Where a business provides both taxable and exempt services, claiming ITCs can become a thorny issue that generally requires an attribution of inputs between the business’ supply of exempt and taxable services. Section 141.01 of the Excise Tax Act (“ETA”) creates a framework for allocating ITCs for non-financial institutions. These rules require registrants to allocate ITCs in a manner that is “fair and reasonable”, which predictably leaves significant room for interpretation.
In the recent decision in Sun Life Assurance Company v. The Queen (2015 TCC 37), the Tax Court of Canada considered whether ITC allocation in respect of leased office space was “fair and reasonable” under section 141.01(5). The decision is notable for what it says regarding the concept of intention in allocating ITCs for the purposes of section 141.01(5).