In the recent case of 208539 Alberta Ltd. v. The Queen, Justice D'Arcy of the Tax Court of Canada held that an importer of record may be entitled to claim an input tax credit (ITC) for GST imposed as a result of an ascertained forfeiture. An ascertained forfeiture occurs when the Canada Border Services Agency (CBSA) issues a penalty with respect to imported goods after importation. The CBSA is no longer in a position to seize the goods and charge a penalty to release the goods. As a result, the CBSA sends the importer of record an assessment of a penalty.
In some cases, the ascertained forfeiture penalty may only include customs duties (or a multiple of the customs duties that would have been payable). In these cases, the importer of record would not be entitled to claim an input tax credit.
In other cases, the ascertained forfeiture penalty states that an amount is being charged as GST that should have been paid with respect to the importation. This was the situation in the case at hand.
Judge D'Arcy held that the importer of record was entitled to claim the ITC for the amount that was GST, but not the amount that was penalty or customs duties.
Another interesting aspect of the decision is the discussion on whether the documentary requirements for the ITC had been satisfied. The CRA was arguing that the documentary requirements in subsection 169(4) of the Excise Tax Act and Input Tax Credit Information (GST/HST) Regulations was not satisfied. Judge D'Arcy was correct in holding:
The Appellant satisfied the paragraph 169(4)(a) documentary requirements once it provided the CRA with sufficient information to enable the amount of the input tax credit to be determined. As I noted previously, the First Customs Letter, the Second Customs Letter and Exhibit A2 together evidence the amount of Division III tax that Canada Customs collected from the Appellant ($17,039.93) and the fact that the Division III tax was paid by the Appellant in respect of the imported goods.
I would expect that there are a number of importers of record who are engaged in commercial activities who have not claimed their ITCs paid in respect of ascertained forfeitures and detentions penalties. It will be important to ensure the correct person claims the ITC. Time limits for claiming the ITC will also be a critical issue. All that being said, there may be found money - if you have received a notice of ascertained forfeiture or retrieved goods from CBSA detention, it is time to review the documentation.