11 December 2000 GST/HST Interpretation 32306 - Horse Racing - Input Tax Credit Entitlements

Dear XXXXX:

This letter is in response to your facsimile of August 10, 2000, to Ms. Elaine Bonnah of the Government Sectors Unit, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a registrant engaged in horse-racing. Your enquiry relates to the input tax credit entitlements of that registrant. I have been asked to respond to your enquiry.

Background Information

1. The taxpayer owns one horse solely for the purpose of racing.

2. Horse-racing is not the primary source of income for the taxpayer.

3. All income and expenses are reported as farm income and/or restricted farm losses.

4. The taxpayer is registered for GST/HST purposes.

5. GST/HST is not collected on the winnings earned in races.

6. Typical expenses include:

Food & Board

Cost of a trainer

Entry fees paid to participate in a race.

Interpretation Requested

Can the GST paid on expenses incurred to earn income from horse-racing be claimed as input tax credits?

Interpretation Given

Based on the information provided, a registrant would be entitled to claim input tax credits with respect to the tax paid or payable on food & board, the cost of a trainer, and the entry fees paid to participate in a race to the extent that they were consumed or used in the course of the registrant's commercial activities in accordance with section 169 of the Excise Tax Act (ETA).

Explanation:

The CCRA's Taxation Interpretation Bulletin IT-433R explains the meaning of "farming business" and states that it includes the maintenance of horses for racing or exhibiting. Section 123 of the ETA defines "commercial activity" to include any business carried on by a person but excludes an activity engaged in by a person to the extent that it involves the making of an exempt supply or an activity engaged in by an individual without a reasonable expectation of profit. Whether or not a particular individual is engaged in an activity with a reasonable expectation of profit is a question of fact.

Since a "farming business" engaged in by an individual with an "expectation of profit" would fall under the scope of the definition of "commercial activity", and the maintenance of horses for the purposes of horse-racing falls under the definition of "farming" under subsection 248(1) of the Income Tax Act (ITA), the expenditures described "may" have been incurred in the course of the registrant's commercial activities.

An individual who is a registrant engaged in an activity with a reasonable expectation of profit would be entitled to claim input tax credits with respect to the tax paid or payable on food & board, the cost of a trainer, and entry fees in accordance with section 169 of the ETA. However, each situation must be reviewed on a case by case basis.

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 Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9699.

Yours truly,

Douglas Wood, CGA
A/Technical Analyst
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate