Holding Corporations and GST and QST Claims – Where Do We Stand?

Under the commodity tax regime, an individual is entitled to claim an input tax credit (ITC) with respect to the purchase of goods and services only if they are used in connection with commercial activities (i.e., in the provision of taxable and/or zero-rated supplies).

A holding corporation whose sole activity is to hold investments could, therefore, not claim ITCs on its expenses since it does not carry on commercial activities because financial services are considered to be an exempt activity.

However, Section 186 of the Excise Tax Act (ETA) provides that a holding corporation that does not make any taxable supplies may claim ITCs on goods and services to the extent it is considered that they were acquired for consumption or use in relation to the shares of capital stock or indebtedness of another corporation that is at that time related to it, if that other corporation carries out commercial activities exclusively (i.e. 90% or more).

Application of this provision has led to considerable discussion with respect to the question of whether a good or a service acquired by a holding corporation can reasonably be considered to be acquired for consumption or use in relation to the shares of capital stock or indebtedness of another corporation.