2 September 1998 GST/HST Interpretation HQR0001099 - Election Under Subsection 167(1) ETA

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letter of March 16, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) with respect to your clients' eligibility to file the election under subsection 167(1) of the Excise Tax Act.

From the information provided in your letter as well as our telephone conversations, our understanding of the facts is as follows.

Your clients are considering re-organizing the structure of their business operations. In the process of this future reorganization, a partnership will be dissolved and the undivided interests in the partnership assets will be transferred to the partners in accordance with their partnership interests.

The partnership is composed of two corporate partners: Corporation A and Corporation B. Both partners are registered for GST purposes. Corporation A has a slightly more than 90% undivided interest in the partnership. Corporation B has a slightly less than XXXXX 10% undivided interest in the partnership.

The effect of the dissolution of the partnership will be that Corporation A and Corporation B will each receive an undivided interest in the partnership assets used in the business. Corporation A and Corporation B will subsequently amalgamate. Until the corporations are amalgamated, the business will be continued by Corporation A together with Corporation B.

Interpretation Requested

You wish to know whether Corporation A and the partnership may use the election under subsection 167(1) of the Excise Tax Act on the acquisition by Corporation A of the undivided interest (90% or more) in the partnership assets.

Interpretation Given

The Department's position with respect to the availability of the election under subsection 167(1) of the Excise Tax Act where there is a sale of a business or part of a business is explained in policy P-188.

Based on the information provided, the supply by a partnership of an undivided interest in the partnership property to one of the partners would generally not be considered a supply of a business or part of a business and, as a result, the election under subsection 167(1) would not be available.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 Memoranda Series, do not bind the Department 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) 954-4394.

Yours truly,

J. Allard
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate