RAR Consultants Ltd. v. R. - TCC: Taxpayer cannot claim ITCs of sister company

RAR Consultants Ltd. v. R. - TCC:  Taxpayer cannot claim ITCs of sister company


RAR Consultants Ltd. v. The Queen (September 20, 2016 – 2016 TCC 206, V. Miller J.).

Précis:   The taxpayer attempted to claim ITCs for services rendered by a third party suppliers to one of its sister companies.  The Tax Court dismissed the appeal holding that the claim for ITCs was not assignable.  There was no order as to costs since this was an informal procedure appeal.

Decision:   The taxpayer claimed ITCs assigned by a sister company, IHI Development II Ltd. (“IHI Dev II”):

[15]        According to a Memo dated September 30, 2007 (exhibit A-1) to the Appellant from IHI Dev, IHI Dev II and International Hi Tech Industries Inc. (“IHI”), IHI Dev II purported to assign unclaimed input tax credits to the Appellant. The Memo reads:

Effective Date:           September 30, 2007

To:                               RAR Consultants Ltd. (RAR C)

From:                           IHI Development II Ltd. (IHI D II)

                                    IHI Developments Ltd. (IHI D)

 International Hi Tech industries Inc. (IHI)

With Reference to the purchase share agreement of September 30, 2007, between RAR Consultants Ltd. and International Hi Tech Industries Inc. with regards to the purchase of assets and liabilities of IHI D, (a fully owned subsidiary company of IHI) including but not limited to any credit adjustment, after conducting the proper accounting and auditing of IHI D II.

This is to confirm that any input tax credits that is most probably outstanding (if applicable) due to shareholder advances to IHI D II, to fund its operations and expenses will be in its entirety credited to RAR C.

IHI D II will undertake to properly account for all its expenses and filings as per above, however, for whatever reason if IHI D II fails to fulfill its obligations, then RAR C will have full access to all related records and will file the returns on behalf of IHI D II and to RAR C’s credit as part of its “assets” that it purchased as per the above agreement effective September 30, 2007.

The Tax Court held that the purported assignment was ineffective:

[21]        To be eligible to receive the ITCs in issue, the Appellant had to demonstrate that it was contractually liable to pay for the supplies or services and that the supplies or services were acquired for consumption, use or supply in the course of its commercial activities: General Motors of Canada Ltd v R, 2008 TCC 117; affirmed 2009 FCA 114 and YSI’s Yacht Sales International Ltd v R, 2007 TCC 306). This, the Appellant failed to do.

[22]        According to the Minister’s assumptions and the evidence at the hearing, IHI Dev II purchased the supplies or services in the course of its business. The vendors provided the supplies or services directly to IHI Dev II. IHI Dev II received the supplies or services and paid the consideration for them.

[23]        The Appellant was not the recipient of the supplies or services and it was not entitled to receive the ITCs in issue. Reissuing the invoices for these supplies and services 10 years after the events does not change the recipient.

[24]        IHI Dev II cannot assign its rights to the ITCs to the Appellant: Telus Communications (Edmonton) Inc v R, 2009 FCA 49.

The appeal was accordingly dismissed but the Crown was unsuccessful in an application for costs:

[28]        Counsel for the Respondent requested that I award costs of $1,000 against the Appellant because Mr. Rached has wasted the court’s time by raising the same issue in this appeal that he had raised in Garmeco Canada International Consulting Engineers Ltd v The Queen, 2015 TCC 194. However, subsection 9(2) of the Tax Court of Canada Rules of Procedure respecting the Excise Tax Act (Informal Procedure) (the “Rules”) allows for costs to be awarded to the Respondent “only if the actions of the appellant have unduly delayed the prompt and effective resolution of the appeal”. In the present appeal, there was no delay.

[29]        There was no application to find that Mr. Rached was a vexatious litigant and I cannot order costs against him pursuant to section 13.1 of the Rules.

[30]        The appeal is dismissed.