GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
|
Subject:
|
GST/HST INTERPRETATION
Acquisitions By University Bookstore
|
Dear XXXXX
Thank you for your letter of June 26, 1997, requesting that the Department reconsider its interpretation of April 27, 1997, concerning the entitlement by a university for input tax credits in respect of the GST paid on purchases of property by its bookstore; property that, subsequent to its acquisition, would typically be diverted for use in non-commercial activity (i.e., the provision of exempt educational instruction).
Interpretation Requested
When using a direct attribution method, would subsection 169(1) and subsection 141.01(2) of the Excise Tax Act (the "ETA") support a university's claim for full input tax credits on property intended for resale at the time the property is acquired?
Interpretation Given
As you are aware, supplies of new tangible property acquired for supply by a public institution (e.g. a university that is a registered charity) are excluded from the general exemption for supplies made by public institutions. Unless another exemption in Part VI applies, these supplies would be made in the course of a commercial activity and will be subject to the GST.
In accordance with subsection 169(1) of the ETA where a property or service is acquired, imported, or brought into a participating province for consumption, use or supply by a registrant, that person is entitled to an input tax credit equal to the extent (expressed as a percentage) to which the property or service is for consumption, use or supply in the course of the registrant's commercial activities. Section 141.01 clarifies that a registrant will be entitled to claim an input tax credit in respect of an acquisition only to the extent that it has been acquired for the purpose of making taxable supplies for consideration (and not for the purpose of making supplies that are not taxable or for a purpose other than the making of supplies).
You contend that since subsections 169(1) and 141.01(2) are based on a recipient's intention at the time of acquisition and since the property is intended at the time of acquisition to be used in a commercial activity, the university's input tax credit eligibility would not be restricted by the subsequent diversion of the property to non-commercial activities.
If the registrant is not able to track the extent to which the property is for consumption, use or supply in the course of its commercial activities, it must use a method of apportioning these inputs for the purpose of claiming input tax credits. In accordance with subsection 141.01(5), the method chosen by the registrant must be fair and reasonable and must be used consistently throughout the year. That is, the determination of ITC entitlement must reflect the intended use of the property that is reasonable under the circumstances, having regard to the nature of the activities of the registrant. Consequently, a method that does not take into account the re-occurring diversion of acquisitions from a commercial activity to a non-commercial activity would unlikely be considered to be fair and reasonable under the circumstances.
In other words, if it is reasonable to anticipate that a portion of the university's inventory will be diverted to its non-commercial activity, that factor should be taken into account in determining ITC entitlement.
Accordingly, we agree that it is the recipient's intention at the time of acquisition that is relative in determining ITC's. However, it is the Department's view that the manner in which a registrant actually uses a property may be evidence of the purpose for which the registrant acquired it. That is, although the intended use is the determining factor, the actual use may also be relevant in determining ITC entitlement.
It should be noted that where substantially all of the consumption or use of the property by the registrant is in the course of the registrant's commercial activities, based on a direct attribution method, the registrant would be entitled to full input tax credits on the acquisition of the property.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.
Yours truly,
Lorrie Grannary
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
| c.c.: |
J. A. Venne
J.M. Place
L. Grannary |
Legislative References: 169(1), 141(1), 141.01(2), 141.01(5)
NCS Subject Code(s): I 01, Casework Number XXXXX
Email this Content