25 June 2007 GST/HST Interpretation 87690 - GST paid on XXXXX ticket

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:

XXXXX

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of XXXXX, as XXXXX Receiver of certain property and assets of XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

We understand that:

•   XXXXX operated a manufacturing facility located at XXXXX. The principal activity was manufacturing XXXXX. Manufacturing at the facility ceased XXXXX began to decommission the facility.

•   XXXXX sought protection under the Companies' Creditors Arrangement Act (Canada) ("CCAA") pursuant to an order of XXXXX. XXXXX had effectively ceased operations in XXXXX and all of its employees, except one, had been terminated. XXXXX the Monitor under the CCAA proceedings, disposed of its remaining inventory and commenced collection efforts on the existing accounts receivable.

•   Prior to the CCAA proceedings, XXXXX had been engaged by XXXXX to assist in the assessment and remediation of environmental impacts to the soil and groundwater in the vicinity of the XXXXX manufacturing facility.

•   XXXXX the XXXXX issued an order against XXXXX compelling it to undertake a characterization study and take certain remedial action. XXXXX rescinded the XXXXX order and issued a new order with similar requirements. XXXXX prepared a draft remedial action plan which was then expected to take XXXXX to implement and complete.

•   XXXXX was appointed as XXXXX Receiver XXXXX and XXXXX was appointed as XXXXX Receiver (the XXXXX pursuant to an order of the XXXXX Court XXXXX. The CCAA proceedings were subsequently terminated. The purpose of the receiverships was to provide a Court supervised structure that would permit the continued collection of amounts due or payable to XXXXX, the disbursement of funds held and collected by the XXXXX for environmental remediation activities and the conduct of those activities by XXXXX as a Court Appointed XXXXX. Since XXXXX the XXXXX has obtained four Court orders approving environmental remediation activities. The costs associated with those activities have been funded by the XXXXX property.

•   The environmental damages and conditions that are being remediated are on or in the vicinity of the present and former XXXXX facilities and arose in the course of the conduct by XXXXX of its commercial activities.

•   The CRA provided the XXXXX Receiver with written confirmation that disbursements by the XXXXX of funds of XXXXX administered by it applied to Court-approved environmental activities are business expenditures of XXXXX and do not represent a distribution of property for purposes of subsection 159(2) of the Income Tax Act.

•   The XXXXX, on notice to, with the co-operation of and without objection from the Department of Justice acting on behalf of the CRA, obtained an Order of the XXXXX Court XXXXX that provides that disbursements, present and future, of the XXXXX to fund the costs of court-approved environmental remediation activities (inclusive of related receivership and administrative expenses and repayment of advances from the XXXXX to fund those costs), are not distributions of the property of XXXXX in the possession or control of the XXXXX for purposes of sections 159 of the ITA and 270 of the ETA and are business expenditures of XXXXX for purposes of the ITA. Also that the XXXXX is relieved from any liability under Section 159 of the ITA and Section 270 of the ETA in making such disbursements.

•   During the period from the commencement of the administration by the XXXXX of certain property and assets of XXXXX on XXXXX, GST of $XXXXX has been paid (primarily) in respect of services provided to or on behalf of XXXXX related to the approval, conduct and implementation of these environmental remediation services.

•   These GST payments have been reported and claimed as ITCs in monthly reports filed by the XXXXX on behalf of XXXXX, resulting in GST refunds in the XXXXX period totalling $XXXXX. In the past XXXXX taxation year, GST of $XXXXX has been paid, with GST refunds generated of $XXXXX.

•   The XXXXX anticipates that GST paid and ITCs claimed will equal or exceed those reported in XXXXX for at least the next XXXXX when additional environmental remediation activities will continue to be performed.

•   The XXXXX has filed all required GST returns to date on behalf of XXXXX, and all refunds payable as a result of ITC's claimed by or on behalf of XXXXX have been paid to the XXXXX on behalf of XXXXX

•   The GST refunds generated and ITCs claimed on behalf of the XXXXX are primarily related to the costs of and disbursements for the conduct of environmental remediation activities and related administrative and receivership costs.

•   The XXXXX has received a distribution from its wholly owned subsidiary, XXXXX which is a corporation located in the Province of XXXXX. XXXXX commenced CCAA proceedings in XXXXX and realized sufficient funds from the disposition of its assets to pay creditor claims and have funds available for a distribution to XXXXX. This has resulted in the availability of additional funds to pay costs related to the environmental remediation activities and, resultantly, the payment of an increased amount of GST in connection with the costs of those activities.

Interpretation Requested

You would like to know:

1) if input tax credits (ITCs) claimed for services acquired, and refunds of GST generated by or on behalf of XXXXX are:

a) consumed, used or supplied to XXXXX in the course of commercial activities of XXXXX for purposes of section 169(1) of the ETA; or

b) consumed, used or supplied to XXXXX in connection with the termination of a commercial activity of XXXXX and therefore deemed to have been done in the course of commercial activities of XXXXX for purposes of section 141.1(3) of the ETA; and

2) are disbursements by or on behalf of XXXXX used:

a) to fund environmental remediation costs for court-approved environmental remediation activities;

b) to fund administrative and receivership costs incurred in the course of the approval, conduct and implementation of those court-approved environmental remediation activities; or

c) to repay any advances that may hereafter be made by the XXXXX to fund the costs of those court-approved environmental remediation activities

not "distributions" of property of XXXXX in the possession or control of XXXXX in its capacity as court-appointed XXXXX Receiver of certain property and assets of XXXXX for purposes of section 270 of the ETA.

Interpretation Given

Based on the information provided, it is our interpretation that given the facts outlined above that GST paid by the XXXXX on behalf of XXXXX on property or services acquired or imported for consumption or use in environmental remediation would generally qualify under subsection 141.1(3) as "anything (other than make a supply) in connection with the ... termination of a commercial activity of the person" if the criteria for claiming ITCs is met as outlined below. The provision, in conjunction with section 266 of the ETA, deems the XXXXX, on behalf of XXXXX, to have undertaken these activities in the course of commercial activities. You state in XXXXX your letter that GST refunds generated and ITCs claimed on behalf of the XXXXX are primarily related to the costs of and disbursements for the conduct of environmental remediation activities and related administrative and receivership costs. For property or services acquired or imported on which GST was paid not related to environmental remediation and receivership activities the input tax credit eligibility will have to be considered on its own merits and this interpretation has not addressed those expenses. Payments made by the XXXXX for expenses that do not have GST imposed on the XXXXX as recipient in its position as the receiver for XXXXX cannot give rise to input tax credits.

The ETA sets out the methods for determining the amount that is claimable as an input tax credit and the circumstances and conditions that must exist before an input tax credit can be claimed. A person may be able to claim an ITC with respect to property or a service if all the following criteria are met:

•   the property or service must be acquired, imported or brought into a participating province by a person for consumption, use or supply in the course of the person's commercial activities;

•   the person must be a registrant during the reporting period in which the GST on the property or service becomes payable by the person or is paid without having become payable;

•   the person must have obtained sufficient documentary evidence to substantiate the ITC prior to making the claim in a GST return;

•   tax must be payable by the person in respect of the supply, importation or bringing in, or be properly paid by the person prior to its becoming payable; and

•   the ITC must be claimed in a return filed within the time limit for claiming the ITC.

If you have questions on ITC eligibility for specific expenses incurred as the XXXXX we would be pleased to consider them if we receive a full description of the inputs and their use.

Secondly, it is our interpretation that given the facts outlined above and the XXXXX Court XXXXX Order XXXXX that the disbursements made by the XXXXX to fund environmental remediation costs for court-approved environmental remediation activities, to fund administrative and receivership costs incurred in the course of the approval, conduct and implementation of those court-approved environmental remediation activities; or to repay any advances that may hereafter be made by the XXXXX to fund the costs of those court-approved environmental remediation activities are not distributions of property of XXXXX in the possession or control of XXXXX, in its capacity as Court-appointed XXXXX Receiver of certain property and assets of XXXXX for purposes of section 270 of the ETA.

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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 952 9220.

Yours truly,

Larry Springstead
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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