Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of the term “risks” under paragraph 2(d) of Part IX of Schedule VI of the Excise Tax Act (ETA) was central to determining the tax status of insurance supplies.

• The dispute centered on Northbridge’s entitlement to input tax credits (ITCs) related to GST paid on head office and overhead costs.

• Northbridge submitted that global evidence of its operations was sufficient for ITC allocation; the Tax Court required evidence policy-by-policy.

• The Tax Court twice dismissed Northbridge’s claims due to insufficient specific evidence per individual insurance policy.

• The Federal Court of Appeal rejected the requirement for a vehicle-by-vehicle or policy-by-policy breakdown to calculate ITCs for general costs.

• The matter was remitted to the Tax Court to classify inputs and apply the correct allocation methodology under section 141.02 of the ETA.

Facts of the case

Background and initial tax dispute
Northbridge Commercial Insurance Corporation issued trucking insurance policies across Canada and the U.S. and sought input tax credits (ITCs) for GST paid on general head office and overhead costs. It argued that portions of its insurance business related to “risks ordinarily situated outside Canada” were zero-rated under paragraph 2(d) of Part IX of Schedule VI of the Excise Tax Act (ETA), entitling it to recover a portion of the GST paid.

The Tax Court of Canada initially interpreted “risks” as referring to the physical location of insured objects—i.e., the trucks themselves—and required a breakdown of each policy based on the location of each vehicle. Because Northbridge provided only aggregate (global) evidence of its business operations rather than policy-by-policy detail, the court dismissed the appeals.

Appeal to the Federal Court of Appeal
Northbridge appealed this interpretation. The Federal Court of Appeal, in a prior decision (2023 FCA 211), overturned the Tax Court’s definition of “risks.” It held that “risks” referred to potential perils (e.g., accidents) rather than the location of insured vehicles, focusing on whether the insurable events were ordinarily situated outside Canada. However, the Court did not address how ITCs should be allocated at that stage and sent the matter back to the Tax Court for that determination.

Second Tax Court decision and renewed dismissal
Upon reconsideration, the Tax Court again dismissed the appeal (2024 TCC 10), stating it still lacked policy-specific evidence to calculate the extent to which supplies were zero-rated. The judge emphasized that without such detailed evidence, ITC entitlement could not be determined, despite the FCA’s previous clarification regarding the interpretation of “risks.”

Final decision by the Federal Court of Appeal
Northbridge appealed once more. In its 2025 decision (2025 FCA 83), the Federal Court of Appeal firmly rejected the Tax Court’s insistence on policy-by-policy evidence to determine ITCs for general head office and overhead costs. It emphasized that such costs relate to Northbridge’s overall business activities and are not attributable to individual policies. The Court reasoned that calculating ITC eligibility could be appropriately done using global evidence and allocation methodologies under section 141.02 of the ETA.

As a result, the Federal Court of Appeal allowed the appeal, set aside the Tax Court’s judgment, and returned the matter to the Tax Court to determine the ITC amounts based on proper input classification and allocation under section 141.02. Northbridge was awarded costs for the appeal.