ca/eservices/tax/business/gsthstregistry/menu-e.html that allows a claimant to verify that the GST number provided by a supplier is valid on a specific date. Recipients enter the supplier’s name, GST number, and the transaction date, and if the result is “registered on the transaction date entered,” the recipient is clear to claim the ITCs. Simple enough?
In theory maybe, however, in practice problems have emerged. First and foremost, the supplier’s name must be entered exactly as it is registered with the CRA, which generally means the supplier’s complete legal name. Moreover, the spelling must be exact. I tested this with the first two invoices I found on my desk. The first was for my own firm. I received an “insufficient information entered” message because I typed “and” instead of “&.” The second was for a car rental company and again, “insufficient information entered” was the result because the supplier’s legal name was not on the invoice (I had to find my rental agreement). I share this experience to highlight some of the complications with this system. Many recipients will surely find themselves calling the CRA in order to verify a GST number; the very thing the CRA was trying to avoid by initiating the Web registry.
Since the same principles also apply for QST, it is interesting to compare the GST Web registry to the one the Ministère du Revenu du Québec has initiated for QST purposes www.revenu.gouv.qc.ca/eng/services/sgp_validation_tvq/index.asp. This site requires only the QST number and asks whether the user would like to know the name corresponding to the number. Accordingly, identifying the supplier’s legal name is not an issue. However, since the QST Web registry does not confirm specific dates during which the number is valid, it may not serve as a useful tool, particularly in light of the Systematix case.
Complying with the Regulation
What’s the best solution? Recipients should develop procedures to manage the administrative burden of checking the validity of GST numbers (potentially on thousands of invoices). One approach might be to establish processes to verify the GST numbers of all new suppliers and to periodically check those of existing suppliers. Most importantly, all suppliers can play an invaluable role by ensuring that the name on their invoices corresponds to that in the CRA’s records and that the GST numbers they provide are valid in the first place.
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R. Jason Riche , BA, LLB, CGA, is a senior manager for Deloitte & Touche LLP in Toronto. E-mail rriche@deloitte.ca.
The information appearing in “Tax Focus” is provided for the interest of readers. Neither CGA Magazine nor the column author assumes any liability to persons relying on the information in the article to perform tax planning and/or compliance of any kind.