Case information

Taxation — Goods and services tax — Calculating input tax credits — Qualifying institutions — Whether appellate court applied correct legal test to assess Minister’s determination of use of business inputs for purposes of determining input tax credits to calculate GST payable — Whether Minister’s power to deny a method for calculating GST payable should be reviewed on correctness standard.

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

(SEALING ORDER) (CERTAIN INFORMATION NOT AVAILABLE TO THE PUBLIC)

In 2008, Parliament amended the income tax credit regime by enacting s. 141.02 of the Excise Tax Act, R.S.C. 1985, c. E 15. That section creates two categories of financial institutions: qualifying institutions, including large Canadian banks like the applicant Bank of Montreal (“BMO”), and non qualifying institutions. Qualifying institutions may apply for approval of their proposed method for computing their input tax credits in advance of each fiscal year. If the Minister denies approval, a deemed rate of 12 percent is applied. The Minister of National Revenue’s decision is not subject to appeal to the Tax Court of Canada, but denials must be accompanied by reasons and are subject to judicial review by the Federal Court.

BMO provides financial services to its Canadian clients. Those services are exempt supplies, so BMO is not entitled to claim income tax credits for the GST it pays for inputs used to provide those services. (“Supplies”, in this context, include the sale, lease or other provision of a property or service.) It also provides services to non-residents, which are generally taxable, zero rated supplies, so BMO can claim income tax credits for the GST it incurs on inputs used to provide those financial services. BMO applied to the Minister for approval of a method to compute its income tax credits for its 2018 fiscal year. By letter with a detailed attachment, the Minister denied BMO’s application. The Minister accepted significant parts of the proposed computation method, but detailed a number of problems which resulted in excessive input tax credits, such that BMO’s proposed method did not reasonably approximate the goods and services BMO used to make its taxable supplies.

The application for judicial review was dismissed based on the standard of reasonableness. The Minister’s denial of BMO’s 2018 application was found to fall within the scope of the authority granted by s. 141.02(20) of the Excise Tax Act. BMO’s appeal was dismissed.