Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
DATE January 10, 2018
TO: [Addressee]
FROM: Eleanor Struth
Sr. Rulings Officer
Insurance and ITC Allocation Unit Excise & GST/HST Rulings Directorate
Place de Ville, Tower A 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 163984
Subject: [GST/HST INTERPRETATION]
Eligibility for corporation to claim full ITCs
This memorandum is in response to your request regarding the input tax credit (ITC) eligibility for […](the Corporation). We apologize for the delay in our response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
FACTS/BACKGROUND:
Based on the information […] provided, […], we understand that […](the Manager) requested the CRA to consider the wash transaction provisions with respect to asset management services it provides to the Corporation. One of the conditions for the wash transaction provisions to apply is that the Corporation be eligible to claim full ITCs on the management services.
[…]. The Corporation develops and owns commercial real estate properties, i.e., shopping malls, and is engaged in commercial activity with respect to these properties. The Corporation entered into an asset management agreement (the Agreement) with the Manager for the Manager to manage, supervise, and administer the assets of the Corporation.
The Agreement includes the following provisions:
[…]
When requested by the Corporation, the Manager is required to provide services regarding the Assets [of the Corporation], […]
For performing the services regarding the Assets, the Agreement provides that the Manager is to be paid an amount for each fiscal year […]. In addition, the Manager is to be reimbursed for certain expenses.
[…]
The Corporation is not a financial institution, and is a GST/HST registrant.
[…][INTERPRETATION REQUESTED]:
You would like to know whether the Corporation is eligible to claim full ITCs on asset management services acquired from the Manager, […].
[…][INTERPRETATION GIVEN]:
Under subsection 169(1), a person is generally eligible to claim an ITC on a service it acquires to the extent that the service was acquired by the person for consumption, use or supply in the person’s commercial activities. Subsections 141.01(2) and (3) clarify the ITC eligibility set out in subsection 169(1), generally linking the extent to which a property or service is acquired for a person’s commercial activities to the extent to which it is acquired or consumed and used for the making of taxable supplies for consideration or otherwise. Therefore, if the asset management services are acquired by the Corporation to make both taxable and exempt supplies, it must allocate the ITCs for the services to each of these purposes. Under subsection 141.01(5), the method used by a person for this allocation must be fair and reasonable and used consistently throughout the person’s fiscal year. Furthermore, if it were determined, using a fair and reasonable method, that the asset management services were acquired by the Corporation 90% or more for consumption or use in its commercial activities, all of the consumption or use of the asset management services would be deemed to be in the course of the Corporation’s commercial activities under subsection 141(2), such that it would be eligible for a full ITC on those services where all other conditions for claiming an ITC are met.
[…]
Generally an allocation method that allocates the input to particular supplies in the most direct manner, such as tracking the use of inputs, is an unbiased and objective method that would be considered to be fair and reasonable. Therefore, in determining an appropriate ITC allocation method for the asset management services, one should consider whether the use of the services by the Corporation can be tracked. For example, tracking the amount of time spent by the Manager in managing each type of asset may be part of a fair and reasonable method, which may lead to a reliable estimate of the extent to which the services are acquired for use in the Corporation’s commercial activities.
[…]
In conclusion, whether or not the Corporation is eligible to claim a full ITC on the asset management services depends on the extent to which it acquired them for use in making taxable supplies for consideration. This extent must be determined using a fair and reasonable method, where such method considers how the services acquired are actually used, for example by tracking their use. […].
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.]
If you have further questions or require clarification on the above information, please contact me at 780-495-7507.
Yours truly,
Eleanor Struth
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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