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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 233442
Business Number: […]
Dear [Client]
Subject: GST/HST RULING
Input tax credit eligibility for […][X]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][X].
The HST applies in the participating provinces at the following rates:13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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.
Our understanding of the facts is based on the information provided in your letter of [mm/dd/yyyy], your subsequent emails and attachments including the separate entity financial statements, sample invoices and your representation regarding the application of section 186.
STATEMENT OF FACTS
In your letter […], you provided the following:
1. […][X] is incorporated pursuant to the laws of Ontario […].
2. [X] is a public company that is registered for GST/HST purposes.
3. […](Opco) is a wholly-owned subsidiary of [X], incorporated pursuant to the laws of Ontario.
4. Opco is the primary operating company of the [X] group of companies ([X] Group) […].
5. [X] also owns 50% of the shares of […][Unrelated Corporation 1], […].
6. The following entities are wholly-owned subsidiaries of Opco:
* […][Subco1] is incorporated pursuant to the laws of Ontario. […].
* […][Subco2] is incorporated pursuant to the laws of Ontario. […].
* […][Subco3] is incorporated pursuant to the laws of British Columbia (BC). […]
7. Opco holds a minority interest in […][Unrelated Corporation 2].
8. In 2020, Opco held a 50% interest in […][Unrelated Corporation 3], a corporation incorporated pursuant to the Canada Business Corporations Act. […]
9. In 2020, Opco held a […][minority] interest in […][Unrelated Corporation 4], […][a non-resident corporation]. Opco’s current interest in [Unrelated Corporation 4] is […][a minority interest].
10. You stated that […][X’s] interest in the corporations, including Opco, represents “all or substantially all” of the assets held by [X], and that the interest in Opco represents “all or substantially all” of the debts held by [X].
11. […]
12. […]
13. […]
14. […]
The following information was reported in [X’s] legal entity financial statements:
15. For the period ending December 31, 2019, [X] reported the following assets on its legal entity balance sheet: […]
16. For the period ending December 31, 2020, [X] reported the following assets on its legal entity balance sheet: […]
17. In your […][correspondence], you provided the intercompany balances for the period ending December 31, 2020. Based on this document, [X] reported an amount, under the balance sheet heading “Due from/investment in related parties”, of $[…], which consisted of the following:
* $[…] due from Opco;
* $[…] due from [Subco1]; and
* $[…] due from [Subco2].
18. In your [correspondence], you [also] provided details regarding the cash and deposits reported for all companies. For the period ending [mm/dd,yyyy] [X] reported an amount, under the balance sheet heading “Cash and deposits”, of $[…], which consisted of the following:
* $[…] in an account referred to as […]; and
* $[…] in an account referred to as […].
It is our understanding that both of these accounts are Canadian dollar deposit accounts with […][a Financial Institution].
19. [X] incurred expenses and paid the GST/HST for services acquired in Canada. Below are sample invoices, attached to your email, that were submitted for our consideration. The invoices provide a brief description of the supplies acquired by [X] and include the consideration and tax applicable for those supplies: […]
RULING REQUESTED
You would like to confirm that paragraphs 186(1)(a) and (c) apply to allow [X] to claim input tax credits (ITCs) for the GST/HST paid or payable by [X] on the supplies described on the sample invoices.
RULING GIVEN
Based on the facts set out above, we rule that paragraphs 186(1)(a) and (c) do not apply to allow [X] to claim ITCs for the GST/HST paid or payable by [Patent] on the supplies described on the sample invoices.
EXPLANATION
A corporation that holds shares of the capital stock and indebtedness of other corporations is generally making exempt supplies of financial services as a result of receiving dividends and interest income, and making dividend and interest payments in respect of financial instruments. In general, an ITC is not available for the GST/HST paid or payable on property or services acquired, imported or brought into a participating province for consumption, use or supply to the extent the property or services are consumed, used or supplied in the course of exempt activities.
However, where certain conditions are met, the provisions in section 186 may apply to deem certain property or services acquired, imported or brought into a participating province by a person to be for consumption or use in a commercial activity for purposes of determining an ITC of that person.
Please note that in respect of any property or service acquired, imported or brought into a participating province prior to July 28, 2018, subsection 186(1) applied to property or a service that could reasonably be regarded as having been so acquired, imported or brought into the province for consumption or use in relation to shares of the capital stock, or indebtedness, of another corporation. “In relation to shares of the capital stock, or indebtedness” was given broad judicial interpretation, thereby giving rise to ITCs on expenses that appeared to have an insubstantial nexus to the shares of the capital stock or indebtedness. However, as a result of the amendments to subsection 186(1), for any property or service acquired, imported or brought into a participating province after July 27, 2018, the property or service must be acquired, imported or brought in for a purpose or purposes set out in paragraphs 186(1)(a) to (c).
Paragraph 186(1)(a) generally applies if property or a service is acquired, imported or brought into a participating province directly for a purpose specified in that paragraph such as selling, purchasing, or holding shares of the capital stock or indebtedness of an operating corporation by the parent and, in such cases, the corporation may be entitled to claim ITCs for tax paid on the expenses. Paragraph 186(1)(a) does not apply if a person acquires property or a service for use for a purpose not specified in that paragraph even if the person is a corporation that exists only to hold shares in an operating corporation. If a corporation exists only to hold shares in an operating corporation and incurs expenses for that purpose, then paragraph 186(1)(c) may apply and the corporation may be entitled to claim ITCs for tax paid on the expenses.
Paragraph 186(1)(a)
In your representation you expressed the opinion that the services acquired by [X] (identified in the sample invoices) were acquired for the purpose of holding shares of Opco since [X] exists only to hold shares in Opco and does not carry on any other activity. As such, you contend that [X] would satisfy the requirement of paragraph 186(1)(a) and would be entitled to claim ITCs for the GST/HST paid on those expenses.
As explained above, paragraph 186(1)(a) no longer refers to any property or service acquired, imported or brought into a participating province for consumption or use in relation to shares or indebtedness of another corporation. As a result, if any property or a service is acquired by a parent corporation after May 17, 2019, directly for the purpose of holding units or indebtedness of an operating corporation (as defined in subsection 186(0.2)) of the parent, such as custodial costs for such units or indebtedness, paragraph 186(1)(a) may apply.
The sample invoices were for the following services acquired by [X]: […]
It is our opinion that the above supplies acquired by [X] as identified in the sample invoices were not acquired for the purposes described in paragraph 186(1)(a). That is, it appears the services were acquired for use in the course of activities of [X] but were not specifically for the purpose of holding units or indebtedness of an operating corporation.
Paragraph 186(1)(c)
Paragraph 186(1)(c) deems, under certain conditions, certain property or services acquired, imported or brought into a participating province by a parent corporation to be for use in the course of the parent’s commercial activities for ITC purposes, thus enabling the parent to claim an ITC for tax paid or payable on the property and services.
For any property or service acquired, imported or brought into a participating province after May 17, 2019, one of the conditions in paragraph 186(1)(c) is that, at the time the property or service is acquired, imported or brought into a participating province (the particular time), all or substantially all of the property of the parent is property that was:
* manufactured, produced, acquired or imported by the parent for consumption, use or supply exclusively in the course of its commercial activities;
* property that is a unit or indebtedness of the operating corporations of the parent; or
* a combination of such property.
In your representation you expressed the opinion that the definition of “property”, considered in the context of the ETA, and specifically in the context of the operation of section 186, should not be interpreted to include a right or interest in money. It is your opinion that this is inferred from the explicit exclusion of money from the definition and that this exclusion also applies to a right or interest in money.
“Property” is defined in subsection 123(1) as any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money.
“Money” is defined in subsection 123(1) to include any currency, cheque, promissory note, letter of credit, draft, traveller’s cheque, bill of exchange, postal note, money order, postal remittance and other similar instrument, whether Canadian or foreign, but does not include currency the fair market value of which exceeds its stated value as legal tender in the country of issuance or currency that is supplied or held for its numismatic value.
Currency or certain instruments that may be deposited into a bank account may qualify as “money” for GST/HST purposes. However, once deposited into a bank account, these amounts represent the depositor’s right to be paid money, which is a debt security; “debt security” is defined in part under subsection 123(1) as a right to be paid money and includes a deposit of money.
The debt security held by the depositor in respect of the account is not currency or any instrument included in the definition of “money”, and as a result, amounts held in a bank account are excluded from the definition of “money”. Accordingly, amounts held in a bank account are property and not money for GST/HST purposes.
Based on the information provided, it appears that during the relevant times, more than 10% of [X’s] property was bank deposits. It does not appear that these bank deposits are property that was manufactured, produced, acquired or imported by [X] for consumption or use in the course of its commercial activities. As a result, it appears that [X] does not meet the requirement in paragraph 186(1)(c) that all or substantially all of its property was manufactured, produced, acquired or imported for consumption, use or supply exclusively in the course of its commercial activities, property that is units or indebtedness of its operating corporations or a combination of such property. Therefore, [X] is not eligible to claim ITCs for the GST/HST paid or payable on the services described in the sample invoices.
Additionally, Opco may not satisfy the requirement that 90% or more of its property was last manufactured, produced, acquired or imported for consumption, use or supply by Opco exclusively in the course of its commercial activities. For example, it appears that more than 10% of the property of Opco is shares or indebtedness of other corporations. Accordingly, Opco would only meet the conditions under subsection 186(1) if these corporations are operating corporations of Opco and subsection 186(3) applies to deem the shares of the capital stock of shares or indebtedness held by Opco to be property that it acquired for use exclusively in the course of its commercial activities. A particular corporation is an operating corporation of another corporation at a particular time if it is related to the other corporation and all or substantially all of the property of the particular corporation is property that it last manufactured, produced, acquired or imported exclusively in the course of its commercial activities. One of these corporations is a joint venture that is not related to Opco and another, [Subco2], does not appear to meet the requirement that 90% or more of its property was last manufactured, produced, acquired or imported by it for consumption, use or supply by it exclusively in the course of its commercial activities. As a result, subsection 186(3) would not apply to deem these shares and indebtedness to be property that was acquired by Opco for use exclusively in the course of its commercial activities.
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(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-543-0731. 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,
Corinne Campbell-Rosser
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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