Tax Court of Canada grants ITC Appeal of Fiera Foods
The Tax Court of Canada’s decision to grant the appeal of Fiera Foods, allowing the company its input tax credits (“ITCs”), will help prevent CRA from increasing the administrative burden on businesses when it comes to proving their ITC claims.
Before discussing these positive implications, however, lets recognize the terrible context surrounding the Fiera Foods appeal. Justice Owens rightly notes that neither the Minister of National Revenue nor the Courts should apply the Excise Tax Act (“ETA”) differently depending on the morality of the taxpayer’s conduct.[1] But that does not mean that we – as Canadian citizens, and not just tax professionals – should ignore the human circumstances of the vulnerable people involved.
The Circumstances facing Fiera Foods’ Temporary Workers
Fiera Foods is one of the Greater Toronto Area’s largest industrial bakers. They mass produce baked goods for companies like Metro and Walmart.
About 70% of their workforce is composed of temporary workers – about 1,000 temp workers each day. These temp workers are supplied to Fiera Foods through various employment agencies (“Agencies”).
Amina Diaby
In 2016, Amina Diaby, a 23-year-old new refugee to Canada died in an accident inside Fiera Foods. Her hijab was caught in one of the factory’s machines and she was strangled to death. The workers who witnessed her dying did not know how to help her.
In 2019, Enrico Miranda, a cleaner hired through an Agency, was crushed by a machine.
A total of five temp workers have died at a Fiera Foods, or its related companies, since 1999.
In 2018, Sara Mojtehedzadeh, an investigative journalist with the Toronto Star, went undercover into Fiera Foods as a temp worker for one month. She received virtually no safety training, and the work was incredibly grueling. She reported that if workers did not work fast enough, they got yelled at.
The Agency that hired Ms. Mojtehedzadeh directed her to pick up her earnings at a payday lender. She was paid in cash, with no income tax, EI or CPP deducted. She was never able to get a record of employment. Another worker told her that she had to take an hour-long bus trip to pick up her pay from the payday lender to which her Agency sent her. She had never agreed to be paid off-site.
While there are many reputable Agencies in the GTA that help people get work and help companies efficiently manage influxes in demand, the Tax Court held that Fiera Foods ignored the obvious signs that the Agencies who were supplying them workers were not meeting their obligations as employers.
The Agencies also never remitted the HST that Fiera Foods paid to them, and for which Fiera Foods claimed the ITCs in dispute.
Enrico Miranda
The Implications of the Tax Court’s Decision
In deciding that Fiera Foods was entitled to its ITCs, Justice Owens came to two conclusions that will be helpful to business owners who are audited about their ITC claims. I discuss these two conclusions with reference to my Tax Dispute Update 2022 webinar and a paper that I co-authored for the Canadian Tax Foundation (“CTF”): A Proposed Four-Part Test for Evaluating ITC Eligibility.[2]
No Specified Form for Supporting Documentation
First, when satisfying the documentary requirements set out in paragraph 169(4)(a) of the ETA, the CRA is not entitled to require that the business provide the prescribed information in any particular form. The CRA had suggested that the documentation that Fiera Foods provided to support its ITC claims had to be validly issued by the Agencies or signed by a representative of the respective Agency.
In rejecting CRA’s assertion, the Tax Court confirmed that it is the substance and reliability of the information that is important, not the form. This provides businesses flexibility in how they record and store the prescribed information they require to prove their ITC entitlement.
I discuss the “prescribed information” requirements in slides 9 to 12 of Tax Dispute Update 2022 and “Step 1” of my CTF article.
Low Standard for Businesses to Confirm who is providing the Supply
Second, the Tax Court’s decision makes it tougher for CRA to deny a business ITCs on the basis that the supplier was not capable of making the supply. This is a claim that CRA has often made, relying on evidence such as the following:
The suppliers are not incorporated
The suppliers asks for payment to be issued to a different entity, not their corporate name
The suppliers operates for a short period, then are replaced by new suppliers
The suppliers do not have an actual place of business
One person represents multiple suppliers
Multiple suppliers have the same address
Different suppliers provided invoices with the same handwriting
There has been contradicting case law as to the expectations a business should bear to confirm that the supplier they are paying is actually the entity that is providing the taxable supply. The Tax Court’s decision of Fiera Foods supports a lower standard than some of the other case law.
Business owners, and their advisors, must be aware of three important caveats, however:
The Agencies had valid GST/HST numbers at the time Fiera Foods paid them the HST for which it claimed the ITCs (see slides 13 to 16 of our Tax Dispute Update webinar and “Step 2” of our CTF article).
CRA did not assert that Fiera Foods was involved in an “invoices of accommodation” scheme (see slides 18 to 22 of our Tax Dispute Update webinar and “Step 3” of our CTF article).
Fiera Foods had written contracts/letters of understanding with each of the Agencies, which it relied on to show that those specific Agencies had supplied the temp workers. (I recommend written agreements in slides 29 to 32 of our Tax Dispute Update webinar and “Step 4” of our CTF article).
Conclusion
Ultimately, this is an important case that will assist business owners and help ensure that the burden of proving ITC entitlement does not become overly bureaucratic. It is just hard to celebrate when the victor in this case has compromised the lives of vulnerable people in the name of corporate efficiency.
For more information, you can read Ms. Mojtehedzadeh’s articles in the Toronto Star published on:
[1] TCC decision at para 224.
[2] Tax for the Owner-Manager, Volume 22, Number 2, April 2022