26 January 2001 GST/HST Interpretation 33697 - Section 156 of the Excise Tax Act

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

I refer to your facsimile letter XXXXX and my subsequent telephone conversation with XXXXX of your office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) in respect of the eligibility of your clients to enter into an election under recently amended (As amended by Bill C-24, Assented to October 20, 2000).
(section 156 of the Excise Tax Act ("ETA").

Statement of Facts

1. The two legal entities that would like to make the section 156 election are:

•   XXXXX ("H Co."); and

•   XXXXX ("LP").

2. Both H Co. and LP are registered for GST/HST purposes. None of the other legal entities presented below are GST/HST registrants.

3. LP is a partnership between H Co. and XXXXX ("P Co."). Both H Co. and P Co. are corporations which are resident in Canada other than by reason of subsection 132(2) of the ETA.

4. H Co. has a 99.99% partnership interest in LP, while P Co. has a similar 0.01% interest. It is assumed that H Co.'s partnership interest in LP is an interest which complies with subsection 156(1.3) of the ETA and that no situation may arise that would result in subsection 156(1.3) not applying to H Co.'s interest in LP.

5. Both H Co. and LP comply with the requirements of paragraphs (b) and (c) of the subsection 156(1) definition of "specified member".

6. H Co. is owned by three non-resident XXXXX legal entities:

•   XXXXX having an XXXXX% interest;

•   XXXXX having a XXXXX% interest; and

•   XXXXX having a XXXXX% interest.

7. P Co. is 100% owned by XXXXX.

8. A Co., a non-resident XXXXX legal entity, has a 100% ownership interest in:

•   XXXXX;

•   XXXXX;

•   XXXXX

9. A Co. is 100% owned by B Co., a non-resident XXXXX legal entity.

Interpretation Requested

Whether H Co. and LP are eligible to enter into the section 156 ETA election for nil consideration.

Interpretation Given

In order to be eligible to make the election for nil consideration, pursuant to subsection 156(2) of the ETA, the persons electing must be "specified members" of a "qualifying group". Based on the facts provided to us, H Co. and LP meet the requirements of the subsection 156(1) ETA definitions of "specified member" of a "qualifying group". Consequently, H Co. and LP would be eligible to enter into the section 156 election.

Explanation

A "qualifying group" is defined in subsection 156(1) of the ETA to mean

(a) a closely related group; or

(b) a group of Canadian partnerships, or of Canadian partnerships and corporations resident in Canada, each member of which is closely related, within the meaning of this section, to each other member of the group.

A "specified member" of a qualifying group is defined in subsection 156(1) of the ETA to mean a person that is a corporation or a partnership and

(a) that is a member of the group;

(b) that is not a party to an election under subsection 150(1); and

(c) all or substantially all of the property of which (other than financial instruments) was last manufactured, produced, acquired or imported by the person for consumption, use or supply exclusively in the course of commercial activities of the person or, if the person has no property (other than financial instruments), all or substantially all of the supplies made by which are taxable supplies.

"Canadian partnership" is defined in subsection 156(1) of the ETA to mean a partnership each member of which is a corporation or partnership which is resident in Canada.

LP is resident in Canada pursuant to subsection 132(1) of the ETA since the majority of its members having management and control thereof, H Co. and P Co., are resident in Canada. As LP is resident in Canada, and as both of its members (H Co. and P Co.) are corporations which are resident in Canada, LP is a Canadian partnership pursuant to subsection 156(1) of the ETA.

As residents in Canada, both H Co. and LP could form a "qualifying group" pursuant to paragraph (b) of this subsection156(1) definition where they are "closely related persons" pursuant to subsection 156(1.1) of the ETA. H Co. and LP can be considered to be closely related to each other pursuant to clause 156(1.1)(b)(iii)(A) of the ETA as H Co. holds substantially all of the interest in LP pursuant to subsection 156(1.3) of the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letters. 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 Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0328.

Yours truly,

Richard Aronoff
Corporate Reorganizations Unit
Excise and GST/HST Rulings Directorate
Canada Customs and Revenue Agency

2005/08/24 — RITS 39293 — [Application of the GST/HST on Memberships of a Non-profit Organization]