5 July 1999 GST/HST Interpretation HQR0001782 - Eligibility to Input Tax Credits on Construction of a Sports Field

Dear XXXXX

Thank you for your letter of November 13, 1998, concerning the eligibility of a XXXXX to claim input tax credits (ITCs) on the construction of a sports field. The letter was sent to the XXXXX and has been forwarded to us for our response.

All legislative references are to the Excise Tax Act (the Act).

Our understanding of the situation is as follows:

1. A XXXXX that is not a financial institution and is registered for the Goods and Services Tax (GST)/Harmonized Sales Tax (HST), purchased a piece of vacant land.

2. The XXXXX will construct a soccer field and baseball diamond on the land.

3. The XXXXX intends to allow members of the public (e.g. sports teams) to book the soccer field or baseball diamond on a short-term basis, e.g. for a weekend tournament or for a day. The XXXXX will charge a fee for this supply.

4. The XXXXX expects that the sports field will sit vacant for the majority of the time. During periods when the fields are not booked, members of the public can use the field at no charge.

Interpretation Requested

You are requesting confirmation that the XXXXX is eligible to claim full ITCs for the GST paid or payable on the construction and operating costs with respect to the sports field.

Interpretation Given

Based on the information provided, our interpretations are as follows:

Subsection 209(1) contains certain rules for the acquisition of real property for use as capital property by a XXXXX and for improvements made to the real property. A XXXXX eligible to claim ITCs on the acquisition of real property or improvements thereto only where the property is for use primarily in commercial activities of the XXXXX[.] Where the property is for use primarily in commercial activities, subsections 209(1) and 199(2) collectively provide that the property is deemed to be used exclusively in commercial activities.

In the situation you described, the XXXXX will, for a fee, provide members of the public with the right to use the sports field. This would be considered a supply of real property by the XXXXX likely by way of licence. If the supply is made in the course of a business carried on by the XXXXX the supply would be excluded from the general exempting provisions of section 25 of Part VI of Schedule V. Whether any particular sports field is considered to be used primarily in commercial activities is ultimately one of fact. Such determinations can only be made at the time of a compliance review.

You indicated that for the majority of the time, the field will be vacant. However, during this time, the field can be used by members of the public free of charge.

Where a XXXXX contends that a particular sports field is for use primarily in commercial activities and allocates ITCs on that basis, it must be able to demonstrate that such an allocation is in accordance with subsection 141.01(5). That subsection provides that the methods used by a person in determining the extent to which properties or services acquired by the person are for use in making taxable supplies for consideration, or for other purposes, must be fair and reasonable and used consistently throughout the year.

Where a particular sports field is not used primarily in commercial activities, an election may be filed by the XXXXX pursuant to section 211. That section provides, in part, that while the election is in effect, subsection 193(1) and section 206 apply, and section 209 does not apply, to the property. An election filed under section 211 would allow for an apportioned ITC in respect of the tax paid or payable on the construction costs based on the extent to which the sports field is used in commercial activities even where such activities do not constitute the primary use of the field.

Subsection 209(1) would not be relevant to the operating costs since such expenses would generally not constitute an improvement to the real property. The ITC eligibility on such costs would be determined under the general rules of subsection 169(1). The ITCs will therefore be based on the extent to which the property and services acquired in respect of operating the sports field are for consumption, use or supply in the XXXXX commercial activities.

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/HST 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) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate