For income tax planning reasons, the registrant followed a practice of not claiming input tax credits ("ITCs") for a number of successive monthly reporting periods ("Deferral Periods") and then, in its return for the reporting period following that grouping of Deferral Periods (the "ITC claim return"), claimed ITCs for the Deferral Periods.
Suppose that in a Deferral Period, the registrant was invoiced $1,070 including GST, and received credit notes (e.g., respecting order shortfalls) for $107 including GST. In its ITC claim return, it claimed ITCs of $70-$7, or $63 for that Deferral Period. Later, on the advice of KPMG, the registrant claimed ITCs for a further $7 (the "Residual ITC") in a return for a reporting period subsequent to that for which it filed the ITC claim return. (In fact, the Residual ITCs were claimed in returns for five different reporting periods within the s. 225(4) ITC-barring periods in respect of a three-year period of Deferral Periods commencing in 2000, and totaled $3,910,610.)
In finding that the registrant was entitled to the Residual ITCs, D'Auray J found (at para. 20) that "except for section 232…there are no provisions in the Act that require a registrant to make an adjustment to an ITC as a result of a credit note or debit note being received," so that (reverting to the above example) the registrant was entitled to ITCs of $70 for the Deferral Period as that was the month in which it was invoiced for the related supplies (see ss. 168(1) and 152(1)); and (at para. 26-27) that "additions to net tax will be required pursuant to paragraph 232(3)(c)…only if the appellant has claimed ITCs in respect of credited tax in the same, or a preceding, reporting period as the one in which the credit…notes were issued or received," whereas here the registrant instead claimed such ITCs in subsequent reporting periods.