17 May 2000 GST/HST Interpretation 30307 - Eligibility for Input Tax Credits Pursuant to Section 186

XXXXX

This is in response to your memorandum dated February 4, 2000, regarding the above-referenced matter.

Our understanding of the facts is as follows:

1. XXXXX is a holding company and a registrant for GST/HST purposes.

2. XXXXX has submitted a credit GST/HST return, in which it has claimed certain input tax credits.

3. The input tax credits claimed by XXXXX relate to tax paid with respect to "legal costs and site location costs" incurred by a subsidiary corporation, XXXXX in relation to a casino project, which is not yet in operation.

4. XXXXX is not currently involved in commercial activities and is not a GST/HST registrant.

You question is whether XXXXX is eligible to claim input tax credits in the above scenario.

Our Comments:

Subsection 186(1) of the Excise Tax Act (ETA) restricts the claiming of input tax credits by holding companies to those inputs reasonably regarded as having been acquired or imported for consumption or use in relation to the shares or indebtedness of a related company, all or substantially all of whose property was last acquired or imported for consumption, use or supply exclusively in the course of its commercial activities. If the subsidiary corporation is not in commercial activity at the time the tax is paid or payable by the holding company, subsection 186(1) cannot apply.

In the absence of the applicability of section 186 and subsection 240(3), it is not likely that a holding company would be entitled to register (as it would generally not be engaged in a commercial activity), unless it otherwise meets the requirements of section 240.

Please note that subsection 186(1) may not be relevant to the tax paid on the costs at issue. These costs appear to relate to the activities of the subsidiary corporation, XXXXX[.] If the subsidiary corporation were in commercial activity and had been registered at the appropriate time, the subsidiary itself might have been eligible to claim ITCs under section 169 (assuming the tax was paid or payable by the subsidiary) to the extent that the inputs to which these costs relate were for consumption, use or supply in the course of its commercial activities, in conjunction with section 141.1 and section 141.01. In this regard, you may wish to consider if XXXXX. would be eligible to register voluntarily, provided that it is engaged in commercial activity, and as of which date this registration would become effective.

If you wish additional information or clarification, please contact me at (613) 952-1512.

Mark Seigel
Corporate Reorganizations Unit
Financial Institutions and Real Property Division