Section 141.1

Subsection 141.1(1)

Subsection 141.1(2)

Paragraph 141.1(2)(a)

See Also

Aviva Canada Inc. formerly CGU Group Canada Ltd. v. The Queen, 2006 TCC 57

purchase and immediate resale at the same FMV was not commercial activity

In settling a dispute between the appellant and another insurance company, Canadian Group Underwriters Insurance Company ("Underwriters") as to the ownership of two trademarks, Underwriters' interest in the trademarks was first transferred under ITA s. 85 to an affiliated corporation ("NN Life") in order to access NN Life losses, and then sold on the same day by NN Life to the appellant for $5 million in cash. The appellant applied for a refund of the GST under s. 261 on the basis that the trademark had not been sold to it in the course of a commercial activity.

After finding that the sale by NN Life was not an adventure in the nature of trade or a business, and noting (at para. 53), that s. 141.1(2)(a) "seems to describe a purchase and resale that is not in the ordinary course of business," Woods J stated (at para. 54):

Although the scope of paragraph 141.1(2)(a) may be uncertain, it is clear that the provision does not apply unless the transaction has some connection to a business or an adventure in the nature of trade. The same is also true for paragraph 141.1(1)(a). There is no such connection in this case.

Accordingly, the purchase of the trademarks was not subject to GST.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity purchase and immediate resale at the same FMV was not commercial activity 207
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business purchase and immediate resale at the same FMV was not an adventure 211
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Trademarks purchase and immediate resale at the same FMV was not an adventure 272

Subsection 141.1(3)

Paragraph 141.1(3)(a)

Cases

Onenergy Inc. v. Canada, 2018 FCA 54

litigation services to recover fraudulent bonuses following a business’ termination were acquired in connection with that business

The appellant (“Look”), which had been carrying on a telecommunications business, sold its licences (including its “Spectrum” licence) , which were its principal asset, in September 2009 for gross proceeds of $80 million, and ceased providing services to its customers in November 2009. Approximately 25% of the proceeds was paid to the executives as bonuses, and option or SAR cancellation payments. In 2011, Look commenced an action which resulted in a portion of these amounts being returned to it as having been misappropriated. In finding that the HST incurred by Look on its related litigation costs qualified for input tax credits by virtue of being incurred in connection with the termination of its commercial activity so as to engage s. 141.1(3), Webb J.A. stated (at paras 17, 18 and 34):

…[T]he litigation should be characterized as a claim for overpaid remuneration.

The remuneration would have been paid for services rendered as part of the commercial activities of Look or the termination of those activities … .

… [T] here would be a connection between the litigation to establish (after the registrant has stopped making taxable supplies) that there was an amount of overpaid compensation (and collecting that amount) and the termination of the commercial activity of the registrant because that compensation would be related to services rendered while the registrant was making taxable supplies. Therefore, there is a connection between the termination of Look’s commercial activity and the legal services acquired in relation to the litigation against the Former Executives that would be sufficient to permit Look to claim the input tax credits … .

After stating (at para. 29) that “arguably there is a conflict between subsection 141.01(2) of the Act and subsection 141.1(3) of the Act as it may be difficult to argue that any expense incurred after a registrant has ceased making taxable supplies is made for the purpose of making taxable supplies even though the expenditure is made in connection with the termination of the commercial activity,” he stated (at para. 30) that this conflict should be resolved as follows:

In general, subsection 141.01(2) of the Act would provide that a property or service will be deemed to be acquired in the course of commercial activities to the extent that it is acquired for the purpose of making taxable supplies for consideration. However, if the registrant is acquiring a property or a service in connection with the acquisition, establishment, disposition or termination of a commercial activity, that person will not lose the entitlement to claim an input tax credit solely because that person is not making any taxable supplies at the time that such property or service is acquired. Because subsection 141.1(3) of the Act is the more specific provision that only applies in certain situations, it will override subsection 141.01(2) … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) no direct tracing to taxable supplies was required 259
Tax Topics - Statutory Interpretation - Specific v. General Provisions provision dealing with only certain situations was the more specific 45

See Also

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

holding discontinued equipment

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. The ARQ assessed the appellant under ss. 171(3)(b) and 200(2) based on it having ceased to be a registrant on April 1, 2011.

In finding that the appellant had continued to be a “registrant,” so that ss. 171(3)(b) 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".

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 171 - Subsection 171(3) continued to be registrant following revocation of registration number 300
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) winding-down operations qualified a de-registrant as a “registrant”/registration retroactive 206
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Registrant registrant based on wind-up activities 60

ONEnergy Inc. v. The Queen, 2016 TCC 230, rev'd 2018 FCA

services acquired long after the cessation of commercial activity may give rise to input tax credits

The appellant (“Look”), which had been carrying on a telecommunications business, sold its licences (including its “Spectrum” licence) , which were its principal asset, in September 2009 for gross proceeds of $80 million, and ceased providing services to its customers in November 2009. Approximately 25% of the proceeds was paid to the executives as bonuses, and option or SAR cancellation payments. In 2011, Look commenced an action which resulted in a portion of these amounts being returned to it as having been misappropriated.

In finding on a Rule 58 determination that Look was not entitled to input tax credits for the GST on its related legal fees pursuant to s. 141.1(3)(a), C. Miller J stated (at para 17, 19 and 21):

“[I]n connection with”… is a broad expression but does not…, even on a textual reading allow for the remotest of links, such as a link only arising by way of the “but for” test. …

[T]he cost of legal services to chase after directors, who the Appellant claims have absconded with its money, is a need that would have been fulfilled regardless of where the funds emanated from. …

[T]here is no commercial expectation that directors on winding up a corporation will abscond with funds and that the cost of such contingency is somehow worked into the cost of the supply. … The business of Look was effectively wound up before there was any activity necessitating the acquisition of legal services. …

He added (at para. 26):

[T]his is not an issue of timing. For example, had the Board discovered two years after the Spectrum sale that a competitor had wronged Look in some fashion, diminishing sales, and the Board commenced a lawsuit, I would see no difficulty in finding such litigation activity was connected with commercial activity, notwithstanding some considerable time had passed since the termination of the business. Similarly, if Look had to sue the purchaser of Spectrum long after the completion of the sale for breach of a confidentiality provision, again timing would not preclude a finding of a connection.

Words and Phrases
in connection with

Administrative Policy

28 February 2019 CBA Roundtable, Q.16

CRA accepts ONEnergy, including that “either” s. 141.1(3) or 141.01(2) can be satisfied

ONEnergy … held that s. 141.1(3), which provides for an input tax credit where the property or service is acquired in connection with the acquisition, establishment, disposition or termination of a commercial activity, is more specific than s. 141.01(2), so that a person will not lose the entitlement to claim an ITC solely because that person is not making any taxable supplies at the time that such property or service is acquired. Does CRA agree? CRA responded:

The Domestic Compliance Programs Branch may find that the conditions of subsection 141.1(3) are not met in particular situations where the specific facts are different than those in ONEnergy. We would need to review all of the relevant facts in a particular fact situation to determine whether the conditions of either or both paragraph 141.01(2)(b) and subsection 141.1(3) are met.

8 March 2018 CBA Commodity Tax Roundtable, Q.16

registration made on basis of s. 141.1(3)(a) requires clear intention to engage in commercial activity

Can a charity with no other commercial activities register for GST/HST prior to (as contrasted to contemporaneously with) filing a s. 211 election (on the basis of the future taxable supplies by way of leasing of real property it will make once it files its s. 211 election)? CRA responded:

In order for paragraph 141.1(3)(a) to apply, the charity would have to demonstrate a clear intention to engage in a commercial activity. For example, consideration would be given to the date on which the charity intends to start making taxable supplies; the existence of proposed contracts for the supply of the property; and other evidence that would support the charity’s intention to make taxable supplies. Such a demonstration would be required regardless of whether the charity is, before the effective date of the election, not making any supplies or only making exempt supplies in respect of the real property included in the election.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 211 - Subsection 211(2) s. 211 election applies on property-by-property basis/conditions for s. 211(2) application 98

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 23 ("Pre-incorporation Contract")

available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

In response to a question on pre-incorporation contracts, CRA stated:

To the extent that the adoption of a pre-incorporation contract is in connection with acquiring or establishing the commercial activities of a newly formed corporation, paragraph 141.1(3)(a) of the ETA will deem the adoption of that contract to be done in the course of the corporation's commercial activities.

15 November 2011 Headquarters Letter Case No. 135608

Where a "capital pool company" raises capital pursuant to a prospectus on a blind pool basis in order to invest in a company or make an asset acquisition, it will not be considered to be engaged in commercial activity (and, therefore, will not be entitled to register) until it has identified a particular asset acquisition. However, once it 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 to have been done in the course of the commercial activities of the CPC. Where the targeted acquisition instead is of a corporation, an input tax credit generally only will be available to the extent that the requirements of s. 186(2) are satisfied.

Paragraph 141.1(3)(b)

See Also

Richter & Associates Inc v. The Queen, 2005 TCC 92

action brought by trustee for bankrupt financial institution deemed to be not in course of commercial activity

The trustee in bankruptcy for a company ("Castor") which had essentially only engaged in investing in high-yield loans brought an action in its capacity of trustee for the Castor estate against the former auditors ("C&L") for $40 million in damages for breach of contract, and also began a "litigation support business" of providing assistance to most of the creditors (the "Participating Creditors"), including hiring professionals and experts, in connection with their action sounding in negligence against C&L for $800 million in damages. Archambault J stated (at para. 38):

Given that Castor's main activities involved making exempt supplies, the activities of the Trustee would be deemed [by s. 141.1(3)(b)] not to be carried on in the course of commercial activities. Therefore, the costs of the litigation support services that the Estate enjoyed in prosecuting its own claim against C&L would not qualify for ITCs. … However, the portion of the services and properties in question that was acquired for the purpose of prosecuting the claims of the Participating Creditors would be considered to have been acquired in the course of commercial activities.

See summary under s. 141.01(2).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Business litigation support services provided by trustee for bankrupt financial institution were an "undertaking" 269
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) allocation between costs incurred by trustee in bankruptcy for bankrupt financial institution to provide litigation services to creditors, and costs incurred in connection with its action qua trustee 375
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(5) allocation between own suit and litigation support 68
Tax Topics - Excise Tax Act - Section 265 - Subsection 265(1) - Paragraph 265(1)(f) trustee's own suit and litigation support activity were related 278
Tax Topics - General Concepts - Illegality Act applied to what has occurred irrespective of legality 134
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business litigation support services provided by trustee for bankrupt financial institution were an "undertaking" 270