GST POLICY STATEMENT

P-137 AVAILABILITY OF ITC'S TO HOLDING CORPS ON COST OF ACQUISITION

Date of Issue

Subject

Legislative Reference(s)

National Coding System File Number(s)

Effective Date

Text

This policy statement will discuss the availability of ITC's to holding corporations on the acquisition of shares or indebtedness of a related corporation.

Issue

Clarification of the requirement in amended subsection 186(1) of the Act (applicable to transactions after September 1992), of when the corporations must be related in order to claim the ITCs.

Policy

Subsection 186(1) of the Act (applicable to transactions after September 1992) provides that, where the other requirements of the subsection have been met, the parent corporation is entitled to claim input tax credits on costs relating to shares in the capital stock, or indebtedness, of another corporation, provided that the parent corporation and the other corporation were related at the time the property or service was acquired or imported. For example, costs relating to the acquisition of shares where the corporations are not already related would be disallowed even though the corporations may become related by virtue of such acquisition.

Pursuant to subsection 126(2) of the Act, persons are related to each other for purposes of the GST if they are related to each other under subsections 251(2) to (6) of the Income Tax Act.

SAMPLE RULING A

Statement of Facts

1. Holdco Inc. ("Holdco") is a corporation resident in Canada.

2. Holdco is a registrant for GST purposes.

3. Holdco owns 60% of the issued and outstanding voting shares of Opco Inc. ("Opco") and as such, the corporations are related to each other.

4. Opco is a corporation which since its incorporation has acquired all of its property for consumption, use or supply exclusively in the course of its commercial activities.

5. On January 31, 1993, Holdco incurred legal and accounting fees of $2000 plus $140 GST in relation to the acquisition of an additional 5% of the shares of Opco.

Ruling Requested

That Holdco is entitled by virtue of subsection 186(1) of the Act to claim an input tax credit in the amount of $140,in respect of costs incurred in relation to the acquisition of additional shares in Opco, at which time the two corporations were already related.

Ruling Given

Provided that the statement of facts and transactions is correct and constitutes a complete disclosure of all relevant facts and transactions, and that those transactions are carried out in the manner described, we rule that:

1. Holdco is eligible for an input tax credit of $140 with respect to the GST paid on the legal and accounting services relating to the acquisition of additional shares in Opco.

SAMPLE RULING B

Statement of Facts

1. Holdco B Inc. ("Holdco B"), a corporation resident in Canada, is a registrant for GST purposes.

2. Holdco B, which owns 20% of the issued and outstanding voting shares of Opco B Inc. ("Opco B"), is not related to Opco B.

3. Since its incorporation, Opco B has acquired all of its property for consumption, use or supply exclusively in the course of its commercial activities.

4. On March 1, 1994, Holdco B incurred legal and accounting fees of $1000 plus $70 GST in relation to the acquisition on April 1, 1994, of an additional 35% of the shares of Opco B.

5. After the acquisition of the additional shares Holdco B and Opco B will be related.

Ruling Requested

That Holdco B is entitled by virtue of subsection 186(1) of the Act to claim an input tax credit of $70 in respect of the costs incurred in relation to the acquisition of the additional 35% of the shares in Opco B.

Ruling Given

Provided that the statement of facts and transactions is correct and constitutes a complete disclosure of all relevant facts and transactions, and that those transactions are carried out in the manner described, we rule that:

1. Holdco B is not eligible to claim an input tax credit of $70 with respect to the GST paid on the legal and accounting services relating to the acquisition of the additional shares in Opco B, as Holdco B and Opco B were not related at the time of acquisition of the services.