13 July 2007 GST/HST Interpretation 91756 - Applicability of GST/HST to proposed tax

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 letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the filing requirements of ABC Management Partnership.

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

We understand from the information presented in your letter that :

•   Partnership ABC XXXXX consists of partners Mr. A, Mr. B, and Mr. C.

•   Partnership ABC XXXXX revenue exceeds $6 million annually.

•   ABC Management Partnership has three corporate partners:

–   A Co which is owned solely by Mrs. A, wife of Mr. A,

–   B Co which is owned solely by Mrs B, wife of Mr. B, and

–   C Co which is owned solely by Mrs. C, wife of Mr. C.

•   ABC Management Partnership's revenue does not exceed $6 million annually.

Interpretation Requested

You would like to know if ABC Management Partnership is required to file monthly GST returns as a result of the ownership structure noted above, considering that Partnership ABC XXXXX is required to file monthly GST returns.

Interpretation Given

A registrant's reporting periods established under the provisions of section 245 of the ETA are based on the "threshold amount" calculated under section 249 of the ETA. This threshold amount is the aggregate of the total consideration (excluding goodwill from the sale of a business) for taxable supplies (excluding supplies of financial services, zero-rated exports, and sales of capital real property) made by the registrant and persons associated with the registrant. Whether persons are associated or not is determined according to the provisions of section 127 of the ETA.

Your description of the ownership structure for ABC Management Partnership does not indicate the percentage interest held by each corporate partner in the profits or losses of the partnership. Under the provisions of paragraph 127(3)(a) of the ETA, a person is associated with a partnership if the total of the shares of the profits of the partnership to which the person and all other persons who are associated with the person are entitled is more than half of the total profits of the partnership, or would be more than half of the total profits of the partnership if it had profits. Thus, if one of the corporate partners holds more than half of the partnership interest, that corporation would be associated with the partnership.

You have indicated that each corporate partner is wholly owned by an individual. Where an individual controls a corporation, i.e., generally where an individual owns more that 50% of the voting shares of the corporation, that individual is associated with the corporation. If the individual that is associated with the corporation is associated with any other person, then under the provisions of subsection 127(4), the other person would also be associated with the corporation. In turn, if one of the corporate partners holds more than 50% interest in the partnership profits, any associates of the corporate partner are also associates of the partnership.

If none of the corporate partners is entitled to more than 50% of the total profits of ABC Management Partnership and if the facts provided are complete, i.e., there are no other persons associated with ABC Management Partnership, then the calculation of the threshold amount according to the formula set out in section 249 of the ETA would be based on the total of all consideration for taxable supplies made in Canada (other than those excluded by section 249) by ABC Management Partnership. While there appears to be several related persons in your description of the ownership structures for the ABC XXXXX and ABC Management Partnership, the two partnerships do not appear to be associated under the provisions of section 127 of the ETA.

It would appear that ABC Management Partnership is not required to adopt a monthly reporting period since its threshold amount does not exceed $6 millions annually. However, it may elect to report monthly.

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 613-954-4394.

Yours truly,

Doris McMullan
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/07/09 — RITS 94487 — Supplies of Services Rendered by Personal Care Workers