GST/HST and Invoices of Accommodation/Convenience Schemes: Canadian Tax Lawyer Analysis

Introduction to Input Tax Credits and Invoices of Accommodation

Input Tax Credits (ITCs) are the sum of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) that a registrant paid on legitimate and reasonable business expenses. ITCs allow a registrant to recover GST/HST paid for reasonable purchases related to the business activities. This GST system is designed so that only the “end-user” of a good or service is actually out of pocket and the CRA does not collect GST/HST multiple times in a supply-chain. In effect this means that the individual consumer ends up paying the tax while businesses in the supply chain collect and remit the tax but do not end up out-of-pocket.

There are some general rules in respect to the claiming of ITCs. First, a registrant must be registered for GST/HST purposes with the Canada Revenue Agency (CRA). Second, a registrant can make claims only concerning purchases and expenses which are for consumption, use or supply in the course of commercial activity. Third, the expenses or purchases must be reasonable in quality, nature and cost in relation to the business.

There are also specific documentary rules for the eligibility of ITCs. Section 169(4) of the Excise Tax Act (“ETA”) and section 3 of the Input Tax Credit Information (GST/HST) Regulations (“ITC Regulations”) impose some requirements on documentation when a registrant is claiming ITCs. The ETA stipulates that a registrant must adduce “sufficient evidence” as well as other prescribed information. The prescribed information is in the ITC Regulations. For ITC claims over $150, supporting documents, such as an invoice, must include:

  1. the name of the vendor or the intermediary in respect of the supply (supply is a sale in GST parlance);
  2. the date of the invoice;
  3. the total amount paid or payable for all the supplies;
  4. the vendor’s GST/HST registration number;
  5. either the amount of GST/HST charged on non-tax-included purchases or the rate of GST/HST charged on tax-included purchases;
  6. the service recipient’s name;
  7. the terms of payment; and
  8. a description of each supply sufficient to identify it.

It is thus crucial to accurately review, document and record the receipts, invoices and contracts in accordance with the prescribed regulations. Without proper information, the CRA may reject ITCs.

The Canada Revenue Agency (CRA) and Revenu Quebec (RQ) have denied ITC claims on the basis that the registrant had participated in a scheme involving “invoices of accommodation/convenience.” The phenomenon of “invoices of accommodation/convenience” is a scheme where a taxpayer, the so-called “accommodated” person, colludes with a supplier of invoices of accommodation. The supplier of invoices of accommodation issues false invoices to the accommodated person for services that the supplier did not supply and that the accommodated person did not purchase. This scheme allows the “accommodated” person to apply for ITCs and collect refunds illegitimately.

If the CRA suspects that a supplier is issuing false invoices to clients,  it will conduct tax audits of the supplier and its clients. If the CRA believes that the clients are involved in the invoices of accommodation scheme with the supplier, then the CRA will reassess to deny the ITCs claimed on the fees of the false suppliers. A taxpayer may choose to appeal such an assessment to the tax courts through their experienced Canadian tax lawyer.

Unfortunately, the tax courts may deny ITCs of innocent businesses. In recent years, RQ has aggressively audited and denied ITCs from innocent businesses that have engaged in services with fraudulent suppliers. RQ succeeded, more often than not, in tax courts when innocent businesses appealed their tax assessments. Even though innocent businesses may not have been involved in an accommodation invoices scheme, tax courts often deny their appeals when they fail to meet the strict and mandatory requirements for ITCs. For example, one of the mandatory rules for claiming an ITC is that the name of the true supplier or intermediary must appear on the invoice. If innocent businesses engage in services with a fraudulent supplier, the services may not actually originate from the contracted supplier. In such cases, courts have denied ITC claims on services from fraudulent suppliers even though the innocent businesses were not a part of the scheme.

Appealing Against Invoices of Accommodation Scheme Allegations

In a tax appeal against an allegation of an invoices of accommodation scheme, the registrant must meet the applicable test to reclaim the ITCs. In Pro-Poseurs Inc. c R, the Tax Court of Canada held that CRA and RQ may use assumptions to make tax assessments, and the registrant has the burden of demolishing the assumptions. The Court also held that this burden is met when the taxpayer makes out at least a prima facie case that demolishes the assumptions. If the taxpayer can meet the burden, the onus then shifts to the Canadian tax lawyer representing the CRA to rebut the prima facie case. A prima facie case is one that presents sufficient evidence to support a decision in its favour unless it is rebutted.

The assumption that taxpayers must demolish when they are facing an invoice of accommodation scheme allegation will vary depending on the fact scenario. Some of the recurring prima facie evidence that a taxpayer had to establish are the following:

  1. The taxpayer must establish that the suppliers operated a business over the relevant time period;
  2. The taxpayer must establish that it acquired the supplies or services from the supplier whose name appears on the invoices;
  3. The taxpayer must establish that it was not a party to the invoice of accommodation scheme;
  4. The taxpayer must establish that it performed and satisfied its duty of verification; and
  5. The taxpayer must establish that the supporting documentation, including the invoices, meets the requirements of the ETA and its regulations.

In recent years, the case law, especially in Quebec, has created more stringent and mandatory requirements to qualify for ITCs. In Ventes et Faconnage de Papier Reiss Inc. c R, the Tax Court of Canada defined and expanded the parameters of the duty of verification. The Court held that at minimum, the claimant must verify the supplier’s tax registration with the government’s website, inquire about the corporation or business status with the Registraire des Entreprises du Quebec, and verify the supplier identity. This duty is a common law requirement, meaning that the Tax Court uses this as a baseline to determine if a registrant has taken sufficient steps.

Toronto Tax Lawyers Needed for Complex Litigation

Objecting against such a tax reassessment is often a stressful and complicated process. If the CRA has reassessed you for participating in an invoices of accommodation scheme, please do not hesitate to contact our top Canadian tax law firm for legal help. We can also provide tax advice for strategies on safeguarding your ITCs before a tax audit takes place.


The regular method to calculate ITCs is to add up the GST/HST paid or payable for each purchase and expense of property and services acquired, imported, or brought into a participating province. Then multiply the amount by the ITC eligibility to be claimed.
To claim ITCs, expenses or purchases must be reasonable in quality, nature, and cost in relation to the nature of the claimant's business. Common purchases and expenses which may be eligible to claim ITCs are: business start-up costs, business-use-of-home expenses, delivery and freight charges, fuel costs, legal, accounting, and other professional fees, maintenance and repairs, meals and entertainment, motor vehicle expenses, office expenses, rent, telephone and utilities, and travel.
GST/HST registrants can recover the GST/HST paid or payable on purchases and expenses related to their commercial activities by claiming input tax credits (ITCs). ITCs are eligible to be claimed if purchases and expenses are for consumption, use, or supply in the claimant's commercial activities.