Tax & Trade Blog

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). 

Determining whether contracts are for the sale of tangible personal property or for provision of services is often of central importance in provinces still levying Provincial Sales Tax (“PST”).  This issue has been the subject of on-going litigation in the context of providing oilfield services to oil and gas exploration companies in British Columbia and Saskatchewan.  A recent case from the British Columbia Court of Appeal (“BCCA”) provides practitioners with increased guidance on how to avoid application of PST on materials used in the provision of oilfield services.  The bottom line still remains:  get advice early and often !

Whether a notice of assessment was mailed or not has important legal consequences for taxpayers.  There is an irrebuttable presumption of receipt of the notice of assessment by a taxpayer once it is mailed by the Minister (S,248(7)(a) of the Income Tax Act (“ITA”)); a notice of objection must be served on the Minister within 90 days of the date on which the notice of assessment was mailed (s.165(1)); upon receipt of a notice objection, the Minister is obliged to reconsider the assessment and vacate, confirm or vary the assessment or reassess and to notify the taxpayer of its decision (s. 165(3)); and the taxpayer may appeal the assessment to the Tax Court of Canada (“TCC”) if the Minister has not vacated or confirmed the assessment or reassessed within 90 days of receiving the notice of objection (s. 169(1)). Parallel provisions are found in the Excise Tax Act.

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. 

In Invesco Canada Ltd. v. The Queen (2014 TCC 375), CRA assessed the taxpayer for GST, arising out an arrangement designed to minimize income tax.  Specifically, at issue was a determination of the value of the consideration paid for the supply of management services provided to mutual fund trusts.