Section 236.01

Subsection 236.01(1)

Specified Provincial Input Tax Credit

See Also

Bell Telephone Company of Canada v. The King, 2023 TCC 45

Bell Canada received single supplies of electricity from its Ontario electricity suppliers so that their full charges were subject to provincial ITC recapture

The appellant (Bell Canada) was required as a result of ETA s. 236.01 and Part 6 of the New Harmonized Value-added Tax System Regulations, No. 2 (the “Recapture Regulations”) to recapture 100% of the input tax credits that it claimed in respect of the 8% tax that it paid under s. 165(2) on the consideration for the supplies to it in Ontario of electricity. The suppliers to it of such electricity (the “Local Distributors”) were required, pursuant to s. 79.17(1) of the Ontario Energy Board Act, 1998 to itemize charges on their invoices to show four categories of items: electricity, delivery, regulatory charges and debt retirement charge. Bell Canada submitted that, rather than receiving a single supply of electricity, it received multiple supplies of electricity, delivery services and regulatory services, so that the electricity component (subject to recapture) was reduced.

In rejecting this submission, D’Arcy J stated (at paras. 123-125):

In substance and reality, the alleged separate supplies of the delivery services and regulatory services are integral parts, integrants or components of the overall supply of electricity. The supply to the Local Distributors of the transmission services and the regulatory services is work of a preparatory nature to the supply of the electricity. Similarly, the costs that the Local Distributors incur in distributing the electricity relates to work of a preparatory nature to the supply of electricity. As … noted in City of Calgary, such supplies are parts or components of the single overall supply of electricity.

… To paraphrase [O.A. Brown], the alleged separate supplies cannot be realistically omitted by the Local Distributors from the overall supply and in fact are the essence of the overall supply.

…[T]he fact that the Local Distributors itemize certain items on their invoices has no bearing on whether a Local Distributor made a single supply or multiple supplies.

Regarding a submission that Bell Canada (at para. 131) that it “could have purchased the electricity from a retailer and the transmission and distribution services from a Local Distributor,” he stated (at para. 132) that the “Court must make its decision based upon the supplies actually made … .”

He also did not find any indication that the word “electricity” in s. 26 of the Recapture Regulations referenced something narrower than the single supply of electricity to Bell Canada (para. 146, et seq.).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply Bell Canada received single supplies of electricity from its Ontario electricity suppliers 238

Subsection 236.01(2)

Administrative Policy

15 March 2022 GST/HST Interpretation 191075 - Input Tax Credit recapture requirements related to Ontario’s Debt Retirement Charge and Global Adjustment Fee

Ontario debt retirement charges on electricity bills were subject to the ITC recapture rules

In Ontario, a person’s electricity bill can include a debt retirement charge (DRC) (payable to the Ontario Electricity Financial Corporation (OEFC) to help pay off the remaining debt from the former Ontario Hydro, and the global adjustment (GA) fee paid to the Independent Electricity System Operator (“IESO”) to supplement infrastructure development. Did input tax credits (ITCs) claimed for the HST on these two charges (imposed pursuant to ETA ss. 165 and 154) generate recaptured ITCs under the s. 236.01 rules?

CRA noted that s. 236.01(2) required a large business to add to its net tax the prescribed percentages of its “specified provincial input tax credits,” which was defined in s. 236.01(2) as the portion of its ITCs in respect of a specified property or service (including electricity) “that is attributable to tax under subsection 165(2)” in respect of the acquisition of the specified supply. The concept of “tax in respect of the supply” was informed by s. 169(1), which included the full amount of the HST imposed on the two charges.

CRA concluded

[T]he recapture [in s. 236.01 is] of the specified input tax credit, which is the full provincial portion of tax payable under subsection 165(2). Any apportioning of the provincial portion of the ITC, for purposes of recapture, can only be done under a prescribed manner (i.e. 75%, 50%, 25%, 0%).

28 March 2013 Interpretation Case No. 141341

In finding that, in the situation where a large business is the operator under a joint venture and all three joint venture participants are small or medium businesses, the purchase of electricity by the operator would result in the recapture of the provincial component of HST, CRA stated:

Where the operator is a large business and a joint venture election has been made with one or more participants, the purchases are deemed under paragraph 273(1)(a) to be acquired by the operator and not the participants….Therefore, the recapture of ITCs for the provincial component of the HST would be required under subsection 236.01(2) for all purchases of specified property or services made by the operator, irrespective of whether the participants are large businesses or not.