22 September 1999 GST/HST Interpretation HQR0001776 - Treatment of Sale of Goodwill

Dear XXXXX

Thank you for your letter of April 29, 1999 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of goodwill.

Your view is that paragraph 141.1(1)(b) of the Excise Tax Act (ETA) deems the supply of the goodwill to have been made otherwise than in the course of commercial activities, and therefore the supply would not be taxable. Specifically, it is your view that the goodwill was produced in the course of non-commercial activities of the supplier, such that subparagraph 141.1(1)(b)(ii) applies.

Since your ruling request was received after the closing date of the transaction, we are unable to provide a ruling. Accordingly, we are providing an interpretation of the applicable legislative provisions.

Interpretation Given

Paragraph 141.1(1)(b) states, in part, that:

"where a person makes a supply (other than a supply made by way of lease, licence or similar arrangement in the course of a business of the person) of personal property that ...

(ii) was manufactured or produced by the person in the course of activities of the person that are not commercial activities exclusively for consumption or use in the course of activities of the person that are not commercial activities ...

the person shall be deemed to have made the supply otherwise than in the course of commercial activities."

Although the Act does not define the term "produced", it is the position of the Department that goodwill does not appear to be something that could be "produced" for the purposes of subparagraph 141.1(1)(b)(ii) of the Act. Accordingly, this provision would not be applicable to the supply of goodwill.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-1512 or Noreen Morton at (613) 957-8232.

Yours truly,

Mark Seigel
Technical Analyst
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate