Telephone #: (613) 954-8585
Fax #: (613) 990-1233
File #: 11690-1(glr)
s. 145
I refer to XXXXX note of June 9, 1995, addressed to Mr. Mitch Bloom of my staff, concerning the eligibility of the above-referenced registered corporation to claim input tax credits (ITCs). As requested, I have reviewed the letter dated May 17, 1995, from XXXXX and XXXXX XXXXX response of June 19, 1995 XXXXX.
I understand that:
• XXXXX is a member of a partnership that consists of two other personal law corporations (PLCs) and the law firm of XXXXX[.]
• XXXXX[.]
• The PLCs each have management companies that charge the PLCs management fees, including the Goods and Services Tax (GST).
• The PLCs were set up for the sole purpose of receiving the profits of the law firm.
• The disbursements made to the PLCs are made under the terms of a partnership agreement and are not made at arm's length under the Income Tax Act.
• All the above entities are currently registered for GST purposes.
• XXXXX denied ITCs for the period beginning September 9, 1994, and ending October 30, 1994.
Subsection 145(1) of the Excise Tax Act (Act) provides that any commercial activity engaged in by a person in that person's capacity as a member of the partnership is treated as a commercial activity of the partnership rather than the member. Consequently, partners are not required (and in some instances may not even be permitted) to register separately if their commercial activity (if any) is encompassed entirely by what they do as a member of the partnership. If the partners have no commercial activity other than that as members of the partnership, the partners may not apply to be registered for GST purposes.
Partners who are not registered for GST purposes are not entitled to claim ITCs for the GST paid or payable in respect of property or services acquired or imported for consumption, use or supply in the course of an activity of the partnership. The partnership may, however, be eligible to claim ITCs for the GST paid or payable on those acquisitions or a portion thereof. Further, the partnership and the partners may be able to avail themselves of the reimbursement mechanism provided for in section 175 of the Act, depending on the nature and use of the expense and the relevant relationship between the partnership and the corporation.
On the other hand, under subsection 145(2), a corporation that is a member of a partnership and is registered for GST purposes is treated as being engaged in a commercial activity of the partnership with respect to expenses that are incurred (i.e., supplies received) outside the partnership but that relate to the partnership activity. As a result, a corporate partner is allowed to claim ITCs on its GST return for the tax payable by it on its purchases relating to commercial activities of the partnership.
Concerning XXXXX I note that it is registered for GST purposes and the registration has not been cancelled by the Minister pursuant to subsection 242(1) of the Act. As you are aware, the ability for corporate partners to claim ITCs has been the subject of ongoing discussions. Until legislative amendments are introduced to fully address this matter, I suggest that the following approach be taken in light of the XXXXX XXXXX[.] The Court found that the appellant, a corporation who is a member of a partnership, was engaged in a commercial activity and entitled to apply to be registered. As a result, the appellant was eligible to claim ITCs.
Although the Department does not agree with the findings of the Court, it would seem appropriate to not assess registered corporations who are claiming ITCs for the GST paid or payable on property or services they acquire for consumption, use or supply in the course of the commercial activities of the partnership. Therefore, regarding XXXXX it would likely be appropriate for GST Audit to reassess XXXXX GST return and allow the ITCs claimed for the period beginning September 9, 1994, and ending October 30, 1994.
On page 3 (2nd paragraph) of XXXXX letter to XXXXX he states that "subsection 145(2) ... requires that the particular corporation be a registrant." This statement is incorrect. Subsection 145(2) only requires that the particular corporation be registered for GST purposes.
If you require further information, please contact Ms. Anny Roy at (613) 954-2560, Mr. Serge Bernier at (613) 952-9580, Mr. Gerry O'Reilley at (613) 952-9589, Mr. Lalith Kottachchi at (613) 952-9588 or Mr. François Paris at (613) 952-8812.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
| c.c.: |
G. Ryhorchuk GAD #: 1321(REG)
imposition Team |
Email this Content