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: 119159
Dear [Client]:
Subject: GST/HST INTERPRETATION
Closely related corporations
Thank you for your letter of October 13, 2009, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the eligibility of certain organizations to file the election under section 156 of the Excise Tax Act (ETA). We regret the delay in responding to your enquiry.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the ETA unless otherwise specified.
We understand that you represent a group of societies that have the same board members and are therefore controlled by the same group of people. The societies provide [supplies of] […].
The reason there are several societies is that there are different funders. […]
The societies are each incorporated under the […] Act of [province A] […].
RULING REQUESTED
You would like to know if the societies may file the form GST 25, Election or Revocation of the Election to Treat Certain Taxable Supplies as having been made for Nil Consideration under section 156 to exempt inter society management fees.
As outlined in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, a ruling provides the Canada Revenue Agency’s position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, supported by a complete description of the facts and supporting documentation. Alternatively, an interpretation provides a general explanation of how the law would apply without relating to any specific transaction. As you have not disclosed the identities of the societies, we are providing you with an interpretation of the relevant portions of the legislation.
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. The effect is that GST/HST need not be accounted for on these supplies.
With respect to corporations, a “qualifying group” is defined in subsection 156(1) as a group of corporations, each member of which is closely related, within the meaning assigned by section 128, to each other member of the group.
Section 128 provides, in part, that a particular corporation and another corporation are closely related to each other at any time if at that time not less than 90% of the value and number of the issued and outstanding shares of the capital stock of the other corporation, having full voting rights under all circumstances, are owned by the particular corporation.
Under section […] of the […] Act, […]. Thus, as a society incorporated under that Act does not have capital that is divided into shares, it cannot be owned by another society and therefore cannot be closely related to another society for purposes of section 128. Such societies will not meet the definition of “qualifying group” as required to make the election under subsection 156(2).
In addition, “specified member” of a qualifying group is defined in subsection 156(1) to mean, in part, a “qualifying member” of the group. The definition of “qualifying member” of a qualifying group in subsection 156(1) requires, in part, that the qualifying member must have obtained all or substantially all of its property for use exclusively in commercial activities. This would not likely be the case for a society which is engaged in the provision of exempt [supplies of] […].
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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