CRA has published a memorandum on when corporations and partnerships are closely related for purposes of the ETA s. 156 election

CRA has published a new memorandum regarding when Canadian partnerships and corporations will be considered to be closely related to each other for purposes of the ETA s. 156 (nil consideration) election.

CRA notes that since a limited partner does not have the right to direct the business and affairs of the partnership, it will not be closely related to the partnership.

CRA provides numerous and helpful examples of structures showing the operation of these rules. None of the results are startling. For instance:

• In Example 3, three stacked Canadian partnerships, which thus form a closely related group, are closely related to a fourth Canadian partnership jointly owned by them.
• In Example 7, where each member of a qualifying group – consisting of a holding partnership (X) holding 90% of a partnership (Y) and 90% of a corporation (Z) – holds 1/3 of Corporation L, each such entity is closely related.
• In Example 9, where two grandchildren subsidiaries of AB Corp each hold a 50% partnership interest in a Canadian partnership (XY), each corporation in that chain, as well as each corporation in another wholly-owned stack beneath AB Corp, is closely related to XY.

Neal Armstrong. Summaries of GST/HST Memorandum 14-8 Closely Related Canadian Partnerships and Corporations for Purposes of Section 156 June 2023 under ETA s. 156(1.3)(b)(i), s. 156(1.3)(b)(iii), s. 156(1.1)(a)(i)(C), s. 156(1.2) and s. 156(1.1)(b)(iii)(C).