On 27 July 2018, the Department of Finance released a number of proposed amendments to the Excise Tax Act, including section 186, that could significantly impact many businesses that use a holding corporation structure. Section 186 allows a holding corporation to claim input tax credits (ITCs) to recover GST/HST on expenses incurred with respect to a subsidiary.


Current Rule


The general rule is that a holding corporation cannot claim ITCs for expenses incurred with respect to shares or indebtedness of a subsidiary. In order to claim an ITC, subsection 169(1) requires that property or service is acquired for consumption, use or supply in the course of commercial activities of the company.


Activities related to holding a share or indebtedness of a subsidiary is generally not a commercial activities. Where certain conditions are met, section 186 deems a holding company to be carrying on a commercial activity and allows it to claim ITCs to the extent that expenses are reasonably incurred in relation to a subsidiary.


Authored by Bobby Solhi


Discover more: Significant changes to GST/HST holding company rules

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Taxand's Take

For assistance in assessing how the draft amendments might affect your business or in preparing a response to the draft amendments and consultation paper, please contact the author or a member of BLG’s Tax Group.

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Canada | International Tax

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