Holdco, a non-resident corporation, holds two stacks of wholly-owned Canadian and US corporations: US 2 holding US4, holding C 1, holding C 3; and US 3 holding US 5, holding C 2, holding C 4. Which of the Canadian corporations are closely related? CRA responded:
…Hold Co., US2, US4 and C1 are closely related…under either subparagraph 128(1)(a)(i) or (ii) and the same can be determined on the right side… . C1 and C2 are closely related under subsection 128(2) as both are closely related under subsection 128(1) to common parent Hold Co.
…C1 and C2 are closely related to Hold Co. under subparagraph 128(1)(a)(ii) since 100% of the required shares of each (i.e., C1 and C2) are owned by a qualifying subsidiary…of Hold Co.
C1 and C4 are closely related under subsection 128(2) since, based on the definition of qualifying subsidiary in subsection 123(1) and subsection 128(1), both are closely related to common corporation US3… . C1 is closely related to US3 under subparagraph 128(1)(a)(iv) as 100% of the required shares of C1 are owned by (a qualifying subsidiary of) a qualifying subsidiary of Hold Co. of which US3 is a qualifying subsidiary. C4 is closely related to US3, based on the same definition and subparagraph 128(1)(a)(ii), since 100% of the required shares of C4 are owned by (a qualifying subsidiary of) a qualifying subsidiary of US3.
A similar analysis on the opposite side of the ownership structure establishes that C2 and C3 are closely related under subsection 128(2)… .
However C3 and C4 are not closely related to each other since they are both closely related to common parent Hold Co. under subsection 128(2) rather than under subsection 128(1).
[Therefore] the following entities are closely related and eligible to make an election under section 156:
- C1 with C2
- C1 with C4
- C2 with C3
