Under the net tax calculation for charities under s. 225.1, the charity is only eligible to claim ITCs for the GST/HST paid or payable in certain circumstances, such as when personal property is acquired, imported, or brought into a participating province by the charity primarily for use as capital property in a commercial activity of the charity. Would an election made under subsection 16.1(1) of the ITA in respect of leased property also result in that property being treated as capital property of the lessee for GST/HST purposes? CRA responded:
In general, in order for property to have been acquired by a person, there must have been a sale of the property to the person. … If there is no transfer of ownership of a particular property, we do not consider a supplier to have sold, and a recipient to have purchased, the property. …
Accordingly, property leased from a lessor is generally not considered to have been acquired for income tax purposes and, as such, is not treated as capital property for purposes of the ITA or, by extension, the ETA.
…[T]he deeming provisions under that subsection [16.1(1)] apply only for specific purposes of the ITA (for example, claiming capital cost allowance) and do not extend to the definition of capital property in subsection 123(1) of the ETA. Therefore, property leased from a third party will not be considered to be capital property for GST/HST purposes, regardless of whether the lessee and the lessor have made an election under subsection 16.1(1) … .
CRA noted the general principle in this regard that generally a registrant is not considered to have acquired property for ITC purposes unless ownership of the property has been transferred to it.