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: 154536
February 10, 2014
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of section 156 to a financial institution
Thank you for your [correspondence] of May 30, 2013, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the eligibility of a financial institution to elect under section 156 of the Excise Tax Act (ETA). We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the ETA unless otherwise specified.
Our understanding of the facts, based upon your submission and our conversation on [mm/dd/yyyy], is as follows:
1. For ETA purposes, FinanceCo is a de minimis financial institution as its income from loans is more than $1 million. FinanceCo is registered for GST/HST purposes.
2. FinanceCo is in the business of leasing and financing equipment and vehicles. It owns $[…] of equipment (i.e., property) that it leases to customers. It has loaned $[…] to borrowers.
3. The leased equipment owned by FinanceCo is shown as a capital asset on the balance sheet of FinanceCo. The equipment value is based upon the book value of the assets at purchase cost, as the equipment was recently purchased.
4. FinanceCo earns $[…] of exempt revenue from its loan activities and $[…] of taxable revenue from its leasing activities per year.
5. Aside from leased equipment and debt securities (loans), FinanceCo last manufactured, produced, acquired or imported the following property for use in its leasing and financing business: office equipment, computer hardware and software, other tangible and intangible property and goodwill. The value of this property, based upon book value, is $[…].
6. It is your view that FinanceCo last manufactured, produced, acquired or imported substantially all of its equipment for consumption, use or supply exclusively (i.e., […][90% or more]) in the course of FinanceCo’s commercial activities based on the following:
* property held by FinanceCo (other than financial instruments) is worth $[…].
* $[…] of that property is supplied exclusively in the course of FinanceCo’s commercial activities (leasing).
* the remaining $[…] was not last manufactured, produced, acquired or imported, all or substantially all, for consumption, use or supply exclusively in the course of its commercial activities. Rather, it is used in FinanceCo’s commercial activities (leasing) and exempt activities (loans).
* the property that is supplied exclusively by FinanceCo in its commercial activities is [90% or more] of the value of FinanceCo’s total property (other than financial instruments)
([…]).
A ruling is provided to a clearly defined fact situation where all of the relevant facts are provided. As details concerning all of the property (e.g., goodwill, real property) held by the financial institution are not available, we are not able to provide a ruling. However, we are pleased to provide the following general comments.
INTERPRETATION REQUESTED
You would like to confirm that FinanceCo satisfies paragraph (c) of the definition of “qualifying member” in subsection 156(1).
INTERPRETATION GIVEN
Subsection 156(2) provides that a “specified member” of a “qualifying group” may jointly elect with another specified member of the group to have every taxable supply made between them at a time when the election is in effect to be deemed to have been made for no consideration. It effectively allows members to treat those supplies as made for no consideration if they are all engaged exclusively in commercial activities since they would, in any event, be entitled to fully recover any tax paid on purchases from other members in the group. The effect is that members need not account for otherwise fully recoverable tax.
A “specified member” of a qualifying group is defined in subsection 156(1), in part, to mean a “qualifying member” of the group (Footnote 1) . Subsection 156(1) defines a “qualifying member” of a qualifying group to include a registrant that is a corporation resident in Canada that meets the following conditions:
(a) the registrant is a member of the group;
(b) the registrant is not a party to an election under subsection 150(1); and
(c) the registrant last manufactured, produced, acquired or imported all or substantially all of its property (other than financial instruments) for consumption, use or supply exclusively in the course of commercial activities of the registrant or, if the registrant has no property (other than financial instruments), all or substantially all of the supplies made by the registrant are taxable supplies.
For GST/HST purposes, the phrase “all or substantially all” is interpreted as meaning 90% or more. The definition of “exclusive” under subsection 123(1) in respect of the consumption, use or supply of property or a service by a financial institution, means “all” of the consumption, use or supply of the property or service.
It must be determined for purposes of paragraph (c) of the definition of “qualifying member” whether all or substantially all (90% or more) of the financial institution’s property (other than financial instruments) was last manufactured, produced, acquired or imported for consumption, use or supply “exclusively” (100% in the case of a financial institution) in the course of its commercial activities. Financial instruments are not included when making this determination.
A registrant may determine that all or substantially all (90% or more) of its property (other than financial instruments) was last manufactured, produced, acquired or imported for consumption, use or supply exclusively in the course of its commercial activities by dividing the value (e.g., book value) of property (other than financial instruments) for use in commercial activity by the value of all property (other than financial instruments) held by the registrant. Any such determination must take into account all of the relevant facts and circumstances of a particular case.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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,
Nancy Jardine
Special Provisions - FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 “Specified member” is also defined to include a “temporary member of the group during the course of the reorganization…”, although, for purposes of the Interpretation Given, the financial institution is not considered to be a temporary member.
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