25 August 1995 GST/HST Interpretation 11895-1 - Hydro Electric Commissions

                                                                        File: 11895-1(on)
c.n. 2423(GEN)
Sch V/VI/28 & ss. 141(1)

Dear Mr. XXXXX

Further to our telephone conversation of Thursday, August 24, 1995, I am writing you to explain our position on the issue of input tax credit (ITC) eligibility for hydro electric commissions x (commissions), pursuant to subsection 141(1) of the Excise Tax Act (the Act).

The activities of commissions was reviewed extensively. Based upon the review, it is our opinion that commissions that acquire electricity from suppliers of electricity are transforming the electricity into voltages that are reduced to a usable voltage of 250 kv, and in effect use the electricity that they acquire. Once the electricity is reduced to a usable voltage, the commissions make taxable supplies of electricity to households, businesses, etc., and exempt supplies of electricity to municipalities, including para-municipal organizations, pursuant to the para-municipal provisions of section 28 of Part VI of Schedule V to the Act.

Pursuant to subsection 141(1) of the Act, where substantially all of the consumption or use of property or a service is in the course of a person's commercial activities, all of the consumption or use of the property or service shall be deemed to be in the course of those activities. The commissions are applying this provision to claim full ITC's for the GST incurred on purchases from suppliers of electricity XXXXX[.]

Electricity is supplied as a continuous supply. In order to apply subsection 141(1) to this continuous supply, substantially all of the consumption or use of the electricity must be used in the course of the person's commercial activities. There are no specific provisions in the Act which address this aspect with respect to continuous supplies. To determine the extent to which the acquisition of a continuous supply of electricity was used in commercial activities, a time frame during which the extent of use can be determined, is required. It is our opinion that the extent of use test should be based on annual supplies made by the commissions. For example, where over a fiscal year, it is determined that a commission's acquisition of electricity was used to make substantially all taxable supplies, the commission will be eligible to claim full ITC's on the acquisition of the electricity pursuant to subsection 141(1).

Should you have any questions, please contact me at 954-7656.

I look forward to meeting with you and XXXXX on October 3.

Yours truly,

J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations