On September 30, 2011, the Federal Court of Appeal (Sharlow, Layden-Stevenson, and Stratas, JJ.A.) released Reasons for Judgment in the appeal of CIBC World Markets Inc. (“CIBC”) from a judgment of the Tax Court of Canada (see our earlier post). CIBC’s appeal was allowed.
By way of background, the Excise Tax Act (the “Act”) permits a taxpayer to claim an input tax credit (“ITC”) to recover goods and services tax (“GST”) paid in respect of property and services acquired by that taxpayer for consumption, use or supply in the course of a “commercial activity”. Where there is a mixed use of inputs in both commercial and GST-exempt activities, then for purposes of claiming ITCs, subsection 141.01(5) of the Act requires the taxpayer to allocate its GST among the taxable and exempt activities using a “fair and reasonable” method that is “used consistently throughout the year”.
In 1998 and 1999, CIBC used a particular ITC allocation methodology to determine its ITC claims for those years. In 2000, CIBC used a new ITC allocation methodology to determine its ITC claim for the year, which enhanced its recovery of ITCs. The Minister of National Revenue considered both ITC allocation methods to be “fair and reasonable” within the meaning of subsection 141.01(5) of the Act.
Using the new method, however, CIBC then made a second claim for ITCs in respect of the 1998 and 1999 years for amounts over and above those originally claimed for the 1998 and 1999 years.
The issue was whether CIBC was entitled to make a further claim for ITCs using the new ITC allocation methodology. The Tax Court of Canada held that CIBC was not entitled to make such claims. CIBC appealed to the Federal Court of Appeal (the “FCA”).
Justice David W. Stratas, writing for the panel, held that a person can make more than one claim for ITCs in respect of a year, provided the person does not try to claim the same ITCs more than once. In so holding, he noted that there is nothing in the Act precluding a person from making more than one claim per year. Although a person cannot use one ITC allocation methodology for one part of the year and another ITC allocation methodology for another part of the year, CIBC did not do so in this case; instead, CIBC merely used an alternative ITC allocation methodology which it applied throughout the year.
The Crown has until Tuesday, November 29, 2011, to file an application for leave to appeal to the Supreme Court of Canada.