Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
To:
[Client]
From:
Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
CASE NUMBER:
131654
DATE:
February 15, 2011
Subject:
GST/HST RULING
[...] [Joint election and entitlement to ITCs]
This is in regards to your enquiries regarding [...].
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
BACKGROUND
The following is our understanding of the facts and transactions:
1. [...] (PartnerCo) is a corporation resident in [Province X] and is registered for GST/HST purposes under business number [...].
2. Article [...] of the [...] (the Partnership Agreement) provides that [...]. Article [...] of the Partnership Agreement identifies that [...].
3. No provision of the Partnership Agreement requires PartnerCo to acquire management services as a member of the partnership.
4. Subsection [...] provides that [...].
5. Subparagraph [...] provides that [...]
6. Subparagraph [...] of the Partnership Agreement provides that [...]
7. Subparagraph [...] of the Partnership Agreement provides that [...]
8. PartnerCo's balance sheet for the periods ending [mm/dd/yyyy], and [mm/dd/yyyy], identify that PartnerCo's assets consist of cash and deposits and investment in a partnership.
9. PartnerCo's income for the periods ending [mm/dd/yyyy], and [mm/dd/yyyy], consisted of other revenue (comprised of interest income and GST recovery) and income from partnerships. All of the partnership income reported by PartnerCo is from one partnership.
10. PartnerCo's expenses for the periods ending [mm/dd/yyyy], and [mm/dd/yyyy], consisted of interest and bank charges, professional fees and management fees.
11. Effective [mm/dd/yyyy], PartnerCo entered into a Management Services Agreement (the Management Services Agreement) with [...] (ManagementCo). Under this agreement, PartnerCo wishes to obtain from ManagementCo, general and administrative management services. Section [...] of the Management Services Agreement provides that ManagementCo shall be paid by PartnerCo for providing these services such amounts per year as may be from time to time agreed upon between the parties. Upon determination of such amount, ManagementCo will render invoices to PartnerCo for such amounts plus applicable Federal and Provincial taxes. ManagementCo is registered for GST/HST purposes under business number [...].
12. Section [...] of the Management Services Agreement provides that [...]
13. There is no indication in the Management Services Agreement that PartnerCo has acquired the management services from ManagementCo as a member of the partnership or for consumption, use or supply in the course of the activities of the partnership.
14. Article [...] of the Management Services Agreement states that this agreement supersedes all prior oral or written agreements, if any, between the parties and constitutes the entire agreement between the parties.
15. ManagementCo owns 100% of the common shares of PartnerCo.
16. Neither PartnerCo nor ManagementCo is a party to an election made under subsection 150(1), an election for exempt supplies between members of a closely related group of which a listed financial institution is a member.
17. ManagementCo has not collected GST on any management services rendered to PartnerCo. ManagementCo and PartnerCo have completed Form GST 25, Closely Related Corporations and Canadian Partnerships - Election or Revocation of the Election to Treat Certain Taxable Supplies as having been made for Nil Consideration.
18. [...]
19. [...]
OPINIONS REQUESTED
1. Are PartnerCo and ManagementCo eligible to make a joint election under section 156?
2. Is PartnerCo entitled to claim an input tax credit (ITC) under subsection 272.1(2) in respect of tax paid or payable on management fees?
3. Does PartnerCo meet the criteria for registration as outlined in GST/HST Policy Statement P-216?
OPINIONS GIVEN
1. PartnerCo and ManagementCo are not eligible to make a joint election under section 156
Subsection 156(2) provides that a "specified member" of a "qualifying group" may jointly elect with another specified member of the group to have every taxable supply made between them at a time when the election is in effect to be deemed to have been made for no consideration.
With respect to corporations, a "qualifying group" is defined in subsection 156(1) as a group of corporations, each member of which is closely related, within the meaning assigned by section 128, to each other member of the group.
Section 128 provides, in part, that a particular corporation and another corporation are closely related to each other at any time if at that time not less than 90% of the value and number of the issued and outstanding shares of the capital stock of the other corporation, having full voting rights under all circumstances, are owned by the particular corporation.
A "specified member" of a qualifying group is defined in subsection 156(1) to mean, a "qualifying member" of the group or a "temporary member" of the group during the course of the reorganization referred to in paragraph (f) of the definition of "temporary member". Subsection 156(1) defines a "qualifying member" of a qualifying group to include a registrant that is a corporation resident in Canada that meets the following conditions:
• The registrant is a member of the group;
• The registrant is not a party to an election under subsection 150(1); and
• The registrant last manufactured, produced, acquired or imported all or substantially all of its property (other than financial instruments) for consumption, use or supply exclusively in the course of commercial activities of the registrant or, if the registrant has no property (other than financial instruments), all or substantially all of the supplies made by the registrant are taxable supplies.
PartnerCo's assets are comprised only of financial instruments as defined in subsection 123(1) (i.e., cash and deposits and an interest in a partnership). Therefore, in order to be considered a qualifying member, all or substantially of the supplies PartnerCo makes must be taxable supplies. Since PartnerCo does not make any taxable supplies, it would not be considered a "qualifying member" of the group. As such, PartnerCo is not eligible to make the election under section 156 with ManagementCo.
2. PartnerCo is not eligible to claim ITCs under subsection 272.1(2)
Where property or a service is acquired or imported by a corporation that is a member of a partnership, for consumption, use or supply in the course of activities of the partnership but not on the account of the partnership, unless the partnership reimburses the corporate partner, subsection 272.1(2) of the ETA deems the partnership not to have acquired the property or service and for the purpose of determining ITCs of the partner, the partner to be engaged in the activities of the partnership.
In the case at hand, while it is clear that PartnerCo is a member of the partnership and has acquired services from ManagementCo as agreed to in the Management Services Agreement, the facts provided are not sufficient to conclude that those services are for consumption, use or supply in the course of the activities of the partnership (iFootnote 1) . For example, there is no indication in the Management Services Agreement or the invoices presented that PartnerCo has acquired the management services from ManagementCo as a member of the partnership or for consumption, use or supply in the course of the activities of the partnership and no provision of the Partnership Agreement requires PartnerCo to acquire management services as a member of the partnership.
3. PartnerCo does not meet the criteria for registration as outlined in GST/HST Policy Statement P-216
The Department will permit a partner (other than an individual) to voluntarily register for GST/HST purposes beginning April 24, 1996, notwithstanding the fact that the partner is not engaged in any commercial activity in Canada other than the commercial activity engaged in by it as a member of the partnership. As the facts are not sufficient to conclude that PartnerCo has acquired property or a service for consumption use or supply in the course of activities of the partnership, PartnerCo would not be entitled to register for GST/HST purposes as a result of GST/HST Policy Statement P-216.
We trust that our comments are of assistance to you in clarifying our views on this matter.
i 1 It is possible that these services are for consumption, use or supply otherwise than in the course of the activities of the partnership.
---------------
------------------------------------------------------------
---------------
------------------------------------------------------------
UNCLASSIFIED
Email this Content