Executive Summary: Key Legal and Evidentiary Issues

• Ontario Tire Stewardship ("OTS") appealed a reassessment denying its claim to additional input tax credits ("ITCs") totalling $1,057,793.22.
   
• Central to the appeal was whether subsection 296(2) of the Excise Tax Act ("ETA") permits the Minister to allow ITCs carried forward from a preceding reporting period.
   
• Respondent argued the Unclaimed ITCs were statute-barred under paragraph 225(4)(b) because they arose in 2012 reporting periods outside the limitation period.
   
• Alternatively, OTS relied on an Abeyance Agreement with the Minister as a basis for relieving the limitation period.
   
• Jurisdictional questions arose regarding whether the Tax Court could address matters connected to subsection 296(4) refund mechanics.
   
• Justice Visser ultimately allowed the appeal, finding subsection 296(2) applies to ITCs carried forward from earlier reporting periods.
   

Facts of the case

OTS was incorporated under the Corporations Act (Ontario) on September 10, 2003, and was designated as the industry funding organization for Ontario's Used Tires Program under the Waste Diversion Act, 2002. It operated the program from September 2009 to December 31, 2018, charging Stewards' Fees and incurring GST/HST on its operating expenses. Uncertainty over whether OTS was engaged in "commercial activity" under the ETA led the three affected industry funding organizations to seek a CRA ruling; on October 28, 2013, the Minister determined the organizations could not claim ITCs. As a result, OTS did not claim ITCs for its reporting periods from September 2009 to November 2013, instead claiming what it believed to be all outstanding ITCs—$16,541,253.12—in its December 2013 HST return (the "Original ITC Claim"), filed January 30, 2014. The Minister denied this claim by Notice of Assessment dated July 17, 2014, prompting OTS to file a Notice of Objection, which was held in abeyance pending the outcome of a parallel appeal by Stewardship Ontario. Following the Tax Court's March 2018 decision in Stewardship Ontario v. Her Majesty the Queen, 2018 TCC 59—which allowed that organization's ITC claim—the Minister advised OTS in May 2018 that it was similarly entitled to claim ITCs, subject to audit. During that audit process, OTS discovered it had omitted $1,057,793.22 in ITCs (the "Unclaimed ITCs") relating to its July–December 2012 reporting periods. OTS notified the Minister of this omission in August 2018 and submitted an amended return in December 2018. By Notice of Reassessment dated January 16, 2019, the Minister allowed the Original ITC Claim but denied the Unclaimed ITCs, leading to this appeal.

Policy and legislative provisions at issue

The appeal centered on Part IX of the ETA, which governs the GST/HST regime. Subsection 225(1) defines "net tax" for a reporting period using a formula that expressly includes ITCs "for the particular reporting period or a preceding reporting period." Paragraph 225(4)(b) generally imposes a four-year limitation period on claiming ITCs. Subsection 296(2), a relieving provision, requires the Minister to allow an "allowable credit" when assessing net tax if three conditions in paragraphs (a), (b), and (c) are met—notably, paragraph 296(2)(a) does not include the phrase "or a preceding reporting period" found in subsection 225(1). The Respondent argued this omission meant subsection 296(2) could not apply to ITCs carried forward from earlier periods, while OTS argued the provision should be read to incorporate the full definition of net tax, including carried-forward ITCs. OTS also invoked an Abeyance Agreement and paragraph 298(3)(a) of the ETA as an alternative basis for relief.

Reasoning and analysis

Justice Visser conducted a textual, contextual, and purposive analysis of subsection 296(2). Textually, he found that because "net tax" under subsection 225(1) already incorporates ITCs from preceding reporting periods, the reference to "net tax" in subsection 296(2) imports that full definition without needing to repeat the phrase "preceding reporting period." Contextually, he noted paragraph 296(2)(c) refers simply to "a reporting period," which he read as encompassing both particular and preceding periods, and cautioned against an interpretation that would render portions of the statutory scheme redundant. Purposively, he emphasized that subsection 296(2) exists to prevent cascading of GST/HST and ensure assessments reflect a taxpayer's true net tax liability, consistent with reasoning in Stewardship Ontario and CIBC World Markets Inc. v. Canada, 2011 FCA 270. He distinguished Toronto-Dominion Bank, 2009 TCC 264, and Canadevim Ltée v. The Queen, 2010 TCC 160, finding neither directly addressed the carry-forward question, while treating Pawlak v. The Queen, 2012 TCC 355, as instructive in cautioning against overly literal readings of subsection 296(2). On the Abeyance Agreement, Justice Visser sided with the Respondent, holding that the agreement merely paused the administrative appeals process and did not extend or waive the ETA's statutory limitation periods, noting that only a waiver under subsection 298(7) can extend an assessment period. He further held that questions concerning refund mechanics under subsection 296(4) fell outside the Tax Court's jurisdiction and were properly matters for the Federal Court, consistent with the approach taken in Pawlak.

Ruling and overall outcome

Justice Visser allowed OTS's appeal, concluding that subsection 296(2) of the ETA applies to ITCs carried forward from preceding reporting periods, and that OTS was entitled to claim the Unclaimed ITCs in its December 2013 reporting period. The reassessment dated January 16, 2019, was referred back to the Minister of National Revenue for reconsideration on the basis that OTS is entitled to additional input tax credits of $1,057,793.22 for its December 1–31, 2013 GST/HST reporting period. Costs were awarded to OTS as the successful party, with the parties given 30 days to reach agreement on costs, failing which a schedule for written submissions was set out, with costs otherwise to be awarded per the Tariff.