22 December 2022 External T.I. 2021-0911251E5 - CEWS - ECRA - Multiple publicly traded parents

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: For the purpose of the ECRA definition in subsection 125.7(1) of the Act, where an eligible entity is controlled by more than one publicly traded parent, who is the “public parent corporation”?

Position: The publicly traded parent at the top of the corporate structure.

Reasons: The law.

XXXXXXXXXX
							2021-091125
							Matthew Ross, CPA, CA

December 22, 2022

Dear XXXXXXXXXX:

Re: Executive compensation repayment amount - Identifying the public parent corporation

We are writing in response to your question regarding the meaning of the term “public parent corporation” (“PPC”) as provided by the definition “executive compensation repayment amount” (“ECRA”) in subsection 125.7(1) of the Income Tax Act (“the Act”) for purposes of the wage subsidy provided by subsection 125.7(2) of the Act (“the wage subsidy”).

You have provided the following situation:

• Pubco 1, Pubco 2 and Subco are each an “eligible entity” as that term is defined in subsection 125.7(1) of the Act.
• Shares of the capital stock of Pubco 1 and Pubco 2 are listed or traded on a stock exchange or other public market.
• Pubco 2 controls Pubco 1 and, in turn, Pubco 1 controls Subco.

You have asked which of the publicly traded corporations is Subco’s PPC for purposes of the ECRA definition in subsection 125.7(1) of the Act.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.

The ECRA of an eligible entity is defined in subsection 125.7(1) of the Act. Paragraph (a) of the definition provides that, in order for an eligible entity to have an ECRA, its shares must be listed or traded on a stock exchange or other public market or it must be controlled by a corporation the shares of which are listed or traded on a stock exchange or other public market.

Paragraph (b) of the ECRA definition in subsection 125.7(1) of the Act provides the calculation of the ECRA for a particular eligible entity as the formula A x B.

Variable A is primarily relevant to certain groups and provides the allocation of the amount determined under Variable B to each member of the group. For the purposes of the ECRA, the relevant group is defined in clause (i)(A) of the description of Variable A for the seventeenth qualifying period to the twenty-third qualifying period and in clause (i.1)(A) for the twenty-fourth qualifying period and any subsequent qualifying period. For each of these relevant periods specified in subparagraphs (i) and (i.1) of the description of Variable A, the group is comprised of:

• The particular eligible entity,
• A publicly traded corporation that controls the eligible entity (the eligible entity’s PPC) (footnote 1) if it received a wage subsidy in respect of any of the seventeenth qualifying period to the twenty-third qualifying period (or in respect of the twenty-fourth qualifying period or any subsequent qualifying period),
• Each other eligible entity that received a wage subsidy in respect of any of the seventeenth qualifying period to the twenty-third qualifying period (or in respect of the twenty-fourth qualifying period or any subsequent qualifying period) and was controlled in that period by the eligible entity or the PPC.

Thus, for the purposes of the ECRA, a group is identified for each of the relevant periods specified in subparagraphs (i) and (i.1) of the description of Variable A. For each of these relevant periods, an amount for Variable B is determined for the group and that amount is allocated to the members of the group to become each group member’s ECRA for the relevant period.

It follows that the group identified by clauses (i)(A) and (i.1)(A) of the description of Variable A must be capable of including the broadest possible membership for each relevant period. In our view, each group may only have one PPC and the PPC of the group will be the publicly traded corporation that controls each of the other eligible entities in the group. Accordingly, in the situation presented, the PPC of Subco is Pubco 2.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette CPA, CA
Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 A “public parent corporation” is described, for each of the relevant periods, as an eligible entity, shares of the capital stock of which are listed or traded on a stock exchange or other public market, that controls the eligible entity. There is no requirement that the entity receive the wage subsidy in order to be described as a public parent corporation.