The appellant, whose principal business was the provision of financial services, received tenant inducement allowances from its landlords, which were earmarked to fund the cost to it of making leasehold improvements. The appellant charged GST on the allowances and claimed input tax credits on the costs of the related leasehold improvement work.
Before concluding that full ITCs were available under s. 169(1)-B(c) because the appellant was supplying the leasehold improvements to the landlords for the leasehold improvement allowances, which was a commercial activity, Rothstein JA stated (at para. 25, 33):
[S]ubsection 141.01(2) assists London Life. ... The endeavour here is the supplying of leasehold improvements to the landlords, i.e. the making of a supply of real property. London Life acquired the construction inputs for the purpose of providing taxable supplies, i.e. leasehold improvements to its landlords for consideration, i.e. the tenant improvement allowances. London Life is therefore deemed to have acquired the construction inputs for the leasehold improvements for use in the course of a commercial activity. ...
Certainly, the ultimate purpose of London Life is to lease improved premises for its financial services business of providing exempt supplies. But when the leasing transactions are considered independently, London Life is supplying the leasehold improvements to the landlords for the consideration of the leasehold improvement allowances. In turn, the landlords are providing the improved leased premises to London Life for its financial services business. In this way, London Life's provision of leasehold improvements to the landlords constitutes a commercial activity.