Use of Land Split Between Commercial and Non-Commercial Activity
University of Calgary v The Queen, 2015 TCC 321
At issue was the application of Excise Tax Act subsection 169(1) – General input tax credit rule – in combination with Subsections 141.01(2), (3), and (5) – fair and reasonable rule and apportionment rules.
The University of Calgary’s land, although predominantly used for educational purposes, is also used to provide various commercial and non-educational services to student, faculty, and the public. As such, it made both taxable and exempt supplies. The Minister and the Appellant disagreed on the manner of allocating percentages of the exterior spaces as between commercial and non-commercial uses.
ETA subsection 169(1) contains the general rules for claiming input tax credits (ITCs). This includes the ability to claim ITCs for GST paid on the acquisition of capital real property to the extent acquired for consumption, use or supply in the course of its commercial activity, and with respect to GST paid on improvements based on the extent to which the person was using the capital real property in the course of the person’s commercial activity immediately after the capital real property was last acquired by the person.
The ETA defines “business” and “commercial activity” in subsection 123(1), such that the definition of business is broader than that for commercial activity (para 92). A business includes both the making of taxable and exempt supplies, but ITCs are only available for the making of taxable supplies. Section 104.01 of the ETA allows for ITC apportionment between taxable and exempt supplies with respect of “indirect costs”.
“Indirect costs” include “administrative costs, overhead costs, and costs incurred in respect of common areas in or around the building” (para 96). Subsections 141.01(2) and (3) clarify that in determining the ITCs of registrants who are involved in both taxable and exempt activities, one must attribute all costs of the registrant to the making of supplies (para 98):
- 141.01(2)(a) – deems a person to have acquired the property or service for the consumption or use in the course of commercial activities to the extent that the property or service is acquired for the purpose of making taxable supplies for consideration in the course of the business;
- 141.01(2)(b)(i) – deems a person to have acquired the property or service for consumption or use otherwise than in the course of commercial activities to the extent that the property or service is acquired for the purpose of making supplies in the course of a business that are not taxable supplies made for consideration (exempt supplies or no or minimal consideration);
- 141.01(2)(b)(ii) – deems a person to have acquired the property or service for consumption or use otherwise than in the course of commercial activities to the extent that the property or service is acquired for a purpose other than the making of supplies in the course of a business (not related to business);
ETA s 141.01(2) looks at the purpose when acquiring the property or service, and all costs incurred by a person in the course of a business must be traced to a specific supply or multiple supplies (para 106). Subsection 141.01(3) contains rules that apply to the actual, not intended, use of property or services.
Paragraphs 141.01(5)(a) and (b) deal with apportionment of property or services as amongst uses by looking at the extent to which they were (a) acquired for the purpose of consumption or use in, or (b) were actually consumed or used in the course of making taxable supplies for consideration. They both require a fair and reasonable, as well as consistent, apportionment of costs.
What is “fair and reasonable” was addressed in Sun Life Assurance Company of Canada v. The Queen. 2015 TCC 37, where the TCC held that reasonableness requires the application of judgment and common sense, from the perspective of an objective observer with knowledge of all pertinent facts (para 112). The tax authority cannot simply substitute its approach for that of the taxpayer where there is more than one method that is fair and reasonable in the circumstances – the taxpayer is free to choose amongst equally fair and reasonable approaches (para 112). See also British Columbia Ferry Services Inc. v. The Queen, 2014 TCC 305.
Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3
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