Change in use rules for capital personal property

Source URL

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/bspsbch/itc-cti/cptl/prsnl-eng.html

Disclaimer

We do not guarantee the accuracy of this copy of the CRA website.

Scraped Page Content

Change in use rules for capital personal property

If you increase the commercial use of capital personal property, you may be able to claim an additional input tax credit (ITC) for the GST/HST that you were not entitled to claim before. If you decrease the commercial use of capital personal property, you may have to repay part of the ITC you claimed before. The calculations are based on the basic tax content of the property at that time of the change of use.

Use the chart below as a quick reference to the rules for claiming ITCs on capital personal property.

Capital personal property
Percentage of use in commercial activities Corporations Partnerships Individuals Public service bodies (including charities) Financial institutions

50% or less

None

None

None

None

% of use

more than 50%

100%

100%

100%

100%

% of use

For capital personal property, we have three changes of use:

From non-commercial to commercial use

When you buy capital personal property for use primarily in non-commercial activities, you cannot claim input tax credits (ITCs) to recover the GST/HST you paid. However, when you change the primary (more than 50%) use of capital personal property from non-commercial to commercial use, we consider you to have sold the property, bought it back, and paid GST/HST at that time. This means you can claim an ITC on the basic tax content of the property at that time.

This change-in-use rule is not applicable to financial institutions. Financial institutions have to claim their ITCs for capital personal property based on the actual extent of the property's use in commercial activities.

Example

You operate several commercial and residential rental buildings in Alberta. You pay the GST on the purchase of a tractor to use primarily for the residential buildings (non-commercial activity). You cannot claim an ITC for this purchase and you are not entitled to any refunds or rebates.

Cost of tractor $10,000

GST payable $10,000 × 5% = $ 500

Later, you change the primary use of the tractor for use with your commercial buildings (commercial activity). You can now claim an ITC based on the basic tax content of the tractor when the primary use changed.

If the fair market value of the tractor was $7,000 when you changed the use, you can claim an ITC based on the basic tax content formula.

Basic tax content

= (A − B) × C

= ($500 − $0) × ($7,000 ÷ $10,000)

= $350

You can claim an ITC of $350 on line 106 of your GST/HST return, or by claiming an ITC in the line 108 calculation if you are filing electronically.

From commercial to non-commercial use

When you change the primary (more than 50%) use of capital personal property from commercial to non-commercial, we consider you to have sold the property, bought it back, and paid the GST/HST based on the basic tax content of the capital personal property at that time.

This change-in-use rule is not applicable to financial institutions. Financial institutions have to claim their input tax credits (ITCs) for capital personal property based on the actual extent of the property's use in commercial activities.

Example

You operate several commercial and residential rental buildings in Alberta. You pay the GST on the purchase of a tractor to use primarily for the commercial buildings (commercial activity).

Cost of tractor $10,000

GST payable $10,000 × 5% = $ 500

You claimed an ITC of $500 on the purchase. You later change the use of the tractor from commercial activities to primarily non-commercial activities, at which time the tractor's fair market value is now $4,000. You have to pay the GST based on the basic tax content of the tractor because you are considered to have sold it or to have bought it back.

Basic tax content

= (A − B) × C

= ($500 − $0) × ($4,000 ÷ $10,000)

= $200

You pay (self-assess) the GST of $200 because you changed the primary use from commercial activities to non-commercial activities. Include this amount on line 103 of your GST/HST return, or include it in your line 105 calculation if you are filing electronically. You cannot claim a public service bodies' rebate, as the rebate you could have claimed was accounted for in the basic tax content calculation (amount B).

Sale of capital personal property

If you sell capital personal property that was used primarily (more than 50%) in your commercial activities, you have to charge GST/HST on the sale. However, you do not charge GST/HST on the sale if the property was not used primarily in your commercial activities. This rule does not apply to financial institutions.

Forms and publications

Date modified:
2015-07-16

Directory