CRA indicates that the interpretation of “closely-related” for GST purposes should be informed by the policy that 90% common ownership is covered
ETA s. 128(1)(a) provides that two corporations are “closely related” if the first corporation owns 90% or more of the value and number of the issued and outstanding shares of the capital stock of the second corporation having full voting rights under all circumstances. Accordingly, it is obvious that if 100% of the voting shares and non-voting shares of Corporation C are held by Corporations A and B, respectively, Corporations B and C are not closely related. When asked about this CRA, rather than conceding the point, stated:
It is important to note that the explanatory notes to section 128… refer to a degree of common ownership of at least 90%. Furthermore, the determination of “closely related” is relevant for purposes of the elections under sections 150 and 156… . The explanatory notes to these provisions refer to wholly-owned corporations. Any application of the provisions of section 128… to a particular fact situation should be consistent with the policy intent of the provision.
This illustrates that on the GST side, CRA is generally more reluctant to concede that the ordinary meaning of the statutory wording, if unambiguous, controls the interpretation (see, e.g., Quinco), than for the Income Tax Rulings Directorate.
Neal Armstrong. Summary of 26 February 2015 CBA Roundtable, Q. 20 under ETA s. 128(1)(a).