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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 181628
Dear [Client]:
Subject: GST/HST INTERPRETATION
Closely related rules for corporations
Thank you for your request of [mm/dd/yyyy], with respect to closely related rules for corporations for goods and services tax/harmonized sales tax (GST/HST) purposes.
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.
You submitted a scenario where a parent corporation (Corporation A) wholly owns three subsidiaries (Corporations B, D, and G) that in turn wholly own qualifying subsidiaries (Corporations C, E and H, respectively). Two of the subsidiaries (Corporations C and E) collectively (50% each) wholly own another corporation (Corporation F).
100% ------- A -------- 100%
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| 100% |
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B D G
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100% 100% 100%
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C E H
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|
| 50%
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| |
|
50% -------- F
INTERPRETATION REQUESTED
You would like to know whether Corporation F is closely related to Corporation A by virtue of subparagraph 128(1)(a)(v) or subsection 128(2), and whether and under which provision Corporation F would be closely related to Corporations G and H.
INTERPRETATION GIVEN
Under paragraph 128(1)(a), a particular corporation and another corporation are closely related where qualifying voting control of the other corporation is held by, and not less than 90% of the value and number of the issued and outstanding shares, having full voting rights under all circumstances, of capital stock of the other corporation are owned by:
(i) the particular corporation,
(ii) a qualifying subsidiary of the particular corporation,
(iii) a corporation of which the particular corporation is a qualifying subsidiary,
(iv) a qualifying subsidiary of a corporation of which the particular corporation is a qualifying subsidiary, or
(v) any combination of the corporations or subsidiaries referred to in subparagraphs (i) to (iv).
A “qualifying subsidiary” of a particular corporation is defined in subsection 123(1) and generally means that a corporation is a qualifying subsidiary of a particular corporation if the particular corporation holds qualifying voting control and owns 90% or more of the value and number of the issued and outstanding shares, having full voting rights under all circumstances, of the capital stock of the corporation and includes a corporation that is a qualifying subsidiary of a qualifying subsidiary of the particular corporation.
Generally, under subsection 128(1.1), a person or group of persons would hold qualifying voting control in respect of a corporation at any time if at that time the person, or the members of the group collectively, as the case may be, own shares of the corporation to which are attached not less than 90% of the shareholder votes that may be cast in respect of each matter, with certain exceptions. For further details about qualifying voting control, please refer to GST/HST Notice 303, Changes to the Closely-related Test, dated November 2016.
In the scenario presented, it can be determined that Corporations B, C, D, E, G and H are qualifying subsidiaries of Corporation A where the conditions relating to qualifying voting control and required share ownership are met. Corporations A, B, C, D, E, G and H would also be closely related to each other under subparagraphs 128(1)(a)(i) to 128(1)(a)(iv) where the conditions relating to qualifying voting control and required share ownership are met.
It can also be determined that where all such conditions are met, Corporation F would be closely related to Corporation A under subparagraph 128(1)(a)(v) as Corporation F is owned by a combination of qualifying subsidiaries referred to in subparagraph 128(1)(a)(ii); that is, a combination of qualifying subsidiaries (namely Corporation C and Corporation E) of the particular corporation (Corporation A).
Further, where the conditions relating to qualifying voting control and required share ownership are met, Corporation G (the particular corporation) would be closely related to Corporation F under subparagraph 128(1)(a)(v) as Corporation F is owned by a combination of qualifying subsidiaries referred to in subparagraph 128(1)(a)(iv); that is, a combination of qualifying subsidiaries (namely Corporation C and Corporation E) of a corporation (Corporation A) of which the particular corporation (Corporation G) is a qualifying subsidiary.
Corporation H (the particular corporation) would be closely related to Corporation F based on the same analysis.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-1339. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
William Parker
Special Provisions - FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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