Section 171 - Becoming and Ceasing to Be Registrant

Subsection 171(1) - Person Becoming Registrant


Castle Building Group Ltd. v. Canada (National Revenue), 2021 FC 947

billing election did not subtract from the principal making taxable supplies and being a registrant

A parent corporation (“Castle”) made some of its taxable supplies of building materials to its wholly-owned subsidiary (“CBS”), which on-sold the goods to retailers. There was a s. 171(1) “Billing Agent Election “election in place between them, so that Castle was responsible for the GST/HST reporting of CBS’s sales - and so that if CBS had bothered to register and file GST/HST returns (which it did not), they would have been nil returns (assuming that a s. 156 election applied to Castle’s sales to CBS – otherwise, Castle was required to charge GST/HST, with CBS effectively being required to claim ITCs).

New rules, effective January 1, 2015, required a fresh s. 156 election to be filed with CRA. Castle and CBS filed their election late. CRA refused to exercise its discretion to accept the late election on the basis of its Guidelines in Policy Statement P-255 which relevantly required that “both corporations must have filed all GST/HST returns as required.”

Walker J found that this refusal was not unreasonable. She noted that although Castle was responsible for reporting and remitting the GST/HST on CBS’s sales, this did not detract from CBS technically being a registrant who in fact was the supplier, so that it technically was still required to file (nil) returns. In particular, she stated (at para. 58):

… The filing of the Billing Agent Election and the assumption by Castle of the administrative tasks of collection, reporting and remittance of CBS’s GST/HST does not affect the status of CBS as the supplier of the goods and services in respect of which the tax is collectible. Subsection 177(1.1) does not deem Castle to be the supplier, it states only that all GST/HST exigible on supplies made by CBS is “deemed to be collectible, charged and collected” by Castle. Therefore, the existence of the Billing Agent Election did not negate CBS’s obligation under subsection 238(1) of the ETA to file returns or its obligation to register in accordance with subsection 240(1).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 156 - Subsection 156(4) - Paragraph 156(4)(b) - Subparagraph 156(4)(b)(ii) it was not unreasonable of CRA to refuse a late ETA s. 156 election based on a corporation’s failing to file nil returns 558

0741508 B.C. Ltd. and 0768723 B.C. Ltd. (Re), 2014 BCSC 1791

B.C. HST repeal reduced basic tax content

In 2011, the petitioners conveyed undeveloped B.C. lands to a limited partnership. In 2013, CRA assessed the petitioners for their failure to charge HST, as the exemption under s. 221(2) from the obligation of the petitioners to charge HST was not available, given that the partnership had not been registered.

Before rescinding the transfer, Loo J noted that because of BC's abolition of HST before the discovery of the problem in 2013, the partnership could only recover, under ETA s. 171(1), the federal (5%) portion of the HST payable by it to the petitioners (assuming no rescission and upon registration), as the "basic tax content" of the lands excluded the provincial HST.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Rectification & Rescission failure to file timely tax returns did not invoke the dirty hands bar to equitable rescission 363

Administrative Policy

26 February 2015 CBA Roundtable, Q. 16

unregistered purchaser of commercial real estate subsequently registered as small supplier

Company B transfers its co-ownership interest in a commercial rental property on a rollover basis to Company C, whose sole activity is to hold the property. Erroneously, Company C is not registered at the time of the transfer. However, a joint venture election appointing the other co-owner (Company A) as operator under s. 273 is made. Six months later, it is discovered that Company C was not registered for GST/HST purposes as at the transfer date, so that Company B should have collected the GST/HST on the transfer. Company B is part of a group which makes supplies in excess of the small supplier threshold. If Company C can register but not on a retroactive basis to the date of the transfer, Company C would have to pay the GST/HST on the value of the consideration of the interest in the property. Would s. 171(1) deny the ITC on the transfer as Company C would not meet the definition of small supplier? CRA responded:

Where Company C is eligible to voluntarily register as a small supplier, subsection 171(1) of the ETA would apply for the purpose of determining an ITC in respect of property held by Company C for consumption, use or supply in the course of its commercial activities immediately before becoming a registrant. However, if it were to be established that Company C was not a small supplier, we confirm that subsection 171(1)… would not apply to allow Company C to claim an ITC in respect of the transfer.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) backdated registration of unregistered purchaser of commercial real estate 542

15 November 2011 Headquarters Letter Case No. 135608

Where a "capital pool company" which has raised capital pursuant to a prospectus on a blind pool basis has identified an acquisition of assets that will be used in a commercial activity, anything done by the CPC (other than the making of a supply) in connection with the acquisition or establishment of that commercial activity shall be deemed by s. 141.1(3)(a) to have been done in the course of the commercial activities of the CPC. Once s. 141.1(3)(a) so applies, it may be able to claim ITCs under s. 171(1) on property held by it at that time including expenses previously incurred by it which are considered eligible capital property for income tax purposes, given that eligible capital may be considered property for ETA purposes.

1996 Corporate Management Tax Conference Round Table, Q. 11

Where a person does not register prior to acquiring a business, it will be subject to s. 171 upon becoming a registrant.

Subsection 171(3)

See Also

Restaurant Loupy's inc. v. The Queen, 2016 TCC 260 (Informal Procedure)

continued to be registrant following revocation of registration number

The appellant, which had been operating a Boston Pizza restaurant on leased premises since 2008, was ordered by the new owner of the land to vacate the premises on February 28, 2011, which it did. The taxpayer moved the equipment into storage, and found a purchaser for only a portion of the equipment eight months’ later (at a price of $57,500). In the meantime, its GST and QST registration numbers were cancelled at its request effective April 1, 2011. It determined that this request was an error, and it was re-registered on June 19, 2013 with the same registration numbers and the same effective date of May 25, 2008 as before. The ARQ assessed the appellant under ETA ss 171(3)(b) and 200(2) based on it having ceased to be a registrant on April 1, 2011 and based on valuing its equipment (viewed as capital property) at $533,761 (representing half its book value in the case of the unsold equipment).

In finding that the appellant had continued to be a “registrant,” so that ss. 171(3) and 200(2) did not apply, Favreau J referenced s. 141.1(3) and stated (at paras 57- 60, TaxInterpretations translation):

The sale of equipment following the cessation of normal daily activities is … part of what the ETA terms "commercial activity".

As a result, the appellant was still engaged in commercial activity when it sold his equipment to the Boston Pizza representative in Lévis and there was never any change in the use of the property in dispute.

Furthermore, since the appellant was a person who made a taxable supply in the course of a commercial activity on the sale of its equipment, it was required to be registered under the ETA, as provided in section 240… .

As under section 123 of the ETA, the appellant was required to be registered under the ETA, it was still a registrant for the purposes of the ETA during the period… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) winding-down operations qualified a de-registrant as a “registrant”/registration retroactive 212
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Registrant registrant based on wind-up activities 62
Tax Topics - Excise Tax Act - Section 141.1 - Subsection 141.1(3) - Paragraph 141.1(3)(a) holding discontinued equipment 151

Subsection 171(3)

Administrative Policy

GST/HST Memorandum 13.5 Non-creditable Tax Charged January 2017

Application to public service body

58. Where, at any time in a claim period, a PSB ceases to be a GST/HST registrant, the PSB is deemed under subsection 171(3) to have made a supply of each property (other than capital property) that, immediately before that time, was held by the PSB for consumption, use, or supply in its commercial activities and to have collected GST/HST on the supply calculated on the fair market value of the property. The tax is accounted for on the PSB's final return as a registrant. The PSB is also deemed to have received at that time, a supply of the property by way of sale and to have paid an equal amount of tax. The tax deemed collected is included in subparagraph 259(1)(a)(ii) when calculating the non-creditable tax charged in respect of the property for the claim period. ...

Paragraph 171(4)(b)

Administrative Policy

GST/HST Memorandum 13.5 Non-creditable Tax Charged January 2017

57. ...

Example 11 – Adjustment to net tax for rental property on becoming a small supplier division

In July, a registrant PSB resident in Ontario that has a monthly reporting period prepays the monthly rent of $1,500 plus HST for six months (July through to December) for the building in Ontario used by its division in commercial activities. The total amount of rent prepaid is $9,000 ($1,500 × 6 months) plus $1,170 in HST ($9,000 × 13%).

The PSB claims an input tax credit of $1,170 in its net tax for the July reporting period in respect of the HST paid on the rent expense.

The division became a small supplier division effective the first day of October. The PSB is required to make an adjustment to net tax for the amount previously claimed as an input tax credit for the HST paid on the rent for the three months of October, November, and December pursuant to paragraph 171(4)(b). The PSB is required to add to its net tax an amount of $585 ([$1,500 × 13%] × 3), which is accounted for by the PSB on line 104 (or on line 105 if filing electronically) of its October GST/HST return.