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]
Case Number: 167422R
Dear [Client]:
Subject: GST/HST INTERPRETATION
Eligibility of corporations to make an election under section 156
Further to our letter of June 19, 2015, concerning the eligibility of certain corporations to make an election under section 156 of the Excise Tax Act (ETA), this letter provides our revised position.
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.
These assumptions were made:
1. Each entity in the ownership structure illustrated on the following page is a corporation;
2. Qualifying voting control of a particular corporation is held by the corporation immediately above it, and the required shares (that is, not less than 90% of the value and number of the issued and outstanding shares, having full voting rights under all circumstances, of the capital stock of the particular corporation) are owned by that corporation; (Footnote 1)
3. All other conditions for making the section 156 election are met other than the question of whether the corporations are closely related under section 128 as required to be members of the same qualifying group; and
4. Hold Co. and each “US” entity are not resident in Canada, whereas each “C” entity is resident in Canada and is a registrant for GST/HST purposes.
The ownership structure of the corporations is as follows:
Hold Co.
| \
| \
US 2 US 3
| |
US 4 US 5
| |
--------------------
| |
C 1 C 2
| |
C 3 C 4The ownership structure on the left side consists of C3 of which qualifying voting control is held by, and the required shares are owned by, C1 of which qualifying voting control is held by, and the required shares are owned by, US4 of which qualifying voting control is held by, and the required shares are owned by, US2 of which qualifying voting control is held by, and the required shares are owned by parent Hold Co. The ownership structure on the right side consists of C4 of which qualifying voting control is held by, and the required shares are owned by, C2 of which qualifying voting control is held by, and the required shares are owned by, US5 of which qualifying voting control is held by, and the required shares are owned by, US3 of which qualifying voting control is held by, and the required shares are owned by parent Hold Co.
INTERPRETATION REQUESTED
Based on the above, you would like to know whether the following entities are eligible to make an election under section 156:
- C1 with C2
- C1 with C4
- C2 with C3
- C3 with C4.
INTERPRETATION GIVEN
Based on subsection 156(2), a “specified member” (which includes a “qualifying member”) of a “qualifying group” may elect jointly with another specified member of the same group to have certain taxable supplies made between them deemed to have been made for no consideration. The definition of “qualifying group” includes a group of corporations, each member of which is closely related, pursuant to section 128, to each other member of the group. Each electing member (for example, C1 with C2) must be closely related under section 128 to be a member of the same qualifying group. (Each electing entity must also be a “specified member” of the group.)
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 the 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 that corporation. A corporation that is a qualifying subsidiary of a qualifying subsidiary of the particular corporation is also a qualifying subsidiary of the particular corporation.
On the left side of the ownership structure US2 is a qualifying subsidiary of Hold Co, US4 is a qualifying subsidiary of US2, C1 is a qualifying subsidiary of US4, and C3 is a qualifying subsidiary of C1. In addition, since US2 is a qualifying subsidiary of Hold Co. and US4 is a qualifying subsidiary of US2, then US4 is considered to be a qualifying subsidiary of Hold Co. (that is, US4 is a qualifying subsidiary of a qualifying subsidiary (US2) of Hold Co.). Since US4 is a qualifying subsidiary of Hold Co. and C1 is a qualifying subsidiary of US4, then C1 is considered to be a qualifying subsidiary of Hold Co. (that is, C1 is a qualifying subsidiary of a qualifying subsidiary (US4) of Hold Co.). Since C1 is a qualifying subsidiary of Hold Co. and C3 is a qualifying subsidiary of C1, then C3 is considered to be a qualifying subsidiary of Hold Co. (that is, C3 is a qualifying subsidiary of a qualifying subsidiary (C1) of Hold Co.). The same can be determined on the right side of the ownership structure such that US3, US5, C2 and C4 are qualifying subsidiaries of Hold Co.
As a result, on the left side of the ownership structure Hold Co., US2, US4, C1, and C3 are closely related to each other under subparagraphs 128(1)(a)(i) and (ii). The same can be determined on the right side of the structure establishing that Hold Co, US3, US5, C2 and C4 are closely related to each other under subparagraphs 128(1)(a)(i) and (ii).
It follows that C3 and C4 are closely related under subparagraph 128(1)(a)(iv) since qualifying voting control of C4 is held by, and the required shares of C4 are owned by, a qualifying subsidiary (that is, C2) of a corporation (that is, Hold Co.) of which C3 is a qualifying subsidiary. Since C3 and C4 are closely related to each other they are members of the same qualifying group (consisting of C3 and C4). The same analysis may be used for C1 with C2, C2 with C3 and C1 with C4. Since it has been demonstrated that C1, C2, C3 and C4 are a group of corporations, each member of which is closely related under section 128 to each other, they are members of the same single qualifying group.
Assuming that all other conditions to elect are satisfied, for example they are “specified members” of a qualifying group, C1 can make a section 156 election with C2 and with C4, C2 can make a section 156 election with C3, and C3 can make a section 156 election with C4.
Although corporations that are non-residents may be closely related to one another or to corporations that are resident in Canada, only those corporations that are both resident in Canada and registrants may be party to an election under section 156.
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 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 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 613-670-1339. 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
FOOTNOTES
1 This assumption has been modified to take into account the legislative amendments made to the definition of “qualifying subsidiary” in subsection 123(1), and section 128.
Email this Content