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: 159039
February 4, 2014
Dear [Client]:
Subject: GST/HST INTERPRETATION
Eligibility of a group of corporations to file a section 156 election
Thank you for your fax of October 29, 2013, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the eligibility of a group of corporations to file an election under section 156 of the Excise Tax Act (ETA).
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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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.
The following organization structure was presented for consideration:
HoldCo.
/ | \
/ | \
/ | \
US 2 ------- US 1 US 3
| |
| |
US 4 US 5
| |
---------------------------------|-----------|---------------------------------
| |
C 1 C 2
| |
| |
C 3 C 4
We were asked to assume the following regarding the above structure:
* 100% ownership (number and value) of all of the voting shares of each corporation downstream in the structure by the entity immediately above it;
* Hold Co. owns 100% of all of the voting shares in US2; and
* US1 is a partnership with US2 and Hold Co. as its partners.
INTERPRETATION REQUESTED
You would like to gain an understanding of the following:
1. Based on the structure, would C3 and C4 be entitled to make a section 156 election?
2. Would C1 and C2 be entitled to make a section 156 election?
3. Would C2 and C3 (or C1 and C4) be entitled to make a section 156 election?
4. Does the fact that US1 is a US based partnership impact these election entitlements?
INTERPRETATION GIVEN
Subsection 156(2) provides that a “specified member” of a “qualifying group” may elect jointly with another specified member of the group to have taxable supplies between them to be deemed to have been made for no consideration. In order for C1, C2, C3 and C4 to make elections in the manner described above two conditions must be met: each electing member must fall within the meaning of “specified member” and each must be a member of the same “qualifying group”.
The definition of “qualifying group” under subsection 156(1) specifies that the qualifying group must consist of:
(a) a group of corporations each member of which is closely-related under section 128, or
(b) a group of Canadian partnerships or of Canadian partnerships and corporations, each member of which is closely related under the meaning of section 156.
Each member of the group of corporations that would be the electing entities (C1, C2, C3 and C4) must be closely related under section 128 in order to be considered to be a member of the same qualifying group under paragraph (a) above.
It can be established that corporations consisting of Hold Co, US2, US3, US5, C2 and C4 are closely related under section 128 and members of the same qualifying group. However, neither C1 nor C3 are closely related to members of that group under section 128 and, therefore, are not part of the same qualifying group as US1 intervenes in the ownership structure. As a result, none of the corporations would be entitled to make a section 156 election as posed in questions 1, 2 and 3 above.
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
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