Commercial Activity

Cases

Bowden v. Canada, [2011] GSTC 109, 2011 FCA 218

The appellant had claimed input tax credits (ITCs) in respect of alleged businesses conducted from his home for which he had only minimal revenues ($300 in sales over a three year period.) Before allowing a portion of the appellant's ITC claims on procedural grounds, Sharlow JA rejected the appellant's submission that a business which has no personal or hobby element is not required (on the authority of Stewart) to have a reasonable expectation of profit (REOP) in order to qualify as a commercial activity, after noting (at para. 8) that the definition of commercial activity specifically requires that an individual have a REOP.

398722 Alberta Ltd. v. Canada, [2000] FCJ No. 644 (CA)

The registrant was required to build an apartment building as a condition precedent for obtaining a permit to build a hotel, and argued that the residential housing operation therefore was an integral part of is hotel business and thus was a "commercial activity". The Court held that input tax credits under s. 169(1) were not available to a registrant who was fulfilling an obligation to meet another business objective rather than a commercial activity, so that the registrant here was not entitled to an input tax credit in respect of the GST payable on a deemed self supply of the apartment building on its substantial completion. Sharlow J.A. stated (at para. 22) that the definition of "commercial activity" recognized that although a business may "consist of a number of components, each of which is integral to the business as a whole", it required for GST purposes "that any part of the business that consists of making exempt supplies be notionally severed".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) 105

See Also

Klemen v. The Queen, 2014 DTC 1170 [at 3613], 2014 TCC 244

equipment licensed at no charge was held in commercial activity

The appellant, who directly or through corporations, acquired equipment to refurbish and rent to junior oil companies, transferred to his corporation ("CHL") equipment which previously he had provided to CHL free of charge. His contention, that this transfer (made in consideration for a credit to his shareholder loan account) was not made in the course of commercial activity and was thus not a taxable supply, was directly contradicted by his testimony that his intention when acquiring the equipment was "to make money with it."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) s. 165(5) cannot be used to increase an assessment 151
Tax Topics - Income Tax Act - Section 165 - Subsection 165(5) s. 165(5) cannot be used to increase an assessment 151
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Machinery and Equipment licensed equipment internally transferred in one-off transaction 176

Children's Clean Air Network Society v. The Queen, 2013 TCC 352 (Informal Procedure)

The appellant ("CCAN") was a not-for-profit organization which, in the second of the three years in question, was registered as a charity for the promotion of environmental responsibility. Part of this promotion entailed the production and distribution of tailgate magnetic stickers, posters, signs, etc., to discourage idle engine operation. CCAN printed its sponsors' logos on these materials. CCAN collected HST on the amounts received from the sponsors, which represented a mark-up over the related costs incurred by it. It claimed input tax credits for the HST on such expenses. C Miller J found that s. 135 deemed CCAN not to make a supply to each sponsor as "the sponsor's sole use was to publicize its business" (para. 10). However, CCAN was engaged in commercial activity as it made a margin in its sponsor dealings (para. 12), the publicity it provided to them was commercial in nature (para. 16) and "there is no reasonable expectation of profit test in the definition of commercial activity" (para. 15). The sponsor arrangements entailed both the promotion of the sponsor and the advancement of CCAN's mission, but with former characterized as merely a way to accommodate CCAN's mission (para. 18). C Miller J found the commercial portion of use of the promotional purchases was 30%. ITCs for HST incurred after CCAN became a registered charity was denied under s. 225.1(2).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 135 79

Sydney Mines Firemen's Club v. The Queen, [2011] GSTC 126, 2011 TCC 403

The Appellant was a non-profit society which purchased and held title to all equipment used by the local fire department (a distinct entity consisting of volunteer firefighters). The Appellant claimed input tax credits ("ITCs") on its purchase of one such item of equipment (a boat) on the basis that some of the funding for the boat purchase came from the Nova Scotia government, and that such funding should be viewed as the consideration for a taxable supply of the boat to the government. The Minister denied the ITC claim on the basis that the boat instead was used in making exempt supplies for no consideration under Sched. V, Part VI, s. 10. In rejecting the Appellant's ITC claim, Campbell J found (at para. 37) that the Appellant had failed to adduce sufficient evidence to establish a "direct link" between the government funding and the purchase of the boat.

Aviva Canada Inc. formerly CGU Group Canada Ltd. v. The Queen, 2006 TCC 57

purchase and immediate resale at the same FMV was not commercial activity

In order to settle a dispute between two insurance companies (Aviva and Underwriters) regarding the ownership of trademarks, the two companies agreed to a transfer of the trademarks to Aviva for $5 million. Underwriters first transferred the trademarks on s. 85 rollover basis to a related company, NN, to allow NN to utilize non-capital losses, before their on-sale by NM. Aviva paid GST to NN and applied to CRA for a rebate of tax paid in error. CRA refused. Woods J found that the sale by NN did not have "any of the characteristics of a trading transaction" (para. 24), noting that NN "did not negotiate the sale and likely acted as an accommodation party in order to minimize the income tax payable on the sale," so that the sale was not an adventure in the nature of trade. She also found that the sale was not a "business," noting that a business must be "carried on" to fall within para. (a) of the definition of "commercial activity" – nor was there any evidence that the sale was connected to any existing commercial activity of NM (including any connection which could engage ss. 141.1(1)(a) and (2)(a).) Accordingly, the sale was not a taxable supply and Aviva was entitled to the rebate.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.1 - Subsection 141.1(2) - Paragraph 141.1(2)(a) purchase and immediate resale at the same FMV was not commercial activity 205
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business purchase and immediate resale at the same FMV was not an adventure 211
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Trademarks purchase and immediate resale at the same FMV was not an adventure 272

City of Regina v. The Queen, docket 1999-4570 (TCC)

The activity of the City of Regina in constructing highway connector routes was "an undertaking of any kind whatever" and, therefore, a commercial activity.

Administrative Policy

GST/HST Memorandum 21-2 “Residential Care Services” January 2019

foster care not a business
  • Individuals’ provision of foster care is not considered to be a commercial activity and, thus, is not subject to GST/HST.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part IV - Section 2 meaning of disability, underprivileged, operated/single supply of residential care 374
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of residential care 55

13 April 2017 Interpretation 162819

acting under power of attorney was office and not a commercial activity

CRA indicated that as a power of attorney is an “office” for GST/HST purposes (which effectively is treated the same as employment for GST/HST purposes), an individual who charged for performing pursuant to a power of attorney was not engaged in a commercial activity, so that no GST/HST was exigible.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Office individual acting under a power of attorney is not engaged in commercial activity 119

10 February 2017 Ruling 162056

receipt of royalty not considertion for a taxable supply

A Canadian registrant (Investor) enters into an agreement with a Canadian corporation (Corporation 1) under which it pays lump sums in consideration for the right to receive monthly royalties calculated as a percentage of intellectual property (IP) related revenue streams of Corporation 1. No interest is acquired in any assets of business IP of Corporation 1.

After ruling that the lump sums so paid are consideration for the taxable supply to Investor of intangible personal property (the right to the royalty payments), CRA went on to find that when Corporation 1 makes the subsequent Royalty Payments to Investor pursuant to the right that Investor has acquired, Investor is not considered to be making a taxable supply in exchange for those payments.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security royalty agreement is not a debt security unless a minimum royalty is specified 238
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) the purchase of an IP royalty gives rise to non-creditable GST/HST to the investor 126
Tax Topics - Excise Tax Act - Section 182 - Subsection 182(1) buyout of royalty agreement not subject to s. 182 176

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 29

sale of non-exempted property is taxable even if no prospect of gain
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

The position (not following Aviva except on the same facts) in Q. 21 of the 2013 CBAO Q&A [infra] that "generally where a corporation makes a sale of property that is not exempt from GST/HST, it is engaged in a commercial activity for GST/HST purposes, and the sale of the property is taxable, regardless of whether there is a reasonable expectation of profit from the sale, or whether the transaction is part of a business the corporation regularly carries on," also applies to an intermediary that is a partnership rather than a corporation.

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 21. ("Interpretation of Commercial Activity")

available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

It is CRA's "position that the decision in Aviva applies to a specific fact situation and we will apply the Court's decision in fact situations that are the same as those in the Aviva case."

P-032, 20 July 1992

"It is the Department's position that the provision of management services by a holding corporation to a subsidiary corporation for nil consideration is considered to be a commercial activity".

P-167R

"Meaning of the first part of the definition of business", 29 March 2000, No. 11635-3.

GST M 400-1-2 "Documentary Requirements" under "Meals and Entertainment - Reimbursements"

Tips and gratuities are not subject to GST.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(5) 12

Guide for Providers of Financial Services under "Special Provisions" - "Distribution by Trust"

Trust companies will be required to collect GST from the trust for administration or trustee fee charges.

Articles

Donald N. Cherniawsky, Christopher J. Sprysak, "Escaping the GST Net Through Use of Agency Law", Sales and Use Tax, Vol. IV, No. 2, p. 190.