A supplier (Menova) received substantial down payments (described as “deposits”) respecting its sale of solar array projects, and then became insolvent before earning more than a fraction of the down payments. Menova then issued “credit memos” to the business customer (North Shore) for the value of the unperformed work.
CRA’s position was that the HST included in the credit memos was required to be added back to the net tax of North Shore (thereby effectively reversing the input tax credits previously claimed by North Shore). Before accepting this position, Bocock J first noted that the down payments were not deposits, stating (at para. 24):
There was no payment of earnest money to guarantee the completion of the contracts. The sizeable partial payments were meant to fund the considerable costs connected with the solar panels. The Contracts, although describing the moneys paid as deposits were nonetheless structured as partial payments, half due on execution and the balance due on delivery. …