Subsection 185(1) - Financial Services – Input Tax Credits
See Also
Revenue and Customs v Frank A Smart & Son Ltd (Scotland), [2019] UKSC 39
The taxpayer (“FASL”) purchased entitlements to an EU farm subsidy, which generated annual subsidies over several years (which initially exceeded 30 times its cattle sales revenues from its farming operation) and intended to use the money so generated to fund its future current and future business activities, which currently involved only taxable supplies.
In finding that FASL was entitled to deduct input credits for the VAT on its taxable purchases of the subsidy rights, Lord Hodge referenced (at para. 65) the principle that such credits were available where there is “a direct and immediate link between th[e] acquired goods and services and the whole of the taxable person’s economic activity because their cost forms part of that business’s overheads and thus a component part of the price of its products” and noted that under the VAT jurisprudence, this test could be satisfied, for example, respecting costs incurred in a fund-raising activity , such as a sale of shares, that had such a link to prospective taxable activities of the fund raiser’s business. He then stated (at para. 67):
I do not detect in the jurisprudence of the CJEU any basis for distinguishing expenditure incurred in a fund-raising exercise which takes the form of a sale of shares from a fund-raising exercise that involves the receipt of a subsidy over several years.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) | input credits were available for fund raising costs of a taxable business | 542 |
Mac's Convenience Stores Inc. v. The Queen, 2012 TCC 393
Hogan J. found that the registrant, a convenience store operator, was entitled to input tax credits for its purchase of automated banking machines, which were used by it in its stores to provide exempt financial services (i.e., cash withdrawal services to its customers). Hogan J noted (at para. 52) that a "registrant can claim ITCs in respect of financial services contemplated by subsection 185(1) because the legislator chose to deem inputs for the purpose of financial service transactions to be inputs for the purpose of commercial activities” and further indicated that the words "relate to" indicate that the exception in s. 185(1) has a wide scope (only "some connection" is required: para. 50), rather than being restricted to financial services which are "incidental or ancillary to a registrant's primary business operations," as contended (at para. 46) by the Minister. Hogan J. stated (at para. 53):
The appellant placed ABMs in its stores to maximize customer visits. ... The evidence shows that ABM users often made impulse purchases following a withdrawal of money from their bank accounts. The appellant profited from both transactions. In my opinion, this is a sufficient link or connection to justify a finding that the appellant's ABM operations "relate to" its other convenience store activities.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) | core service re store ABM was provision of space | 153 |
Administrative Policy
19 November 1996 Interpretation File No 11590-5 HQR0000358
Regarding the GST status of expenses incurred by a Canadian corporation in buying back its shares, the Agency stated:
[T]he redemption of a corporation's own shares from its investors can be viewed as the supply of a financial service under the financial service definition in the Act. … [T]he redemption of the shares of the corporation is related to the commercial activities of the corporation. Hence, any services acquired by the corporation in the buying back of its shares will be deemed to have been acquired for consumption or use in the course of its commercial activities by virtue of subsection 185(1) of the Act. Input tax credits will be allowed for tax paid or payable on these services pursuant to the requirements of subsection 169(1).
P-108 January 26, 1994 "Raising of Capital"
Regarding the situation of a corporation which was formed in order to acquire and operate a nine-storey commercial building, and issued shares accordingly, Revenue Canada indicated that a non-financial institution is allowed to claim ITCs with respect to inputs acquired for use in the raising of capital that are related to its commercial activity.
P-094 December 20, 1993 "Application of Subsections 185(1) and 186(1) to Holding Companies" [stated to be obsolete in 29 September 2003 notice].
A holding company that is not a financial institution may rely on either subsection 185(1) or subsection 186(1) to claim input tax credits, provided that it meets the conditions set out under those subsections.
Section 185 applies to non-financial institutions who are engaged in commercial activities and who provide financial services that are related to those commercial activities.
Section 185 obviates the requirement for a non-financial institution to allocate inputs between taxable and exempt supplies, i.e., financial services. As long as the financial services relate to the registrant's commercial activities, the property or service will be deemed to be used in those commercial activities.