Overview: GST/HST Input Tax Credits, CRA Assessments, and the Section 296(2) Safeguard
The Tax Court of Canada’s May 7, 2026 decision in Ontario Tire Stewardship v The King, 2019-1330(GST)G, delivers a significant and taxpayer-favourable interpretation of subsection 296(2) of the Excise Tax Act (ETA). At its core, the case resolves a long-debated question: when CRA assesses a registrant’s net tax for a particular reporting period, must it confine its consideration of unclaimed input tax credits (ITCs) solely to those that arose in that same period — or can it also recognize ITCs from earlier, technically statute-barred periods?
The Tax Court answered decisively in favour of the broader view, holding that section 296(2) is a remedial provision designed to ensure that a registrant’s true net tax liability is accurately reflected in any assessment, regardless of which reporting period originally gave rise to the unclaimed credits. This ruling has material implications for any GST/HST registrant that has missed ITCs in prior periods and is facing a CRA tax audit or reassessment. It overrides CRA’s longstanding narrow administrative position and provides experienced Canadian tax litigation lawyers with a powerful instrument to recover statute-barred credits on behalf of clients under audit.
With CRA intensifying its GST/HST audit program in 2025–2026 — deploying AI-driven risk assessment tools, conducting more desk audits of non-resident registrants, and issuing large assessments with compressed response windows — the practical significance of this ruling has never been greater.
Background: Ontario Tire Stewardship, the Ontario IFO Regime, and the CRA HST Status Dispute
Ontario Tire Stewardship (OTS) was established as an industry funding organization (IFO) under Ontario’s Waste Diversion Act, 2002, designated to operate the province’s used tires diversion program. OTS generated revenue by collecting stewardship fees from businesses responsible for used tire diversion and incurred GST/HST on its operating expenses and other inputs throughout its operational life, from September 2009 to December 31, 2018.
The central difficulty arose in October 2013, when CRA issued a ruling concluding that OTS — along with two other IFOs, Stewardship Ontario (SO) and Ontario Electronic Stewardship (OES) — could not claim ITCs on the grounds that they were not engaged in commercial activity for purposes of the ETA. Faced with this ruling and deep uncertainty about its HST status, OTS did not claim ITCs for its monthly reporting periods from September 2009 through November 2013. To preserve what rights it believed it had, OTS claimed the totality of those ITCs — exceeding $16 million — in its December 2013 HST reporting period. CRA denied the original claim.
OTS filed a notice of objection in December 2014. Its objection was held in abeyance pending parallel appeals by SO and OES. In March 2018, the Tax Court ruled in SO’s favour, confirming that the IFOs’ fees constituted consideration for taxable supplies and that ITC entitlement followed. CRA subsequently advised OTS that its original ITC claim was eligible, subject to CRA audit verification.
During audit preparation, OTS discovered it had inadvertently omitted over $1 million in ITCs attributable to its July 1 to December 31, 2012 reporting periods. OTS sought to add these unclaimed ITCs to its existing claim and filed an amended HST return for December 2013 to include them. CRA refused, asserting those ITCs were statute-barred under the ITC limitation periods in section 225 of the ETA. OTS appealed to the Tax Court.
Procedural Timeline: Ontario Tire Stewardship v The King (2009–2026)
The following table summarizes the nine-year procedural arc of the case:
| Date | Key Event |
| September 2009 | OTS begins operating Ontario’s used tires diversion program; incurs GST/HST on operating expenses |
| October 28, 2013 | CRA issues ruling: OTS (and other IFOs) cannot claim ITCs — not engaged in commercial activity |
| September–November 2013 | OTS does not claim ITCs for these reporting periods due to CRA ruling uncertainty |
| December 2013 | OTS files consolidated ITC claim exceeding $16 million for all prior unclaimed periods |
| December 2014 | CRA denies the ITC claim; OTS files Notice of Objection |
| 2014–2018 | OTS objection suspended pending parallel Tax Court appeals by Stewardship Ontario (SO) and OES |
| March 21, 2018 | Tax Court allows SO’s ITC claim: stewardship fees are consideration for taxable supplies |
| 2018–2019 | CRA advises OTS its original ITC claim is eligible, subject to audit; OTS discovers $1M+ in omitted 2012 ITCs |
| 2019 | OTS files appeal (2019-1330(GST)G); CRA denies omitted ITCs as statute-barred under s. 225 |
| May 7, 2026 | Tax Court allows OTS appeal: s. 296(2) requires CRA to credit ITCs from preceding reporting periods |
Key Issues and Findings: The Scope of Section 296(2) and Unclaimed GST/HST Input Tax Credits Across Reporting Periods
The Statutory Framework: ITC Limitation Periods Under Section 225 and the CRA Assessment Power Under Section 296 ETA
The ITC limitation periods under the ETA are set out in subsection 225(4)(b), which generally requires registrants to claim ITCs within four years of the end of the reporting period in which they first became claimable (two years for certain specified persons). ITCs not claimed within those windows are ordinarily statute-barred and lost. For an introduction to how input tax credits work in the GST/HST system, see Input Tax Credits: Introduction by Canadian GST/HST Tax Lawyer.
Subsection 296(2) carves out a ministerial obligation that applies when CRA assesses a registrant’s net tax. If CRA determines, in the course of an assessment, that an “allowable credit” exists — an ITC the registrant was entitled to but did not claim — CRA must take that credit into account in assessing net tax, provided the credit would still be allowable (or would only be disallowed solely because of limitation period expiry) as of the date the assessment notice is sent. The question before the Court was whether “allowable credit” extended to ITCs from preceding reporting periods or was confined to ITCs arising only in the particular period under assessment.
The Crown’s Narrow Position: Period-Specific GST/HST ITCs Only
CRA maintained the historically restrictive interpretation reflected in its 2002 technical interpretation (document 38168): that subsection 296(2) permits recognition only of ITCs that first became claimable in the particular reporting period being assessed. On this view, the statute-barred 2012 ITCs could not be factored into the December 2013 assessment because they did not arise in December 2013.
The Tax Court’s Analysis: Three Reasons to Read Section 296(2) Broadly
The Tax Court conducted a thorough textual, contextual, and purposive analysis and rejected CRA’s narrow reading on three grounds.
Textually, the Court examined the definition of “net tax” in subsection 225(1), which expressly permits ITCs from preceding reporting periods to be carried forward and claimed in a later period. Because subsection 296(2)(a) uses the same “net tax” concept, an assessment of net tax for December 2013 necessarily could include ITCs that arose in earlier periods and were being carried forward under subsection 225(1). The text did not restrict the allowable credit to the period of its original accrual.
Contextually, subsection 296(2)(c) refers to the allowable credit being allowed “for a reporting period of the person” — deliberately broader language than “for the particular reporting period” used elsewhere in the provision. The Court held that the broader phrase logically encompasses ITCs arising in reporting periods other than the one formally under assessment.
Purposively, the Court emphasized that section 296(2) is a remedial provision. Its evident purpose is to prevent CRA from collecting net tax from a registrant in excess of that registrant’s true liability. It would be fundamentally inconsistent with that purpose to simultaneously ignore ITCs the registrant was entitled to claim simply because they originated in a technically expired period. The provision is designed to ensure accuracy — and accuracy demands that all legitimately available ITCs be counted.
This purposive approach is consistent with the Tax Court’s broader remedial approach to GST/HST assessments and reflects the same principle that a registrant’s true net tax liability — not a procedurally convenient approximation of it — must be the measure of any assessment.
“CRA’s position in Ontario Tire Stewardship was exactly the kind of technical overreach that subsection 296(2) was enacted to prevent. When the minister assesses your net tax and knows you have unclaimed ITCs sitting there, ignoring them because they came from an earlier period is not principled tax administration — it is a windfall for the Crown at the taxpayer’s expense. The Tax Court got this right, and registrants and their advisors should take full advantage of this ruling.”
— David J. Rotfleisch, CPA, Founding Tax Lawyer and Certified Specialist in Taxation, Rotfleisch & Samulovitch P.C. (with over 35 years representing registrants in GST/HST disputes before the Tax Court of Canada)
Three Common Misconceptions About Statute-Barred GST/HST Input Tax Credits
No current analysis directly discusses the widespread errors that cause registrants to forfeit credits they are lawfully entitled to. The following three misconceptions are particularly costly in practice.
Misconception 1: Once the ITC Limitation Period Expires, the Credit Is Gone Forever Under All Circumstances
This is the most damaging and most common error. The four-year limitation period in subsection 225(4)(b) governs a registrant’s ability to claim an ITC in a self-filed return. It does not govern what CRA must credit during an assessment under section 296(2). As Ontario Tire Stewardship confirms, a statute-barred ITC that CRA discovers — or that a registrant raises — in the course of a net tax assessment must be credited by CRA even if the ordinary limitation period has passed. The limitation period closes the door on voluntary late claims; it does not extinguish the credit for purposes of an assessment.
Misconception 2: Section 296(2) Only Applies to ITCs That Arose in the Period Under Assessment
This was CRA’s own position, reflected in its 2002 technical interpretation, and it has now been judicially rejected. The Tax Court held that the carry-forward mechanism in subsection 225(1) means that “net tax” for a given period can include ITCs from prior periods, and that section 296(2)(c)’s reference to “a reporting period of the person” — rather than “the particular reporting period” — deliberately encompasses cross-period ITCs. Registrants and advisors who have accepted CRA’s narrow position should revisit it.
Misconception 3: A Registrant Cannot Raise Section 296(2) Credits Proactively — CRA Must Find Them
There is no requirement in section 296(2) that CRA must independently identify the allowable credit. A registrant’s experienced Canadian tax litigation lawyer can and should raise prior-period unclaimed ITCs before the assessment is issued, present supporting documentation, and require CRA to account for them in the net tax calculation. Waiting for CRA to find the credits is a strategically inferior approach and risks forfeiture if the matter proceeds to litigation on a narrow pleaded basis.
Implications for GST/HST Registrants Facing CRA Net Tax Audits and Reassessments
Who Is Most Affected by This Ruling
Not every registrant is equally positioned to benefit from Ontario Tire Stewardship. The ruling is most directly relevant to the following categories:
Regulated-sector entities and industry funding organizations whose commercial activity status was uncertain for any period, and who consequently did not claim ITCs during that period of uncertainty.
Businesses that received an erroneous CRA ruling or administrative determination denying ITC eligibility, subsequently reversed through objection or appeal — as OTS did.
Registrants subject to multi-year CRA GST/HST audits where the audit spans periods across which ITC claims were inconsistently made or omitted due to internal administrative error.
Businesses that changed their GST/HST registration status, restructured their commercial activities, or shifted between exempt and taxable supplies during the relevant periods.
Non-resident registrants in refund positions who have been subjected to expanded CRA desk audit scrutiny, which has intensified significantly in 2025–2026, and who may have missed ITCs across multiple reporting periods during those reviews.
Any registrant facing a net tax assessment where CRA’s proposed liability does not reflect the full quantum of ITCs the registrant was entitled to claim across all relevant periods.
CRA’s 2025–2026 Audit Intensification Makes This Ruling More Significant Now Than Ever
CRA has materially expanded its GST/HST audit program in 2025–2026. AI-driven risk-assessment tools now cross-reference GST/HST returns against income tax filings, banking data, and third-party information in real time. CRA has increased the volume of desk audits directed at non-resident registrants in refund positions, issuing large assessments with response windows as short as 30 days before amounts become collectible.
The 2024–2025 departmental plan confirmed a strategic focus on medium-business GST/HST compliance and platform-economy registrants, with more small-business audits in construction, digital services, and hospitality sectors.
In this enforcement environment, the probability that a GST/HST registrant will face a net tax assessment — and the magnitude of that assessment — has increased substantially. Ontario Tire Stewardship arrives at precisely the right moment, arming experienced Canadian tax litigation lawyers with a judicially confirmed tool to ensure that every assessment accurately reflects the registrant’s true net tax liability.
The Jarvis Line: When a GST/HST Audit Becomes a Criminal Investigation
A critical but frequently overlooked risk in any aggressive GST/HST audit is the constitutional boundary established by the Supreme Court of Canada in R v Jarvis, 2002 SCC 73, and its companion case R v Ling, 2002 SCC 74. Together, these decisions establish that where the predominant purpose of a CRA inquiry shifts from civil compliance verification to the determination of penal liability, all Charter protections applicable in a criminal context must apply — including the right against self-incrimination under section 7 and the protection from unreasonable search and seizure under section 8.
Critically, Ling confirmed that the Jarvis framework applies with full force to investigations under the Excise Tax Act, not just the Income Tax Act. A GST/HST audit that begins as a net tax assessment — as in Ontario Tire Stewardship — can cross the Jarvis line if CRA auditors begin building a case for criminal prosecution rather than merely verifying compliance. Where an ITC audit involves allegations of false claims, deliberate mischaracterization of taxable supplies, or conduct suggesting intentional evasion, the audit may have already crossed that line.
Any registrant who senses that a GST/HST audit has shifted in character — through the nature of questions being asked, demands for personal financial records of shareholders and directors, or references to criminal provisions of the ETA — should immediately retain an experienced Canadian tax litigation lawyer. For a detailed analysis of the Jarvis predominant purpose test and its application to GST/HST audits, see our comprehensive article on this topic.
Additional Implications for Advisors and Registrants
CRA’s longstanding technical interpretation restricting section 296(2) to period-specific ITCs has now been judicially repudiated. Registrants and counsel who have historically been told that statute-barred ITCs from prior periods cannot inform a current assessment should revisit those positions in light of this ruling.
The case carries particular implications for industry funding organizations and other entities in regulated sectors whose commercial activity status was uncertain for a period. Where a registrant was denied ITC eligibility under an erroneous CRA ruling and subsequently established entitlement through objection or tax appeal, section 296(2) may provide a vehicle to capture ITCs that were technically missed during the period of uncertainty.
Advisors should also note the interplay between section 296(2) and the extended assessment windows under subsections 296(4) and 298(7) of the ETA. In situations involving misrepresentation, CRA’s assessment powers are not limited to the standard four-year window, and this affects the scope of ITCs that may be brought within a section 296(2) analysis. For an overview of CRA collections powers and limitation periods, see Limits on CRA Collections.
Registrants with undisclosed GST/HST non-compliance from prior periods should be aware that the Voluntary Disclosure Program (VDP) — significantly reformed under GST/HST Memorandum 16-5-1 effective October 1, 2025 — may be available as an alternative path to correcting prior-period issues before CRA commences enforcement action. The VDP is not available once a CRA GST/HST audit has commenced on the matter being disclosed, making proactive timing critical.
Key Takeaways: Recovering Statute-Barred GST/HST Input Tax Credits Under Section 296(2) ETA
The Tax Court’s ruling in Ontario Tire Stewardship reshapes the practical landscape of GST/HST assessments. Section 296(2) must now be read as a broad remedial provision requiring CRA to account for all ITCs a registrant was entitled to across reporting periods — not just those arising in the period under formal assessment. The decision overrides CRA’s historically narrow administrative position and provides meaningful protection to registrants facing assessments where prior-period ITCs were missed or denied due to CRA uncertainty.
Any registrant involved in a net tax assessment should immediately review unclaimed ITCs across all reporting periods. Those credits may be available to offset assessed net tax even if the ordinary limitation period has expired. The earlier this review is conducted — ideally before the notice of assessment is issued — the stronger the registrant’s position. In an environment where CRA is issuing more assessments with shorter response windows, speed and preparation are essential.
Pro Tax Tips: What an Experienced Canadian Tax Litigation Lawyer Can Do to Protect Your GST/HST Input Tax Credits in a CRA Audit
Registrants who receive a notice of tax assessment or are subject to a CRA net tax audit should retain an experienced Canadian tax litigation lawyer to conduct a complete ITC inventory across all relevant reporting periods, not only the periods CRA has formally opened. The Ontario Tire Stewardship decision confirms that previously unclaimed ITCs from earlier periods can be raised as an offset in an assessment of a later period under section 296(2).
This is particularly important where commercial activity status was disputed for any reporting period, where CRA issued an erroneous ruling, or where an administrative error caused ITCs to be omitted from filed returns. The time to surface these credits is before the assessment is finalized — not after. It is also critical to monitor whether CRA’s conduct suggests the audit has crossed the Jarvis line from civil compliance to criminal investigation — a transition that triggers Charter protections and requires immediate strategic adjustment.
Registrants who have already received a notice of assessment that ignored prior-period ITCs should consider filing a notice of objection and advancing a section 296(2) argument at the objection stage. For registrants with broader undisclosed GST/HST compliance issues in prior periods, a voluntary disclosure application should be considered before any CRA audit begins, as the VDP is not available once an audit is underway.
Working proactively with a knowledgeable Canadian tax lawyer at the audit or objection stage can mean the difference between recovering significant ITCs and forfeiting them entirely. For questions about your GST/HST obligations and audit exposure, contact us at taxpage.com.
“Every registrant under a CRA GST/HST audit should walk in knowing the full universe of ITCs they may be entitled to — including those from periods they thought were permanently closed. Ontario Tire Stewardship confirms that CRA cannot simply pick its assessment period and close its eyes to everything that came before. Assembling that ITC inventory before audit day, monitoring the audit for the Jarvis line, and having an experienced Canadian tax litigation lawyer in the room are the three most valuable things a registrant can do.”
— David J. Rotfleisch, CPA, Founding Tax Lawyer and Certified Specialist in Taxation, Rotfleisch & Samulovitch P.C. (with over 35 years representing registrants in GST/HST audits and appeals before the Tax Court of Canada)
Frequently Asked Questions: GST/HST Input Tax Credits, CRA Assessments, and Section 296(2) ETA
What is subsection 296(2) of the Excise Tax Act?
Subsection 296(2) of the ETA requires the CRA, when assessing a registrant’s net tax for a particular reporting period, to take into account any “allowable credit” — an ITC the registrant was entitled to but did not claim — if that credit would still be allowable or would only be denied because of limitation period expiry as of the date the assessment notice is sent.
What are the GST/HST ITC limitation periods under the ETA?
Under subsection 225(4)(b), most registrants must claim ITCs within four years from the end of the reporting period in which the ITCs first became claimable. Specified persons (generally larger businesses) face a two-year window. ITCs not claimed within those periods are ordinarily statute-barred and cannot be recovered through a regular GST/HST return. See our guide to GST/HST input tax credits for a full explanation of the eligibility rules.
What did the Ontario Tire Stewardship case decide about unclaimed GST/HST input tax credits?
The Tax Court held that section 296(2) requires CRA to account for ITCs arising from preceding reporting periods — not just the particular period under assessment — when those ITCs are discovered in the course of a net tax assessment. CRA cannot ignore statute-barred ITCs from prior periods simply because they did not arise in the period being assessed.
How does this ruling change CRA’s existing position on section 296(2)?
CRA had historically taken the position, reflected in its 2002 technical interpretation (document 38168), that section 296(2) only permits recognition of ITCs that first became claimable in the particular reporting period under assessment. The Tax Court rejected that interpretation as inconsistent with the text, context, and purpose of the provision.
Can a registrant proactively raise section 296(2) ITCs in a CRA GST/HST audit?
Yes. Registrants subject to a CRA net tax audit should identify and present all unclaimed ITCs from prior periods before the assessment is issued. A proactive approach — typically with the assistance of an experienced Canadian tax litigation lawyer — is strongly advisable. See CRA Tax Audit for an overview of what to expect during a CRA audit.
Does this ruling apply to all GST/HST registrants?
The ruling applies broadly to registrants whose net tax is being assessed under section 296 of the ETA. However, the specific facts, the period under assessment, and the nature of the unclaimed ITCs will affect how section 296(2) applies in any individual case. Professional advice is essential.
What should a registrant do if they discover unclaimed ITCs during a CRA GST/HST audit?
The registrant should immediately bring the unclaimed ITCs to the attention of the auditor and, where necessary, file an amended return or formal written request. Engaging an experienced Canadian tax litigation lawyer at this stage is strongly recommended to ensure the ITCs are properly documented and formally raised before the notice of assessment is issued.
What is the difference between the section 296(2) remedy and the Voluntary Disclosure Program for GST/HST?
Section 296(2) applies during an active CRA assessment and requires CRA to credit prior-period ITCs the registrant was entitled to. The Voluntary Disclosure Program is a separate pre-audit remedy available to registrants who wish to voluntarily correct GST/HST non-compliance before CRA initiates enforcement. The VDP is not available once a CRA audit has commenced on the matter being disclosed. Under the reformed VDP effective October 1, 2025, unprompted applications receive 100% penalty relief and 75% interest relief.
What is the Jarvis line and why does it matter in a GST/HST audit?
The Jarvis line refers to the constitutional boundary established in R v Jarvis, 2002 SCC 73, and R v Ling, 2002 SCC 74, between a civil CRA tax audit and a criminal tax investigation. Once CRA’s predominant purpose shifts to determining penal liability, Charter protections apply and CRA’s civil compulsion powers are unavailable. In the GST/HST context, this can arise where CRA investigators suspect false ITC claims or deliberate mischaracterization of taxable supplies. Registrants who detect this shift should immediately retain a Canadian tax litigation lawyer.
Are there additional ETA sections relevant to missed ITC claims?
Yes. Subsections 296(4) and 298(7) of the ETA are relevant in certain circumstances, particularly where the assessment period has been extended. The interaction among sections 225, 296, and 298 requires careful analysis in any complex GST/HST dispute. A notice of objection is the required first step to formally challenge any CRA assessment with which you disagree.
Is the Ontario Tire Stewardship decision binding on CRA going forward?
Tax Court decisions bind CRA in the specific appeal from which they arise, but CRA is not automatically required to follow the ruling in all other cases unless upheld on further appeal or adopted as CRA administrative policy. Registrants should not assume CRA will apply Ontario Tire Stewardship without challenge and should be prepared to assert their rights through the objection and appeal process if necessary.
How can Rotfleisch & Samulovitch P.C. help with unclaimed GST/HST input tax credits?
Our experienced Canadian tax litigation lawyers advise registrants across all stages of the GST/HST audit, objection, and appeal process. If you have unclaimed ITCs from prior periods or are facing a CRA net tax assessment, contact us at taxpage.com or call us at 416-367-4222 to discuss how section 296(2) may benefit your situation.
Disclaimer: This article provides general information only and does not constitute legal advice. Readers should not act on the basis of the information contained herein without obtaining specific legal advice from an experienced Canadian tax lawyer. Tax law is complex and fact-specific. The law discussed in this article is current as of the date of publication but may be subject to change.