GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario XXXXX
K1A 0L5
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Attention: XXXXX
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February 17, 1998
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Subject:
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GST/HST INTERPRETATION - Input tax credits on legal expenses
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Dear XXXXX
Thank you for your letter of July 24, 1997 concerning the application of the Goods and Services Tax (GST)Harmonized Sales Tax (HST).
In your letter, you describe a scenario involving a corporation engaged in the real estate business and registered for GST purposes. It is our understanding from telephone conversations with XXXXX of your office that the corporation had been in the business of developing shopping centres. Once developed, the properties were either retained as a leasing operation or sold.
The corporation had received an offer on a piece of vacant land which it owned. The offer was conditional on a rezoning of the property. The rezoning was not initially granted and the corporation appealed the decision to the XXXXX. The XXXXX disallowed the appeal and fines were imposed on the corporation.
Interpretation Requested
You have requested an interpretation as to the entitlement of the corporation to claim input tax credits in respect of legal services acquired in an effort to have the fines reduced.
Interpretation Given
A corporation engaged in the business of acquiring and developing commercial real estate for the purposes of leasing or selling the developed property will generally be considered to be engaged in commercial activities for GST purposes.
Subsection 169(1) of the Excise Tax Act ("the Act") provides that a registrant may recover GST incurred on property or services acquired as inputs to the extent that the property or services are acquired for consumption, use or supply in the course of commercial activities of the person.
Section 141.01 of the Act sets out rules for determining the extent to which an input will be considered to have been acquired for consumption or use in commercial activities. These rules provide that the consumption or use of an input must be apportioned over activities that involve the making of taxable supplies, activities that involve the making of exempt supplies and activities that do not involve the making of supplies. In general, to the extent that an input is acquired for consumption or use in making taxable supplies for consideration, the input will be considered to have been acquired for consumption or use in commercial activities.
Legal expenses incurred in relation to the activities of a corporation which involve the making of taxable supplies of commercial real property will generally be considered to have been acquired for consumption in the course of the corporation's commercial activities.
In the scenario described in your letter, the corporation's entitlement to claim input tax credits in relation to legal fees incurred in an effort to have fines imposed on the corporation reduced would be a question of fact and may depend on the particular facts and circumstances surrounding the imposition of the fines.
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 952-9212.
Yours truly,
Michael Warren
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
NCS Subject Code(s) I
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