CRA publishes a new memorandum on acceptable ITC methods for use by financial institutions

The quite detailed rules in ETA s. 141.02 for calculating input tax credits (ITCs) of financial institutions (FIs) are under the pall of the requirement to use a “specified method”, namely, a method acceptable to CRA. CRA has published a new memorandum on this topic, and cancelled Bulletin B-106 (which had a number of vacuous or trite examples). Some of the CRA comments include:

• An FI generally has very few non-attributable inputs. An example of a direct input (i.e., contributing to making both taxable and exempt supplies) is services received by an FI for the maintenance of a website providing information about its involvement in the community activities (e.g., sponsorship of children’s sports teams), as well as information about the various services it provides. Such acquired services can “be attributed to the making of particular supplies (both taxable supplies for consideration and exempt supplies).” (This appears to imply acceptance that such indirect promotional activity is for the purpose of making the taxable and exempt supplies of the FI, i.e., ETA s. 141.01(2) may be no more restrictive that ITA s. 18(1)(a).)
• Office space, heating costs, electricity, equipment repair and office supplies of an FI making both exempt and taxable supplies were also given as examples of direct inputs.
• Furthermore, CRA considers that a substantial portion of an FI’s direct inputs can be allocated through (direct) tracking of the use of the inputs or through “causal allocation” (generally using an allocation base such as square footage or number of employees) so that “as a result, few, if any, direct inputs will be allocated using either an input-based allocation [based on the relative use of other business inputs] or an output-based allocation [e.g., using relative taxable and exempt revenues].”
• CRA provides an example of an acceptable method for allocating a non-attributable input (employees anonymously using a third-party counselling service for mental health or other issues), namely, the FI properly allocated 8.5% of all its exclusive and direct inputs to taxable supplies (using tracking and causal methodologies) and, accordingly, claiming an ITC of 8.5% of the GST on this supplier’s invoice.

Neal Armstrong. Summaries of GST/HST Memorandum 17-12 “Input Tax Credit Allocation Methods for Financial Institutions for Purposes of Section 141.02” July 23, 2021 under ETA s. 141.01(2), s. 141.01(3), s. 141.02(1) – exclusive input, direct input, non-attributable input, specified method, s. 206(3), s. 141.02(17) and s. 141.02(9).