Home Tax News The CRA’s Approach To Accommodation Invoice Tax Schemes – Sales Taxes: VAT, GST – Canada

The CRA’s Approach To Accommodation Invoice Tax Schemes – Sales Taxes: VAT, GST – Canada

The CRA’s Approach To Accommodation Invoice Tax Schemes – Sales Taxes: VAT, GST – Canada

The general trend is that the Canada Revenue Agency is disallowing more input tax credits (“ITCs”) for businesses. In addition, the CRA has launched a project to uncover and disallow ITCs they believe relate to an accommodation invoice tax scheme.

The CRA is getting it wrong in some cases. We see some businesses are getting “caught up” in these schemes. And we see CRA disallowing valid ITCs.

After reading this article, you will know:

  1. how to reduce the risk you will fall prey to this scheme; and

  2. what to do if the CRA alleges your business is engaged in this scheme.

How It Works

An accommodation invoice tax scheme occurs when a supplier issues an “accommodation invoice” to a purchasing business. Usually, the purchaser isn’t aware.

In most cases, the supplier will issue the invoice under a different name. It will not use the name of the supplier or sub-contractor providing the goods or services. Instead, the supplier will give the purchasing business an excuse about why the name on the invoice is different. In other cases, the supplier will issue an invoice containing false information (eg, false GST/HST number).

In both cases, the buyer pays the invoice and claims ITCs. Then, the supplier shuts down without remitting GST/HST.

CRA’s Approach

The CRA is taking an aggressive approach to this project. At times, this approach is leading to carelessness and improper audit results in some cases.

This CRA project started in Quebec. Revenue Quebec has been aggressively auditing and disallowing ITCs over the past 10 years. We are starting to see this trend move to the rest of Canada, with the CRA following Revenue Quebec’s footsteps.

The CRA will audit a supplier if it believes the supplier is running an accommodation invoice tax scheme. The CRA will audit the purchasers based on its assumption that the purchaser was part of the scheme.

The CRA often relies on assumptions that are difficult to disprove. Then, the CRA relies on those assumptions to support its conclusions.

For example, auditors often conclude that “the supplier lacks the capacity and resources to provide the goods or services described in the invoices”. Therefore, the auditor assumes the supplier did not provide the goods or services to the purchaser, and the invoices are illegitimate. It is difficult to convince the CRA that the purchaser received the goods or services. Usually, the CRA will take the position that invoices and payment receipts are not sufficient proof.

The Courts’ Approach to Accommodation Invoice Tax Schemes

The Tax Court has issued a few decisions related to this issue. It is not possible to know – reading the caselaw – the quality of the case build or advocacy. And it is difficult to know what really happened during the hearing.

We do know the Tax Court has rejected the taxpayers’ primary argument in some cases and upheld the CRA’s decision to disallow the ITCs. But the Tax Court has vacated the high gross-negligence penalties the CRA is imposing in these cases.1

The reported decisions give us some data. But reported decisions are not the whole picture. They do not include all the audits, objections, and appeals resolved before a hearing. We guess parties resolve (roughly) 90 percent of tax disputes before a hearing. So, when taxpayers and accountants make decisions using only the reported decisions, it is more likely they’re making a mistake.

Tips to reduce risk

Pro Tip #1: Look into Whether You Operate in a High-Risk Industry

These schemes occur across all industries and business structures. But the CRA is targeting the following industries and businesses:

  • Builders, construction companies, and contractors

  • Businesses that deal with the purchase and resale of metals (eg, gold, jewelry)

  • car dealerships

  • Businesses that use temporary staffing agencies to supply labor

  • Businesses that purchase and supply intangible goods.

If you operate in one of these industries or businesses, take extra care when choosing suppliers.

Pro Tip #2: Use Suppliers Other People Recommend

Businesses that participate in accommodation invoice tax schemes often disappear quickly. Therefore, businesses which have operated under the same name for a longer period are less likely to be engaging in accommodation invoice tax schemes.

To reduce your risk of selecting a supplier engaging in an accommodation invoice tax scheme, you can

  • ask for supplier recommendations; and

  • work with suppliers that have been in business for at least several years.

Pro Tip #3: Confirm the Supplier’s Identity

We recommend you confirm the identity of the supplier you plan to work with using at least one of the following ways:

  1. Enter a written contract with the supplier. The contract should detail the goods/services the supplier will supply to the buyer. And we recommend you confirm that the supplier’s director is the one signing the contract.

  2. If the supplier is a corporation, search the public business registry for Ontario Corporations or Federal Corporations, You can use the registry to confirm the legal name of the business and that the business is “Active”.

  3. Require the supplier (or its sub-contractor) to issue the invoices (and not a separate business).

  4. Confirm that the business is a GST/HST registrant here, If you do not know a supplier’s GST/HST number, you can call the CRA’s Business inquiries line at 1.800.959.5525.

Pro Tip #4: Check Invoices Have the Right Information

The CRA may disallow your ITCs if the invoices do not have the information required by:

  • Subsection 169(4) of the ETA; and

  • Section 3 of the Input Tax Credit Information (GST/HST) Regulations (the “ITC Regulations”).

This is true regardless of whether an accommodation invoice tax scheme exists.

In particular, invoices used to support ITC claims must include the following information:

  • The name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business;

  • the date of the invoice;

  • the date on which there is tax paid or payable;

  • the total amount paid or payable for all the supplies;

  • the supplier’s GST/HST registration number;

  • the amount of GST/HST charged on non-tax-included purchases or the rate of GST/HST charged on tax-included purchases;

  • the name of the goods/services recipient;

  • the terms of payment; and

  • a description of each supply is sufficient to identify it.

It is crucial the invoices have this information to minimize the risk of the CRA disallowing your ITCs.

Pro Tip #5: Keep Looking for Possible Red Flags

We think using the following risk factors to assess suppliers may help you avoid an accommodation invoice tax scheme:

  • The supplier regularly changes its business name;

  • A different company name is used on the invoice;

  • The supplier asks for payment to a different business name or person;

  • The supplier shuts down its business and recommends another supplier; and/or

  • The supplier cashes your checks at cheque-cashing centres.

What To Do If The CRA Audits

No vetting process is perfect, and you may still get caught up in an accommodation invoice scheme. If this happens, we suggest you engage a tax litigator and work with them to build the right due diligence defense.

We imagine you will think this advice sounds self-serving. It is. But it is still good advice. It is easy to draft and submit a due diligence defense, but it isn’t easy to build and craft a winning due diligence defense. There is a fine line that separates winning and losing in these cases.

When you are engaging counsel, you can start to gather basic documents. Here are a few of the basic documents you will need to gather.

  • All invoices;

  • A list of supplier and sub-contractor names and contact information;

  • A list of the people who engaged with the supplier and sub-contractors;

  • All supplier contracts and agreements; and

  • All supplier/sub-contractor correspondence (eg, emails).

We hope that this article helps you avoid getting involved in an accommodation invoice scheme or audit.


1. Kosma-Care Canada Inc. c. R2014 FCA 225; Pépinière A. Massé c. R 2014 TCC 271; Constructions Marabella Inc. c. R2012 TCC 397; 9088-2945 Québec Inc. c. R 2013 TCC 58.
Note: In some cases, the Courts will support a due diligence defense and allow the ITCs (see Salaison Levesque Inc. c. R 2014 TCC 36, upheld on appeal, 2014 FCA 296)

Originally published May 17, 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought regarding your specific circumstances.


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