Excise Tax Act — E-15 184.1
Carrying on construction 184.1 (1) In this section, a reference to a particular person carrying on construction includes a reference to the particular person engaging another person, by way of acquiring services from the other person, to carry on construction for the particular person. Performance bonds (2) If a person (in this subsection referred to as the “surety”) acting as a surety under a performance bond in respect of a contract for a particular taxable supply of construction services relating to real property situated in Canada carries on the particular construction that is undertaken in full or partial satisfaction of the surety’s obligations under the bond, (a) for the purposes of this Part, other than those described in paragraph (b), if the surety is entitled to receive at any time from the obligee, by reason of carrying on the particular construction, an amount (in this subsection referred to as a “contract payment”) that is not an amount the tax in respect of which was or will be required to be included in determining the net tax of the principal under the bond and is not an amount paid or payable as or on account of either tax under this Part or a tax, duty or fee payable by the obligee that is prescribed for the purposes of section 154, (i) in carrying on the particular construction, the surety is deemed to be making, at the place where the particular supply was made, a taxable supply, (ii) sections 150, 156 and 166 do not apply to that supply, and (iii) the contract payment is deemed to be consideration for that supply; (b) for the purposes of determining the extent to which property or a service is acquired, imported or brought into a participating province by the surety for consumption, use or supply in the course of commercial activities and the extent to which the property or service is consumed, used or supplied by the surety in the course of commercial activities, the carrying on of the particular construction is deemed not to be for the purpose of making a taxable supply and not to be a commercial activity of the surety; (c) despite paragraph (b), if paragraph (a) deems a surety to be making a taxable supply, any property or service (each of which is, in this section, referred to as a “direct input”) that the surety acquires, imports or brings into a participating province for consumption, use or supply exclusively and directly in the course of carrying on the particular construction and not for use as capital property of the surety or in improving capital property of the surety is deemed, for the purposes of this Part other than sections 155 and 156 and Divisions IV and IV.1, to have been acquired, imported or brought in by the surety for consumption, use or supply exclusively in the course of commercial activities of the surety; and (d) the total amount of all input tax credits in respect of direct inputs that the surety is entitled to claim is equal to the lesser of that total determined without reference to this paragraph and (i) if (A) the amount determined by the formula A × B where A is (I) if the supply deemed under subparagraph (a)(i) to be made by the surety is made in a participating province, the total of the rate set out in subsection 165(1) and the tax rate for the participating province, and (II) in any other case, the rate set out in subsection 165(1), and B is the total of all contract payments (other than contract payments that are not in respect of the particular construction) exceeds (B) the total of all amounts, each of which would be an input tax credit of the surety in respect of a direct input but for the fact that tax is not payable by the surety in respect of the acquisition, importation or bringing into a participating province of the direct input because of section 150 or 167 or because of the fact that the surety is deemed to have acquired or imported it, or brought it in, for consumption, use or supply exclusively in the course of commercial activities, that excess, and (ii)