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Claiming ITCs on Pre-Registration Expenses
Except as provided in ETA subsections 171(1) and (2), a GST/HST
registrant cannot claim input tax credits (ITCs) for expenses incurred
before it became a registrant. ITCs can be claimed on such expenses only
if a registrant can successfully "backdate" its effective date of
registration. There are two methods of accomplishing this.
The first method is to follow the CRA's well-known policy with respect
to voluntary registrations. When a person who carries on business as a
small supplier voluntarily registers under ETA subsection 240(3), the
CRA will allow that person to backdate its effective date of
registration by up to 30 days, calculated from the date of the
application. The person will then be able to claim ITCs relating to
expenses incurred in the 30 days prior to the application date (Guide
RC4022). In some cases, the CRA has accepted a backdated registration
beyond 30 days if the person has provided evidence that GST/HST had been
collected from the date requested on a regular and consistent basis (Excise & GST/HST News No. 66, Fall 2007).
The second method is to prove that a "mandatory registration" occurred
on a previous date. A mandatory registration occurs when a person ceases
to be a small supplier and subsequently makes a taxable supply. A
private corporation ceases to be a small supplier when its total
revenues from taxable supplies exceed $30,000 in either (1) a single
calendar quarter or (2) cumulatively over four consecutive calendar
quarters. For the purposes of determining whether the $30,000 threshold
has been met, ETA section 148 provides that the total revenues of a
person and all related persons are taken into account.
Accordingly, if a person does not meet the $30,000 threshold on its own,
it may still be subject to a mandatory registration by virtue of its
association with another person.
When a mandatory registration occurs, the registrant becomes responsible
for collecting and remitting GST/HST from the date of registration. For
some registrants, however, this obligation may be immaterial. If a
corporation earns little or no revenue but incurs expenses (for example,
on behalf of a related corporation), the corporation will be able to
claim ITCs on its expenditures while having little or no GST/HST to
collect and remit. In such cases, it will be advantageous to establish a
mandatory registration as far back as possible.
Regardless of when a person ceases to be a small supplier (which may be
immediately upon incorporation in some cases), a mandatory registration
will not be recognized until the person has made at least one taxable
supply otherwise than as a small supplier (1992 CICA Commodity Tax
Symposium, "Revenue Canada Round Table," question 3). For the purpose of
determining when a taxable supply has been made, ETA section 133
provides that "the entering into of [an] agreement [to provide property
or a service] shall be deemed to be a supply of the property or service
made at the time the agreement is entered into." Accordingly, if a
person can establish that it agreed to make a supply on a
certain date, then the effective date of the mandatory registration will
be the date of that agreement, and the person will be able to claim
ITCs from that date forward.
Lane Zabolotney
MLT Aikins LLP, Saskatoon
lzabolotney@mltaikins.com
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