Where a business provides both taxable and exempt services, claiming ITCs can become a thorny issue that generally requires an attribution of inputs between the business’ supply of exempt and taxable services. Section 141.01 of the Excise Tax Act (“ETA”) creates a framework for allocating ITCs for non-financial institutions. These rules require registrants to allocate ITCs in a manner that is “fair and reasonable”, which predictably leaves significant room for interpretation.
In the recent decision in Sun Life Assurance Company v. The Queen (2015 TCC 37), the Tax Court of Canada considered whether ITC allocation in respect of leased office space was “fair and reasonable” under section 141.01(5). The decision is notable for what it says regarding the concept of intention in allocating ITCs for the purposes of section 141.01(5).
Input Tax Credits (“ITCs”) are typically not available for “holding companies” that exist solely to hold shares or indebtedness of another company due to the fact that taxpayers are only entitled to ITCs in respect of tax paid on property or services acquired in the course of commercial activities. However, section 186(1) of the Excise Tax Act contains a special rule allowing a company to claim ITCs in respect of expenses “that can reasonably be regarded as having been so acquired for consumption or use in relation to shares of the capital stock, or indebtedness, of another corporation that is at that time related to” the company, in certain instances.
An undisclosed agency exists if an agent enters into a contract with a third party on behalf of a principal, but does not reveal to the third party either the identity of the principal or the fact that the agent is acting on behalf of any principal.
