CRA indicates that s. 125.7(4)(c) cannot be accessed by a corporation jointly owned by joint venture participants which do not deal with it at arm’s length

S. 125.7(4)(c) provides that where all of the interests in an eligible entity are owned by participants in a joint venture and all or substantially all (interpreted by CRA as generally referencing a 90% threshold) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, the eligible entity may use the qualifying revenues of the joint venture (determined as if the joint venture were an eligible entity) as its qualifying revenues for the qualifying period in determining its CEWS (wage subsidy) entitlement.

CRA considered the situation where two related corporations (Holdco 1 and Holdco 2) were equal participants in a joint venture and Opco (owned by them on a 50/50 basis) earned all its revenues from providing services to the joint venture. Although this situation might seem to come within s. 125.7(4)(c), CRA referred to para. (d) of the qualifying revenue definition, which excludes amounts derived from persons or partnerships not dealing at arm’s length with the eligible entity from its qualifying revenues. CRA indicated that, based on para. (d), Opco did not derive any qualifying revenue from the joint venture (i.e., from Holdco 1 and Holdco 2), so that s. 125.7(4)(c) was not available – whereas it would have been available if it instead had been dealing with them at arm’s length.

However, its non-arm’s length relationship with Holdco 1 and Holdco 2 would not preclude it from effectively accessing their qualifying revenue declines through a joint election under s. 125.7(4)(d).

Neal Armstrong. Summaries of 15 February 2022 Internal T.I. 2020-0870731I7 under s. 125.7(4)(c) and s. 125.7(4)(d).