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.
[Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5]
[Addressee]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Section 156 "qualifying member"
Thank you for your [correspondence] of April 2, 2015, concerning the interpretation of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to section 156 of the Excise Tax Act (ETA). All legislative references are to the ETA unless otherwise specified.
[INTERPRETATION REQUESTED]
You have asked how the Canada Revenue Agency (CRA) interprets “property having a nominal value" in paragraph (c) of the definition of “qualifying member” under subsection 156(1). Understanding that each case is a question of fact, you ask whether the value of the property, itself only, will be reviewed or will it be compared with the value of all the properties that the person acquires or intends to acquire in order to carry on its business. You state as an example that a $100,000 piece of equipment may not represent property having a nominal value especially for a small business requiring very little equipment, but that the same $100,000 item could have a nominal value for a large manufacturing business that requires $500M of equipment to operate. You also asked about the requirement that the registrant will be making taxable supplies throughout the next 12 months in the amended subparagraph (c)(iii) in the definition of a “qualifying member”.
[INTERPRETATION GIVEN]
We agree that, with respect to the interpretation of “property having a nominal value”, each case is a question of fact (i.e., case by case). Generally, this determination will be made with reference to the value of the property and its significance, relative to the commercial activity in question. For example, whether a $300 computer is of nominal value would depend on its relative value to the commercial activities for which it is acquired. Assuming that a subsequent acquisition of $1 billion in assets is for consumption, use or supply exclusively in the commercial activities of the registrant, it would appear that the computer would be of nominal value. If there is a specific situation where there is uncertainty as to whether a registrant has only property of nominal value, the CRA would advise the registrant to submit this information so that further guidance may be provided.
In order to fall within subparagraph (c)(iii) of the definition of “qualifying member”, it must be reasonable to expect that the registrant will be making all or substantially all taxable supplies throughout the next twelve months, and all or substantially all of the property (other than financial instruments and property having a nominal value) to be manufactured, produced, acquired or imported by the registrant within the next twelve months will be for consumption, use or supply exclusively in the course of its commercial activities. Therefore, whether an election made under the circumstances of subparagraph (c)(iii) would, at any subsequent time within the initial twelve months or later, remain in effect if such circumstances persist, would depend on whether the aforementioned reasonable expectation exists at that particular time. If at the particular time the conditions of subparagraph (c)(iii) are not met, the registrant would no longer be a specified member of the qualifying group and the election would cease to have effect unless the registrant now fell within the meaning of “qualifying member” under subparagraphs (c)(i) or (c)(ii) as discussed below. Further, the interpretation of the word “throughout” in the phrase “making supplies throughout the next 12 months” would depend on the nature of the business activity. That is, the phrase may be interpreted in a certain manner for one business activity and in another manner for a different type of business. As policy is developed in this area based on information provided by registrants, further guidance may be provided.
The CRA would generally review available documentation such as business plans or input tax credit claims and activities undertaken by the registrant to make taxable supplies such as research and marketing that support the expectation that the registrant will be making taxable supplies throughout the twelve months and that property acquired by the registrant within the twelve months is for use exclusively in its commercial activities.
Where a registrant meeting the conditions of subparagraph (c)(iii) of the definition of “qualifying member” makes an election and subsequently acquires certain property for consumption, use or supply exclusively in its commercial activities, the registrant may now meet the conditions of subparagraph (c)(i). Provided the registrant had not ceased to be a qualifying member prior to the acquisition of the property, the election would remain in effect.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0328.
Yours truly,
William Parker
Special Provisions – FI Unit
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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