20 December 1999 GST/HST Interpretation 8381/HQR0001987 - Eligibility to Claim Full Input Tax Credits on Property or Services Acquired for Use in the Construction of the Building

We have been asked to provide our comments on the GST/HST application with respect to specific issues raised by your office regarding a proposed supply by XXXXX[.]

Background:

Based on the information provided by XXXXX representatives of XXXXX to your office in its submission dated September 10, 1999, our understanding of the situation and the proposed transaction is as follows:

1. XXXXX[.]

2. The XXXXX is desirous of making a significant donation to XXXXX through XXXXX[.]

3. XXXXX is a HST registrant involved in XXXXX[.]

4. The project is just getting underway, therefore the actual agreements and/or arrangements between the parties are not finalized.

5. XXXXX indicated that the proposed transaction could be structured in the following manner:

•   XXXXX would pay all the costs for the construction of the Building, and sell the Building to XXXXX[.]

•   The XXXXX would donate XXXXX to XXXXX and XXXXX would issue a donation receipt of the same amount to the XXXXX[.]

The XXXXX would disclose the donation of XXXXX in its annual tax filings.

XXXXX would use the donation to purchase the Building from XXXXX for XXXXX HST included.

XXXXX would remit HST in the amount of XXXXX being XXXXX of XXXXX being a selected public service body, would file a HST rebate of XXXXX[.]

•   XXXXX would claim, for income tax purposes, as a donation or cost of doing business, an amount of XXXXX being the difference between its cost of the Building XXXXX and the net proceed of XXXXX[.] However, XXXXX and the XXXXX are very desirous of keeping all information relative to the donation as confidential as possible. Consequently, they are proposing to structure the transaction in the following manner:

•   XXXXX would pay for the costs of the Building and claim full input tax credits for GST/HST payable thereto.

•   XXXXX would, by letter of direction acknowledge (without specifying an amount) the XXXXX desire to donate the funds to XXXXX for the purchase of the Building. In addition, XXXXX would direct the XXXXX to pay the funds to XXXXX on its behalf as payment for the purchase of th XXXXX[.]

•   The XXXXX would transfer XXXXX to XXXXX pursuant to this direction.

•   XXXXX would issue a donation receipt, without a specific amount thereon to the XXXXX confirming the donation of an amount sufficient to purchase the Building.

•   The XXXXX would retain sufficient documentation to support the donation of XXXXX made to XXXXX would, by letter of direction, allow XXXXX as its agent to claim, without any amount being disclosed to XXXXX rebate with respect to HST/GST payable on the purchase of the Building (i.e. XXXXX would treat the funds received as a result of the rebate claim as additional consideration paid by XXXXX for the Building.

XXXXX would claim for income tax purposes, as a donation or a cost of doing business, an amount of XXXXX being the difference between the cost of the Building XXXXX) and the proceed of XXXXX less HST of XXXXX plus the rebate of XXXXX received by XXXXX on its HST return would report the XXXXX as HST payable and claim an adjustment of XXXXX (or alternatively may merely report the net amount as HST payable). Appropriate documentation would be retained for audit purposes.

Issues Raised:

(i) Is XXXXX eligible to claim full input tax credits on property or services acquired for use in the construction of the Building?

Specifically, is the consideration to be paid by XXXXX "nominal", and as a result can paragraph 141.01(2)(b) of the Excise Tax Act (the "Act") be applied to deem the inputs acquired by XXXXX in constructing the Building to have been acquired for use otherwise than in the course of its commercial activities on the basis that these inputs are acquired for the purposes of making supplies that are "not taxable supplies made for consideration"?

[(]ii) Can XXXXX "assign" its rebate under section 259 of the Act to XXXXX in the manner described?

Our Comments:

(i) ITC Claims:

It is our view that the consideration (as outlined above) to be paid by XXXXX for the Building is not nominal. As XXXXX will acquire the property or services to construct the Building for purposes of making a taxable supply for consideration in the course of its endeavour, it will be deemed to have acquired those property and services for consumption or use in the course of its commercial activities. As such, XXXXX will be eligible to claim the input tax credits related to GST/HST paid or payable on property and services acquired for consumption or use in constructing the Building provided the requirements of section 169 of the Act are met.

[(]ii) Assignment of Rebate

There is no provision in the Act that would allow XXXXX to "assign" a rebate available under section 259 of the Act to another person. Section 67 of the Financial Administration Act (the "FAA") specifically provides that a "Crown debt" is not assignable and no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt except as specifically provided in the FAA or any other Act of Parliament. Paragraph 68(1)(b) of the FAA provides for the assignment of Crown debts of a prescribed class, but a GST/HST rebate under section 259 of the Excise Tax Act is not included in the Assignment of Crown Debt Regulations.

However, as discussed in a recent telephone conversation, XXXXX and XXXXX may be able to propose a method for consideration by the XXXXX whereby XXXXX rebate can be forwarded to XXXXX without XXXXX knowing the exact amount of the rebate.

Should you wish to discuss the above further, please do not hesitate to call me at (613) 954-1433.

Phil Tang
Specialty Tax Unit
Financial Institutions and Real Property Division
XXXXX