CUSTOMS AND EXCISE |
Excise Tax Act |
London Life Insurance Co. v. Canada
A-581-98
Rothstein J.A.
21/12/00
16 pp.
Appeal from Tax Court decision London Life not entitled to claim input tax credits (ITCs) under Excise Tax Act (ETA), Part IX, in respect of goods and services required to improve premises leased for purposes of its business--In 1991 and 1992 taxation years, London Life leased commercial office space for regional sales office, receiving tenant improvement allowances of $2.2 million from landlords--London Life collected GST of $155,000 paid by landlords on $2.2 million--London Life undertook leasehold improvements to leased premises at cost of $2.1 million, paying approximately $147,000 GST to contractors and suppliers--Then claimed ITCs of $147,000 as offset to GST of $155,000 required to remit to MNR in respect of tenant improvement allowances received--Claim disallowed on ground London Life engaged in business of supplying "financial services", latter being exempt supplies under GST legislation--As London Life's "financial services" business did not constitute "commercial activity" for purposes of GST legislation, and since leasehold improvements undertaken to further "financial services" business, MNR decided London Life not entitled to ITCs--Appeal from Tax Court decision confirming Minister's assessment--Appeal allowed--For purposes of ETA, s. 169(1)(b), leasehold improvements do not qualify as "improvement" within meaning of ETA, s. 123(1) definition as no addition to adjusted cost base of leasehold interests from leasehold improvements--As ETA, s. 169(1)(c) applicable "in any other case", applicable herein as construction inputs for improvements to leased premises acquired by London Life for "use of supply in course of commercial activity"--"Commercial activity" defined in ETA, s. 123(1)--London Life acknowledged provision of financial services not commercial activity but argued acquisition of construction property and services for leasehold improvements involved supply of real property to landlords, i.e. commercial activity involving making of taxable supplies--Under ETA, s. 141.01(2), where person acquires property or service in course of endeavour, person deemed to have acquired property or services for use in course of commercial activities to extent property or services acquired for purpose of making taxable supplies for consideration--"Endeavour" in ETA, s. 141.01(1) defined as "making of supply . . . of real property"--Endeavour herein supplying leasehold improvements to landlords, i.e. making of supply of real property--London Life acquired construction inputs for purpose of providing taxable supplies, i.e. leasehold improvements to landlords for consideration, i.e. tenant improvement allowances--London Life therefore deemed to have acquired construction inputs for leasehold improvements for use in course of commercial activity--Approach reinforced by MNR's most recent GST/HST Memorandum of August 1999 where, if landlord provides leasehold improvement allowance, lessee considered to have made taxable supply to landlord of construction goods and services used in leasehold improvements for which allowance payment, and lessee could claim ITCs with respect to GST paid on construction inputs--In providing leasehold improvements to landlord, tenant carrying on commercial activity, irrespective of whether business subsequently conducted by tenant from leased premises involving, as herein, making of exempt supplies--While Minister's memoranda do not have force of law, they may assist in providing explanation and understanding of statutory provisions--Allowing ITCs herein consistent with principle underlying Act double taxation ought to be avoided--If ITCs not allowed with respect to GST paid in relation to construction inputs for leasehold improvements as offset to GST payable on tenant improvement allowances, double taxation will be imposed in respect of same items--Excise Tax Act, R.S.C., 1985, c. E-15, ss. 123(1) (as enacted by S.C. 1990, c. 45, s. 12), 141.01 (as enacted by S.C. 1994, c. 9, s. 4), (1), (2), 169 (as enacted by S.C. 1990, c. 45, s. 12) (1)(b), (c).