Subcontractor Expenses, Denied ITCs And The GST/HST Rebate For 'Tax Paid In Error'

Published date13 April 2022
Law FirmSpenceDrake Tax Law
AuthorMr Cris Best

In Mediclean Incorporated v. The Queen, 2022 TCC 37 (CanLII), the Tax Court of Canada provides guidance for successfully claiming the "tax paid in error" GST/HST rebate and reiterates the scope of prescribed information for claiming Input Tax Credits.

In general, when a business pays for an expense (e.g., business start-up costs, rent, professional fees) they also pay GST/HST on that expense. Subsequently, they can apply for Input Tax Credits (ITC) to recover the GST/HST paid. However, upon review/audit, Canada Revenue Agency (CRA) is relatively strict concerning the information and documents required to support ITCs claimed.

The issues of denied ITCs and GST/HST rebates were recently considered in the Tax Court of Canada case of Mediclean Incorporated v. The Queen, 2022 TCC 37 (CanLII). CRA audited Mediclean Incorporated (the "Appellant"), a company that paid independent contractors (subcontractors) to provide cleaning services. The Appellant's workers had been ruled to be subcontractors, versus employees, in the earlier decision of Mediclean Incorporated v. M.N.R., 2009 TCC 340 (CanLII)).

Of particular interest was the Appellant's position that if CRA denied the ITCs then it was entitled to a rebate of the GST/HST "paid in error" per subsection 261(1) of the Excise Tax Act, RSC 1985, c E-15 (ETA) or to apply the...

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