GST/HST Policy Statement P-044

Date of Issue December 1, 1992

Subject Effect of revocation of election on capital personal property under $50,000

Legislative Reference(s)

Subsections 150(1), 193(1), 205(4), 206(4), and 206(5) of the Excise Tax Act.

National Coding System File Number(s) 11585-9

Effective Date January 1, 1991

Text

This policy statement will discuss the treatment of capital personal property which has a cost of $50,000 or less on revocation of an election under subsection 150(1) by a registrant who is a financial institution.

Subsection 205(1) provides that property on hand at the time an election under subsection 150(1) becomes effective (referred to as "eligible property") is subject to the change of use rules in subsection 206(4) or subsection 206(5) as the case may be and subsection 193(1) without regard to the $50,000 threshold that otherwise applies to capital personal property of a financial institution. As a result, a registrant who files an election under subsection 150(1) will have to account for changes in use of personal property that is capital property, including such property that has a cost of $50,000 or less, that changes use as a result of the election becoming effective.

However, where an election under subsection 150(1) is revoked, the change of use rules do not apply to capital personal property costing $50,000 or less as there is no legislative provision that would remove the threshold in this circumstance. As a result, where a registrant who continues to be a financial institution following revocation of the election, e.g. a listed financial institution, there is no input tax credit available for an increase in use in commercial activities of capital personal property which has a cost of $50,000 or less on revocation of the election.

EXAMPLE

Facts

(1) Corporation A is a listed financial institution.

(2) It acquired a computer at a cost of $40,000 and used it 60% in commercial activities, including supplies of services to Corporation B. An input tax credit of $1,680 was claimed ($40,000 x 7% x 60%).

(3) Corporation A makes an election under subsection 150(1) with Corporation B. As a result, the use of the computer in commercial activities is reduced to 40%. The fair market value of the computer remains at $40,000.

(4) Subsequently, Corporation A revokes the election with Corporation B. As a result, the use of the computer in commercial activities is increased by 20%, i.e. back to its original level of 60%.

Ruling Requested

How do the change of use rules for capital personal property effect Corporation A when it makes the election under subsection 150(1) and when the election is revoked?

Ruling Provided

As a result of subsection 205(1), the change of use rules in subsection 206(5) will apply to the reduction in commercial use of the computer notwithstanding that the property had a cost of less than $50,000. Corporation A will be deemed to have collected tax of $560 ($40,000 x 7% x 20%) and must remit that amount.

However, since the cost of the property is less than $50,000, on revocation of the subsection 150(1) election the change of use rules do not apply as there is no provision similar to subsection 205(3) [proposed subsection 205(1) as amended by the Ways and Means Motion of December 9, 1992] that would include this property in the change of use rules on revocation of the election.