Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX.
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 114036
Attention: XXXXX XXXXX
May 12, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Input tax credit (ITC) eligibility with respect to the dissolution of an income trust (revised response)
Thank you for your letter of XXXXX, and your fax of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to expenses that relate to the winding up of income trusts into corporations. Following our telephone conversation of XXXXX, we have revised our original letter to remove the reference to a XXXXX as per your request. The following is our revised response.
Interpretation Requested
You would like to know if the GST/HST on costs (consisting mostly of legal costs) incurred by an income trust that is a unit trust (the Fund) would be eligible for an input tax credit (ITC) where these costs were incurred by the Fund during the windup stage into a corporation that acquired all the units in the Fund. You would also like to know if the GST/HST on costs prior to the windup would also be eligible for an ITC and for what period.
All legislative references in the following are to the Excise Tax Act (ETA) unless otherwise specified.
Interpretation Given
If the Fund is a unit trust for purposes of the Income Tax Act, it is a listed financial institution under the provisions of subsection 149(1) of the ETA for purposes of the GST/HST. If a listed financial institution is engaged only in activities that involve the making of financial services such as acquiring shares and debt instruments and making distributions to unit holders, then it is engaged only in activities that are other than commercial activities for GST/HST purposes unless the financial services are zero-rated under Part IX of Schedule VI (for example, certain financial services provided by a financial institution to a non-resident).
Section 169 of the ETA sets outs the rules for claiming an ITC. Under section 169, a person is permitted to claim ITCs if, among other things, GST/HST becomes payable by the person when it is a registrant and the GST/HST is in respect of property or a service that it acquires for consumption, use or supply in the course of its commercial activities. If a Fund was not registered or was not required to be registered for GST/HST and/or if the property or services were not acquired for consumption, use or supply in the course of commercial activities, the GST/HST paid or payable on these acquisitions would not give rise to an ITC.
Your letter raised the issue of whether or not a person other than the Fund, e.g., a corporation that acquired the Fund, could claim the ITCs in the situation where the Fund incurred expenses that relate to winding up the Fund into the acquiring corporation and where the Fund paid the GST/HST on these expenses.
One of the provisions of subsection 169(1) is that the person that acquires the input is generally the person that is eligible to claim the ITC. Where the property or services were acquired by the Fund, it is the Fund that would be the person that is eligible to claim ITCs in respect of its acquisitions, if any are available, if the Fund satisfies the other requirements under section 169 for claiming ITCs.
In certain circumstances, a person that is not the person who has acquired an input may be eligible to claim ITCs for the GST/HST paid for the input. This can happen, for example, under section 272, which applies only to corporations, where one corporation that was eligible to claim ITCs but did not claim them is wound up into another corporation under particular circumstances. Such an exception does not apply in the situation you outlined.
You suggested that the decisions rendered in the XXXXX case and the XXXXX case before the Tax Court of Canada may permit a person other than the Fund to claim ITCs for GST/HST paid in relation to the winding up of the Fund. The facts in these cases are materially different from the situation you outlined.
If in the situation you outlined, the Fund was making only exempt supplies and was not a registrant, there is no eligibility for claiming ITCs in relation to the GST/HST paid by the Fund on the costs incurred in relation to its winding-up.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4394. 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,
Doris McMullan
Corporate Reorganizations Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate
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