Northbridge issued around 5,000 insurance policies each year to trucking companies operating in Canada and the US and claimed ITCs for 1/3 of the GST/HST paid by it on its general head office and overhead costs on the basis that a portion of its insurance supplies were zero-rated under s. VI-IX-2. However, the Tax Court had completely denied its ITC claims on the basis that Northbridge had not determined the extent to which each of its policies was zero-rated, and instead only had “global evidence.”
Webb JA rejected this approach and referred the matter back to the Tax Court to determine the amount of ITCs to which Northbridge was entitled for such GST/HST costs in accordance with s. 141.02. He made the following general comments in relation to s. 141.02 (at paras. 34-35):
Section 141.02 of the ETA applies to financial institutions. There are four types of inputs for the purposes of section 141.02 — direct inputs, excluded inputs, exclusive inputs and non-attributable inputs — informing the appropriate allocation method that is to be used by a financial institution in calculating its ITCs. In this appeal, the parties do not agree on the classification of the general head office and overhead costs. In particular, the Crown submits that rent is a direct input, but Northbridge submits that it is a non-attributable input.
The classification of the property or service acquired by Northbridge as part of its general head office and overhead costs as direct inputs, excluded inputs, exclusive inputs or non-attributable inputs is an important step in applying section 141.02 of the ETA. Since the Tax Court Judge did not consider section 141.02 of the ETA, there is no decision with respect to the classification of the various property and services acquired by Northbridge as direct inputs, excluded inputs, exclusive inputs or non-attributable inputs. This classification is a matter for the Tax Court to determine in considering the entitlement of Northbridge to ITCs under the ETA. Once this classification is done, the provisions of section 141.02 of the ETA that prescribe the methodology to be used to determine the extent to which the various inputs are consumed or used in making taxable supplies can be applied.