15 August 2003 GST/HST Interpretation 44588 - SLFI Status in Year After Amalgamation

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. We apologize for the delay in responding to your enquiry.

Interpretation Requested

You have written to outline your concerns with respect to the effect of an amalgamation on a company's status as a Selected Listed Financial Institution ("SLFI") for the purposes of the Excise Tax Act (the Act).

XXXXX and XXXXX amalgamated to form XXXXX. Prior to amalgamation, both XXXXX and XXXXX met the definition of a SLFI and filed returns on that basis.

The return filed by the amalgamated company for the XXXXX taxation year included a reduction to net tax, related to the Special Attribution Method ("SAM"), XXXXX $XXXXX. If the return is assessed based on the legislation in section 225.2, as interpreted by yourself, and the CCRAXXXXX, this amount will be disallowed. You have agreed XXXXX to request our interpretation of the issue XXXXX.

You state that: XXXXX.

However, you are concerned that the remedy provided by subsection 225.2(2) is not effective in the event of an amalgamation of two SLFIs since under subsection 225.2(1) a financial institution is a SLFI in a particular year if it is "a listed financial institution ... during the particular year and the preceding taxation year ...". Because section 225.2 is not listed in the Amalgamations and Windings-Up Continuation Regulations you believe that the result is that the new corporation is deemed to be a separate person from each of the predecessors by virtue of section 271 so that the new corporation has no preceding taxation year. As a result, a corporation cannot be a SLFI in the year following an amalgamation.

Interpretation Given

Based on the information provided, it is our interpretation that the amalgamation of two SLFIs into one amalgamated listed financial institution results in the new amalgamated corporation also being a SLFI for purposes of the SLFI rules in section 225.2.

Paragraph 271(a) provides that a new corporation formed on an amalgamation will generally be treated, for GST/HST purposes, as being a person separate from each of the predecessor corporations. However, paragraph 271(b) provides that the new corporation will be considered to be the same corporation as, and a continuation of, each of the predecessor corporations for prescribed purposes. The prescribed purposes are outlined in the Amalgamations and Windings-Up Continuation (GST/HST) Regulations.

Although section 225.2 is not prescribed in these Regulations, subsection 149(1) is a prescribed subsection.

Subsection 149(1) lists persons that are, for purposes of Part IX of the Act, financial institutions throughout a particular taxation year of the person. Subsection 225.2(1) of the Act sets out the criteria for determining who is a SLFI for purposes of the Act. First, a person must be a listed financial institution described in any of subparagraphs 149(1)(a)(i) to (x) during the taxation year in which the fiscal year ends and during the preceding taxation year. Second, the person must have been required to allocate taxable income to both a participating and a non-participating province in each of those taxation years.

The result of the interaction of subsection 225.2(1) and subsection 149(1) by operation of section 271 is that, as in your circumstance, the listed financial institution after the amalgamation is the same listed financial institution and continuation of each of the predecessor listed financial institutions. Therefore, the amalgamated company does meet the two SLFI tests outlined previously as it does have a particular taxation year and a preceding taxation year on which to base the tests. The SAM calculation under subsection 225.2(2) is therefore required to be used XXXXX in the year of amalgamation.

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 Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613 952 9220.

Yours truly,

Larry Springstead
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

i 2 Refer to the previous footnote as to the meaning of "business" under subsection 123(1) of the Excise Tax Act.

ii 1 "Spirits or wine"