Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-019R

Date of Issue

Issued September 4, 1992
Revised: August 4, 1999

Subject

Eligibility for ITC on "start-up" costs -eligible capital property

Legislative Reference(s)

Subsections123(1)"basic tax content", 169(1), 171(1) and (2), and 171.1(2) of the Excise Tax Act

National Coding System File Number(s)

11650-1

Effective Date

January 1, 1991 for GST

April 1, 1997 for HST

Issue and Decision

When a small supplier becomes a registrant, a GST/HST input tax credit (ITC) may be claimed for property held by the person at that time. Where the person has paid tax before that time in respect of rents or services, an ITC may be claimed only to the extent the rented property or service is to be supplied after that time.

A person may incur a number of expenses in the course of establishing a new business, even before any taxable supplies may be made. As a result, the person may not have become a registrant until after these "start-up" costs are incurred. Where these expenses relate to services which have already been supplied, no input tax credit would generally be available. Some of these costs may be considered to be capital costs for purposes of the Income Tax Act.

Subsections 171(1) and 171.1(2) allow a person who becomes a registrant to claim an ITC for the basic tax content of property held by the person at that time by deeming the property to be acquired after the person becomes a registrant. With respect to services, subsection 171(2) allows an ITC for tax payable on services when the services are to be supplied after the person becomes a registrant. Where the services were supplied prior to registration no ITC generally is available.

However, certain of these expenses, which would normally be considered to be a supply of a service may be treated as "eligible capital expenditures" under the Income Tax Act. In relation to the establishment of a business, these may include expenses required for incorporation such as legal and accounting services and regulatory fees. The list set out in IT 143R is specific and does not include all costs incurred in the start-up of a business.

These expenses may be considered to be in respect of "eligible capital property" and therefore will meet the definition of property as defined by the Excise Tax Act. Where this is the case, there may be an ITC available under subsections 171(1) or 171.1(2).

If registrants require further information as to what expenses may be considered to be "eligible capital expenditures", they should be referred to Revenue Canada, Taxation, or to the Taxation Interpretation Bulletin IT-143R, "Meaning of Eligible Capital Expenditures".