29 June 2000 GST/HST Interpretation 3835 - Election Under Section 167

This is further to the telephone message and facsimile of December 7, 1999 sent by XXXXX requesting our input regarding written submissions made by XXXXX to your office with respect to "Elections Concerning the Acquisition of a Business or Part of a Business". We have reviewed the information forwarded by you and wish to provide the following comments as to whether the section 167 election concerning the supply of undivided interests in certain equipment used in a leasing business is applicable in this case.

On the basis of the facts provided by XXXXX in their letter of June 10, 1999 addressed to XXXXX and the attachments thereto, it is our opinion that the supplies of undivided interests in the "XXXXX Equipment" by the "XXXXX Lessor" to the three Purchasers would generally not be considered a supply of a business or part of a business and hence, the election under section 167 would not be available.

Policy P-188, Supply of a Business or Part of a Business for the Purpose of the Election under Subsection 167(1) provides guidelines to be applied in determining the eligibility to use this section:

•   Is the supplier (XXXXX Lessor) selling a business that was established and carried on or that was established and carried on by another person and acquired by the supplier and

•   Under the agreement for the sale, is the recipient (Purchasers) acquiring ownership, possession or use of all or substantially all (90% or more) of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business.

It is a question of fact whether business assets acquired enable the recipient to carry on the business or part of a business. Generally section 167 applies to a single transfer of all or part of a business to a single recipient as a going concern. The XXXXX Lessor has made three separate supplies of undivided interests in the XXXXX Equipment. These supplies do not have the attributes of a business or part of a business. As noted in Policy P-188, the supply of one or more individual assets will not be considered a supply of a business or a part thereof. An undivided interest in certain equipment cannot be seen to be a part of a business in that ownership, possession or use of the undivided interest in the equipment will not allow one Purchaser alone to be capable of carrying on the business of the XXXXX Lessor. Moreover, the written submission provided states that "Each of the Purchasers is unrelated to the others and they are not partners or joint venturers." The XXXXX Lessor is in fact making three separate supplies under separate bills of sale. The test is not that the Purchasers are capable of carrying on their individual pre-existing leasing businesses, but that the recipient must be capable of carrying on the same kind of business that was established or carried on by the supplier with the property supplied under the agreement and acquired by the recipient. The Purchasers, individually, have not met the requirements of subsection 167(1).

Policy P-103R deals strictly with the transfer of an undivided interest in a joint venture made by one of the co-venturers. In the case at hand the Purchasers are not joint venturers and the XXXXX Equipment does not represent joint venture property. Consequently, the transaction cannot be seen to be analogous to the sample ruling provided therein. Policy P-103R is restricted to its facts.

Should you have any further questions with respect to the foregoing please do not hesitate to contact me at (613) 957-8226.

Indra Singh
Technical Officer
Corporate Reorganizations Unit
Financial Institutions and Real Property Division