Vendor sets up ATM machines (i.e., sells equipment and related software licences). X acquires equipment from the Vendor but the acquired equipment does not include the purchase of any software, which is licensed to X by the Vendor. X (a.k.a., the Assignor) then enters into a concurrent “Purchase Assignment Agreement” to assign its right to purchase the equipment (except software licences) to the Lessor (a.k.a., the Assignee) to allow the Lessor to lease the equipment back to X and “to pay the software license fees on behalf of X”. The Vendor transfers title to the equipment (except software licences) to the Lessor. The Lessor is financing X’s payment of the software license charges payable under the Acquisition agreement.
In finding that the Lessor was not entitled to an input tax credit for the HST on the invoice of the Vendor for both the equipment and the software licence fees to the extent that it relates to the latter, CRA stated:
The amount paid [by Assignee] for the software licences…was not consideration for a supply made to the Assignee, since no supply of software licence has ever been made to the Assignee. …
Consequently, the Assignee is not considered the recipient of the supply of software licences and is not entitled to claim an ITC for the GST/HST paid for them to the Vendor.
In determining who the recipient of a supply is, and who may therefore be entitled to an ITC for any tax payable on the supply, it is necessary to determine whether the supply is acquired by a person on its own behalf or as an agent on behalf of another person. The definition refers to ‘consideration for the supply’. However, in the present case, the Assignee has not acquired any supply of software licences, and is therefore not entitled to claim any ITC for the tax paid for them.
