29 July 2004 External T.I. 2004-0076561E5 - Deduction of GST paid

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Where a taxpayer does not make a claim for an Input Tax Credit, is the amount of GST paid in respect of an expense deductible under the Income Tax Act?

Position: Question of Fact.

Reasons: Where a taxpayer does not make a claim for an ITC or a rebate under the ETA, the amount of GST paid is included in the cost of the property or the amount of the expense to which it relates. In such a case, the GST paid in respect of an expense is deductible to the extent that the expense is also deductible for income tax purposes.

XXXXXXXXXX 2004-007656

Luisa A. Majerus, C.A.

July 29, 2004

Dear XXXXXXXXXX:

Deduction of GST Paid

This is in reply to your facsimile dated May 14, 2004, requesting our views on whether a taxpayer who is a farmer that reports income on a cash basis, can claim a deduction for the amount of goods and services tax ("GST") paid in the year in respect of an expense if the taxpayer does not make a claim for the input tax credit ("ITC").

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Where a taxpayer makes a claim for an ITC or a rebate under the Excise Tax Act (the "ETA") with respect to GST paid in respect of a property or service, the amount claimed is deemed to be assistance from a government pursuant to subsection 248(16) of the Income Tax Act. The Canada Revenue Agency's general position on the taxable status of government assistance is outlined in Interpretation Bulletin IT-273R2 - Government Assistance - General Comments.

In general terms, where a taxpayer claims an ITC or a rebate under the ETA in respect of the GST paid on a property or service, the taxpayer must include the amount in income or reduce the cost of the particular property or the amount of the expense to which the GST paid relates. In a situation where a taxpayer does not make a claim for an ITC or a rebate under the ETA, the amount of GST paid is included in the cost of the property or the amount of the expense to which it relates. In such a case, the GST paid in respect of an expense is deductible to the extent that the expense is also deductible for income tax purposes.

It should also be noted that, where a cash-basis farmer deducts an amount for an expense including GST in a taxation year and received or is deemed to have received the ITC in respect of the GST in a subsequent taxation year, the ITC is income to the farmer in the subsequent year. For further information on the time limit to claim an ITC, please contact our GST general inquiries line at 1-800-959-5525.

We trust these comments are helpful.

Yours truly,

Randy Hewlett, B.Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch