34. IMPORTED TAXABLE SUPPLY – CREDITABLE TAX
Assume a Recipient, a Canadian GST-registered corporation, acquires Services from a non-resident corporation. The Services are performed wholly outside Canada. The Recipient acquires the Services for consumption in relation to shares of its wholly-owned subsidiary, the property of which was (at the time that tax becomes payable in respect of the Recipient’s acquisition of the Services) last acquired by the subsidiary for consumption exclusively in the course of its commercial activities.
In these circumstances, pursuant to subsection 186(1), the Recipient may, for the purpose of determining its input tax credits, be deemed to have acquired the Services for use in the course of its commercial activities.
Would the CRA consider subsection 186(1) to cause the Services not to be characterized as an “imported taxable supply” under section 218?
If not, with the result that the provision of the Services is considered to constitute an “imported taxable supply”, in the event that the Recipient fails to report on its GST return the GST payable (and input tax credits claimed) in respect of its acquisition of the Services, would the CRA waive any penalty or interest that may be potentially applicable, consistent with its approach in respect of self-assessment on a purchase of real property (as discussed in Question 21 of the 2010 Roundtable)?
It is a question of fact whether a taxable supply of a service made outside Canada to a person who is resident in Canada is an “imported taxable supply” as defined in section 217. Subsection 186(1) applies only for purposes of determining an ITC of a corporation that satisfies the requirements of that subsection. Therefore, the deeming under subsection 186(1) does not affect the determination under section 217.
If a Canadian GST/HST registered corporation acquired imported taxable supplies (the services), it would account for the GST/HST when completing its regular GST/HST return. Where the registrant did not account for the GST/HST that was to have been self-assessed for the services on its regular GST/HST return and had not claimed an ITC in respect of these self-assessed amounts, administrative tolerance would generally be exercised so that interest would not be assessed provided there are no revenue implications (i.e., the registrant would have been entitled to a full ITC). However, each situation would be reviewed on a case-by-case basis.
If the extent of use of the service in relation to the shares or indebtedness of the related corporation is such that a full ITC would not be available, then GST/HST that was not reported would be owing and interest calculated under the provisions of section 280 would apply.