Overview
The Tax Court of Canada recently held, in ONR Limited Partnership,1that a limited partnership was entitled to input tax credits ("ITCs") for the GST/HST paid on some but not all of the supplies acquired in the name of one of its limited partners. The Court agreed that the limited partner was the agent of the limited partnership, and so the limited partnership was entitled to ITCs for supplies that related to its activities. However, the limited partner was not the agent of the limited partnership for supplies related to the limited partner's activities.
Entitlement to ITCs
A registrant is generally entitled to claim ITCs equal to the GST/HST payable on its supplies acquired for consumption, use or supply in the course of its commercial activities, provided that the relevant conditions are met. This includes supplies acquired through an agent. However, it can sometimes be difficult to determine whether supplies are acquired by an entity on its own account or as agent of another.
The Decision
In ONR Limited Partnership, the registrant limited partnership claimed ITCs on supplies acquired in the name of its limited partner, which was a real estate investment trust (the "REIT"). The claimed ITCs were generally for the following categories of supplies:
- Services relating to acquisitions or appraisals of the limited partnership's investment properties.2
- Services relating to the REIT's financing (including the issuance of REIT units), its financial statements, and other REIT matters.3
For the first category of supplies, the Court agreed that the REIT was the limited partnership's agent, both under an agreement in writing, and also under section 6 of the Ontario Partnerships Act.4 The Court's comments on the Partnerships Act are helpful, as the CRA has otherwise suggested that a limited partner will generally not be an agent of a limited partnership unless there is an express agency agreement in writing.5The Court's comments suggest that the CRA's interpretation may be an overly narrow view.
In contrast to the first category, the Court determined that the second category of supplies were not acquired by the REIT as agent of the limited partnership in the course of the limited partnership's commercial activities.6 The Court did not allow ITCs on the second category of supplies because "an agent does not have the legal capacity to do for a principal that which the principal does not have the legal capacity to do itself", e.g., the limited partnership could not issue REIT units.7 Accordingly, even though the agency agreements "were valid contracts",8 and even though the REIT issued units in order to raise money for the limited partnership's activities, it was the REIT who consumed or used the second category of supplies,9 and the REIT was not the limited partnership's agent for these supplies.10
Key Takeaways
The decision is an important reminder about the importance of properly understanding agency law and its application to relationships between entities, and ensuring that ITCs are claimed by the correct entity. There is no limitation under GST/HST law on who may act as agent of another, but a principal does not have the power to delegate to an agent something that it could not do on its own account.
Footnotes
1. 2024 TCC 156 [ONR Limited Partnership] released December 11, 2024.
2. ONR Limited Partnership at paras 88–96 and 103–104.
3. ONR Limited Partnership at paras 28–87.
4. ONR Limited Partnership at para 227(f).
5. CRA document no. 246538, December 24, 2024.
6. ONR Limited Partnership at paras 227(d) and (e).
7. ONR Limited Partnership at para 137.
8. ONR Limited Partnership at para 198.
9. ONR Limited Partnership at paras 224 and 227(e).
10. ONR Limited Partnership at para 227(d).
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