Subsection 206(2) - Beginning Use in Commercial Activities
24 February 2011, CBA/CRA GST Round Table, Q. 15 - "Amalgamation & Successor Corp's ITC Entitlement"
In a corporate reorganization involving a GST registrant that is engaged exclusively in commercial activities, assets are first transferred to a NewCo who immediately thereafter is amalgamated with another corporation ("SuccessorCorp") who will use the assets exclusively in a commercial activity. After noting the CRA position that NewCo may not be eligible to register or clqim ITCs, the question asked whether SuccessorCorp would be entitled to claim ITCs for GST that was payable by NewCo. CRA responded:
It appears that NewCo will not be engaged in commercial activity as defined in subsection 123(1) of the ETA. As a result, SuccessorCorp would not be eligible to claim ITCs with respect to the property that NewCo acquired unless SuccessorCorp is using the property in commercial activity and a change-in-use provision applies. For example, if all other conditions of the provisions are met, SuccessorCorp may be eligible to claim ITCs on the change of use of capital personal property under subsection 199(3) and of capital real property under subsection 206(2) based on the basic tax content of the property.
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|Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1)||if predecessor denied ITC, Amalco may be able to claim basic tax content||174|
|Tax Topics - Excise Tax Act - Section 271||173|
Subsection 206(5) - Reducing Use in Commercial Activities
Deemed self supply resulting from naturopathic services becoming exempted after February 10, 2014
Where a decrease of 10% or more in the use of the capital real property in taxable activities occurs (but there is no cessation of use, which is described in the section below), a corporation or partnership that is a GST/HST registrant is deemed under subsection 206(5), immediately before the change in use occurs, to have sold a portion of the property that reflects the decrease in use in taxable activities. In addition, unless the sale is exempt, the corporation or partnership is deemed to have collected, at the time the change occurs, the GST/HST equal to the basic tax content of the property on the portion of the property that is no longer used in taxable activities.
As indicated above, the deemed sale effectively requires the registrant to account for all, or part, of the GST/HST previously claimed as an ITC on the original purchase of, or on any later improvements made to, the property.