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GST — input tax credits on land held for development

My client was an immigrant who had built homes in his native country. Through a company, he purchased 200 acres of property in the Toronto area for some $10 million, intending to build homes and sell them. Due to agricultural zoning restrictions, the corporation could not develop the properties and had to hold them.

The company had legal, planning and other expenses while working on its plans to develop the properties. It claimed thousands of dollars of input tax credits (ITCs) for the GST it paid to lawyers, development planners and others, including to clean up the properties.

A CRA auditor challenged these ITCs, querying whether the company was entitled to them.

I wrote a detailed letter to the auditor, accompanied by extensive documentation to show what work the company had done towards developing the properties, and documentation showing that its intention was always to build homes for sale. This intention had been delayed for years and would be delayed further until the land zoning was eventually changed. However, I showed that whatever the company eventually did with the property would be a "taxable supply" for GST purposes, and thus that it was entitled to the ITCs. I explained that even if the development of the properties did not happen for many years, the ITCs were still available based on the wording of the Excise Tax Act.

The auditor quickly confirmed that the ITCs would be allowed.

Problem vanished!

(2010)