Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 164658
Dear [Client]:
Subject: GST/HST RULING
Eligibility for input tax credits (ITCs) on amounts paid to law firm
Thank you for your letter of [mm/dd/yyyy], concerning your eligibility to claim ITCs for $[…] in HST you paid to […] (the Law Firm).
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
From your letter and documentation, we understand that:
1. You operate a taxi business and, at all relevant times, were registered for GST/HST.
2. On [mm/dd/yyyy], while you were operating your taxi, you were involved in an accident. As a result, you could not work and did not earn any business income for about two years.
3. You paid the Law Firm to seek compensation for your losses arising from the accident. For example, the Law Firm’s statements of account itemized the following services:
* Drafting and issuing Statement of Claim;
* Reviewing all pleadings;
* Attendance at Examinations for Discovery;
* All settlement negotiations;
* Reviewing all accident benefits documentation; and
* Settling of claim for civil damages.
4. The statement of account for [mm/dd/yyyy], indicates that the Law Firm received $[…] in trust as settlement and that the Law Firm’s fees of $[…], HST of $[…], and two other disbursements ($[…] paid to […][A] and $[…] paid to […][B]) were deducted from that amount and the remainder of $[…] was paid to you.
5. The statement of account for [mm/dd/yyyy], indicates that the Law Firm received $[…] in trust from […][C] as settlement. It shows that the Law Firm’s fees of $[…], HST of $[…], disbursements of $[…], and HST of $[…] were deducted from that amount and the remainder of $[…] was paid to you.
6. On [mm/dd/yyyy], you signed a Release indicating that, in return for a payment in the amount of $[…], inclusive of all claims, pre-judgment interest, costs, disbursements and taxes thereon, you released and forever discharged […][D] from all claims for any and all losses sustained by you in consequence of a motor vehicle accident which occurred on or about [mm/dd/yyyy], and described in the action in […][a particular court in Province 1] bearing court file no.: […], commenced in […][City 1, Province 1].
RULING REQUESTED
You would like to know if you can claim an ITC of $[…] for the [total amount of] HST paid to the Law Firm.
RULING GIVEN
Based on the facts set out above, we rule that you are not eligible to claim ITCs for the HST paid to the Law Firm.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
Subsection 169(1) provides that a GST/HST registrant is generally eligible to claim an ITC for the GST/HST paid or payable on property and services based on the extent to which the property or service is acquired for consumption, use or supply in the course of the registrant’s commercial activities.
Further, subsection 141.01(2) provides that a person is deemed to have acquired property or a service for consumption or use in commercial activities only to the extent that the property or service is acquired for the purpose of making taxable supplies for consideration (e.g., fees or charges) in the course of an endeavour (e.g., a business) of the person. To the extent that the property or service is acquired for the purpose of making supplies in the course of an endeavour that are not taxable supplies made for consideration, or for a purpose other than making supplies, the person is considered to have acquired the property or service for consumption or use otherwise than in commercial activities.
The settlement amount paid to you was compensatory. As the Law Firm’s services were acquired by you for consumption or use otherwise than in making taxable supplies for consideration, the conditions of subsection 169(1) are not met. As such, you are not entitled to claim an ITC for any of the HST paid on the Law Firm’s fees and disbursements.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (780) 495-5512. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Heather Gibbard
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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