29 November 2004 GST/HST Ruling 54669 - Supply of three varieties of organic flax oil

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of subsection 186(1) of the Excise Tax Act (ETA) to costs incurred by registrant corporations.

You indicated that you are concerned about how to interpret the phrase "in relation to shares or indebtedness of another corporation related to a parent company", which occurs in subsection 186(1). You questioned whether Policy Statement P-196 is being amended to clarify that input tax credits (ITCs) can only be claimed by a registrant corporation if they are strictly related to the shares and indebtedness of a related corporation.

We are not currently considering any substantive change to our position, as outlined in P-196, that subsection 186(1) may apply to both direct and indirect costs. However, we do wish to emphasize that our position continues to be that costs, whether direct or indirect, must relate to the parent company's investment in the shares or indebtedness of the related company, rather than to other activities of the parent corporation, in order to be afforded ITC eligibility. Consequently, if a holding company acquires or imports property or a service or brings it into a participating province for consumption or use partially in relation to the shares or indebtedness of a related company and partially in relation to other activities of the holding company, the costs should be allocated pursuant to the rules in the ETA governing ITC eligibility. The types of expenses that would be eligible for ITCs would be generally limited to share and debt acquisition, holding and disposing of shares and debt, and dividend and interest receipts.

You asked about the application of subsection 186(1) to inputs used by a holding company partially for making supplies of administrative services for consideration. Since such supplies are generally taxable, the holding company would generally be eligible to claim ITCs on taxable inputs of property or services that it consumed or used in making such supplies, assuming that the holding company is a registrant. If the holding company makes free supplies of administrative services, subsection 141.01(4) of the ETA would deem the holding company's inputs that it used or consumed in making those supplies, for purposes of subsection 141.01(2), to have been acquired, imported or brought into a participating province in order to facilitate the endeavour of the operating company. Consequently, the holding company would still be eligible to claim ITCs on such costs, to the extent that the operating company is engaged in commercial activities. If a holding company consumes or uses property or a service partially for a purpose other than making taxable supplies for consideration and other than with respect to an investment in the shares or indebtedness of a related company, no ITC would be available with respect to that portion of the inputs.

If you have any further questions, or require clarification on the above matter, please contact me at (613) 952-9211.

Yours truly,

Don Dawson
Corporate Reorganizations Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

2004/12/16 — RITS 56001 — [Application of the GST/HST to the Supply of XXXXX, a Baked Cracker Snack]