Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 246535
Business Number: […]
Dear [Client]:
Subject: GST/HST ruling - Sale of the shares of the corporation
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to sale of the shares of the corporation. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. […] (hereby The Corporation) is a corporation established in […][Province X].
2. […]. The Corporation is a GST/HST registrant with business number […].
3. […], a sale […] agreement called “[…] (The Agreement)” is signed by […][The Vendor] for the sale of […] shares [of] The Corporation to […][The Purchaser].
4. […]
5. […] Before the transaction, […] All the assets were the [property] of [The Corporation] and not the property of [The Vendor]. […]
[…] (The Agreement)
6. Based on [The Agreement], we understand […] [The Purchaser] has agreed to purchase all of the outstanding shares in the capital of The Corporation.
Share Transfer […][Document]
7. Under the share transfer [document], we understand that […] [The Vendor], sells, assigns and transfers unto [The Purchaser] 100 Common Shares in the share capital of The Corporation registered in the name of [The Vendor] on the shareholders register of The Corporation. […].
Share Certificate
8. It is understood through the Share Certificate […] the holder of the shares [is] [The Purchaser], […]. […]
RULING REQUESTED
You would like to know whether the sale of The Corporation by [The Vendor] to the [The Purchaser] by means of transfer of the shares is considered the supply of a financial service or a taxable supply.
RULING GIVEN
Based on the facts set out above, we rule that the transfer of the shares is considered the supply of a financial service.
EXPLANATION
Supplies of goods and services made in Canada are either taxable supplies or exempt supplies. Taxable supplies are supplies made in the course of a commercial activity. Exempt supplies are those that are not subject to the GST/HST and are listed in Schedule V. A supply of shares such as the one outlined in your incoming letter is generally an exempt supply.
Determining the supply
Based on the facts set above, only one element is being supplied. The element is the supply of the shares […] of The Corporation. Further, the legal ownership of the shares is that of [The Vendor], […] and the legal ownership of the assets of The Corporation is that of The Corporation, but not of [The Vendor].
For more information on determining whether there is one or more supplies, refer to GST/HST Policy Statement P-077R2, Single and Multiple Supplies.
Tax status of supply
A "financial service" is defined for GST/HST purposes to include the issuance, granting, allotment, acceptance, endorsement, renewal, processing, variation, and transfer of ownership or repayment of a financial instrument. The "financial instrument" for GST/HST purposes includes an equity security. An "equity security" for GST/HST purposes means a share of the capital stock of a corporation or any interest in or right to such a share.
As such, the transfer of the ownership of a share of the capital stock of a corporation is considered a supply of a financial service for GST/HST purposes.
In the case in point, the shares were sold and the transfer of the ownership of those shares was made. The share certificate testifies that [The Purchaser] is now the registered owner of the 100 common shares of [The Corporation]. […], the ownership of the shares had been transferred to [The Purchaser].
As such, we conclude that the transfer of the shares and its ownership is a supply of a financial service under paragraph (d) of the definition of financial service. Therefore, the supply of the shares made by [The Vendor] to [The Purchaser] is an exempt supply of a financial service under section 1 of Part VII of Schedule V. [The Vendor] is not required to collect GST/HST on the consideration of the sale of the shares.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 873-455-5418. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Yours truly,
Patience Meli
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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