Holding Company And Input Tax Credits 'In Relation To' A Subsidiary

Miedzi Copper Corporation v. Her Majesty The Queen (2015 TCC 26) is the most recent case from the Tax Court of Canada to address whether a Canadian holding corporation could claim input tax credits ("ITCs") for GST/HST paid on certain expenses where the holding company's only activity consisted of hold shares in a related corporation.

The taxpayer's appeal was allowed in its entirety.

Miedzi was a Canadian corporation based in Vancouver and a GST/HST registrant. It was a holding company that carried on a mineral exploration business through a wholly-owned foreign subsidiary resident in Luxembourg ("Luxco"). Luxco owned six mineral exploration companies that operated in Poland. Miedzi raised money through private placements which it used to finance the exploration projects by way of loan to Luxco who, in turn, would loan it down to the Polish companies.

At the end of each year, the loan owing by Luxco to Miedzi was converted to a Mandatory Redeemable Preference Share ("MRPS") and given to Miedzi. Please see illustrative diagram, below.

Subsection 169(1) of the Excise Tax Act (RSC, 1985, c. E-15) ("ETA") provides that an ITC is available only when the property or service on which tax gave rise to the ITC is acquired for consumption, use or supply in the course of commercial activities, as that term is defined in subsection 123(1).

For a holding company, such as Miedzi, the fundamentally issue is that corporate shares are "financial instruments" and the activity of holding shares is not generally a commercial activity of the shareholder.

Subsection 186(1) deems a holding corporation to have incurred expenses for use in the course of a commercial activity and, therefore, allowing ITCs to be claimed by the parent if the criterion is satisfied. Section 186(1) reads as follows:

186.(1) Related corporations [ITCs for holding companies] — Where

(a) a registrant (in this subsection referred to as the "parent") that is a corporation resident in Canada at any time acquires, imports or brings into a participating province particular property or a service that can reasonably be regarded as having been so acquired, imported or brought into the province for consumption or use in relation to shares of the capital stock, or indebtedness, of another corporation that is at that time related to the parent, and

(b) at the time that tax in respect of the acquisition, importation or bringing in becomes payable, or is paid without having become payable, by the...