Section 185

Subsection 185(1) - Financial Services – Input Tax Credits

See Also

Revenue and Customs v Frank A Smart & Son Ltd (Scotland), [2019] UKSC 39

VAT on sale of shares to fund downstream economic activity would be creditable

The taxpayer (“FASL”) purchased entitlements to an EU farm subsidy, which generated annual subsidies over several years (which initially exceeded 30 times its cattle sales revenues from its farming operation) and intended to use the money so generated to fund its future current and future business activities, which currently involved only taxable supplies.

In finding that FASL was entitled to deduct input credits for the VAT on its taxable purchases of the subsidy rights, Lord Hodge referenced (at para. 65) the principle that such credits were available where there is “a direct and immediate link between th[e] acquired goods and services and the whole of the taxable person’s economic activity because their cost forms part of that business’s overheads and thus a component part of the price of its products” and noted that under the VAT jurisprudence, this test could be satisfied, for example, respecting costs incurred in a fund-raising activity , such as a sale of shares, that had such a link to prospective taxable activities of the fund raiser’s business. He then stated (at para. 67):

I do not detect in the jurisprudence of the CJEU any basis for distinguishing expenditure incurred in a fund-raising exercise which takes the form of a sale of shares from a fund-raising exercise that involves the receipt of a subsidy over several years.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) input credits were available for fund raising costs of a taxable business 516

Mac's Convenience Stores Inc. v. The Queen, 2012 TCC 393

impulse purchases generated by ABM machine customers represented sufficient link

Hogan J. found that the registrant, a convenience store operator, was entitled to input tax credits for its purchase of automated banking machines, which were used by it in its stores to provide exempt financial services. The words "relate to" indicate that the exception in s. 185(1) has a wide scope (only "some connection" is required: para. 50), rather than being restricted to financial services which are "incidental or ancillary to a registrant's primary business operations," as contended (at para. 46) by the Minister. Hogan J. stated (at para. 53):

The appellant placed ABMs in its stores to maximize customer visits. ... The evidence shows that ABM users often made impulse purchases following a withdrawal of money from their bank accounts. The appellant profited from both transactions. In my opinion, this is a sufficient link or connection to justify a finding that the appellant's ABM operations "relate to" its other convenience store activities.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) core service re store ABM was provision of space 141

Administrative Policy

P-108 January 26, 1994 "Raising of Capital"

A non-financial institution is allowed to claim ITCs with respect to inputs acquired for use in the raising of capital that are related to its commercial activity.

P-094 December 20, 1993 "Application of Subsections 185(1) and 186(1) to Holding Companies".