1 October 2005 GST/HST Interpretation 63687 - Use of the Election in Section 156 of the ETA

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your fax messages XXXXX concerning the application of the Goods and Services Tax (GST) to transfers between corporations.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Interpretations Requested

You requested an interpretation as to whether, if an individual owns 100% of the shares of four corporations, the corporations would be eligible to use the election in subsection 156(2) of the ETA. You also questioned whether the application of subsection 156(1.2) would make the corporations eligible to make use of the election in subsection 156(2).

Interpretations Given

In the situation you have described, the corporations would not be eligible to make use of the election in subsection 156(2).

Section 156(2) permits a specified member of a qualifying group to make an election with another specified member of the group, so that every taxable supply that is acquired by the recipient of a supply from the other corporation for use exclusively in the course of commercial activities (other than a sale of real property) is deemed to have been made for no consideration.

Subsection 156(1) defines "qualifying group", in the case of a group of corporations, as meaning a closely related group. Subsection 123(1) of the ETA defines a closely related group as a group of corporations that are closely related to each other within the meaning of section 128 of the ETA. Subsection 128(1) outlines the circumstances in which two corporations are closely related, based on the ownership of the share capital of a corporation by one or more corporations.

The ownership of shares of a corporation by an individual is only relevant to the issue of whether corporations are closely related to one another where there is a prescribed corporation, which is referred to in paragraph 128(1)(b). The Closely Related Corporations (GST) Regulations indicate that a corporation may be a prescribed corporation in relation to another corporation where an individual owns some shares of the corporation in certain limited circumstances and where that share ownership arose in respect of the employment of the person. These Regulations would not apply where an individual owns all the shares of several corporations.

You questioned whether subsection 156(1.2) would affect the situation at issue. Subsection 156(1.2) states in part that two persons are closely related to each other if they are closely related to the same corporation under subsection 156(1.1). That subsection would also not apply where an individual owns all the shares of several corporations.

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, Goods and Services Tax Rulings, 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 613-952-9211.

Yours truly,

Don Dawson
Corporate Reorganizations Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

2005/10/20 — RITS 64563 — Small Supplier Threshold