PDM Royalties – Tax Court finds that an internal agreement to allocate inputs for GST purposes on an IPO was ineffective

An attempt to obtain input tax credits for GST incurred on the IPO of an income fund was unsuccessful.

Although the income fund and a subsidiary LP (which held the business) agreed that the taxable expenses were to be incurred for the account of the LP, this was not sufficient to make the LP the "recipient" of the services, as it was not a party to the agreements with the services providers.  As V. Miller J was not informed of the 2^nd order supply rule in s. 185(1), she also considered that even if the expenses had been incurred by the LP in order to issue LP units in consideration for receiving the IPO funds, that represented an exempt supply which would not have entitled the LP to ITCs.

Neal Armstrong.  Summary of PDM Royalties LP v. The Queen, 2013 TCC 270 under ETA – s. 169(1) and Input Tax Credit Information (GST/HST) Regulations, s. 3.