GST/HST Policy Statement P-045: Butterfly Transactions 9 November 1992 (Obsolete February 2012)
In a purported butterfly reorganization, Subco, which operates a department store, transfers its real estate to a newly-incorporated subsidiary (Newco) of its parent (Parent) in consideration for non-voting preference shares, with Newco then being immediately wound-up into Parent and with the real estate being leased to Subco. CRA stated that s. 272(a) will deem Parent to be a continuation of Newco for ITC purposes.
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|Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1)||registration of subsidiary of butterfly transferee corporation||267|
SubCo, which was a registrant (and not a small supplier), is wound up into ParentCo, a holding company not carrying on any business and not a registrant, with ParentCo then liquidating the acquired inventory. Is ParentCo permitted to claim ITCs and file its returns using SubCo’s GST/HST account number? If no, if its forecasted taxable sales from the inventory liquidation are expected to be less than $30,000, would the small supplier exclusion apply? CRA responded:
ParentCo would not be permitted to claim ITCs and file its GST/HST returns using SubCo’s GST/HST account number. … ParentCo is still a separate legal entity and, as such, is a separate person with its own BN. … SubCo would no longer exist as a separate person. As a result, its BN must be cancelled, including its GST/HST program account. …
ParentCo will be required to obtain its own GST/HST account number under its existing BN where it is a registrant for GST/HST purposes. …
According to the Regulations, the application of section 148 is a prescribed purpose with respect to section 272 of the ETA. As a result, ParentCo would be deemed to be the same corporation as SubCo when determining whether it is a small supplier under section 148.
This means that ParentCo would be required to take into account SubCo’s consideration from taxable supplies over its previous four calendar quarters when determining whether it is required to register for GST/HST purposes. … Under subsection 240(2.1), ParentCo would be required to apply for GST/HST registration before the thirtieth day after the day it makes its first taxable supply in Canada.
CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 18. ("Winding up and GST ITC Entitlements")
A subsidiary (which is an importer and has GST ITC entitlements) is wound up into its parent. Both are registrants. CRA stated:
[W]here the subsidiary corporation was eligible to claim ITCs as determined under section 169 and related provisions with respect to property or services it acquired, but did not claim those ITCs prior to winding-up into its parent corporation, paragraph 272(a) would permit the parent corporation to claim those ITCs.
Allan Gelkopf, Zvi Halpern-Shavim, "Five Arbitrary Differences between Corporations and Partnerships for GST/HST Purposes", Sales and Use Tax, Federated Press, Volume XIII, No. 2, 2015, p. 674.
No comparable relief for partnerships (p. 676)
…When a corporation winds up into its wholly-owned parent, the supply of property from the corporation to the parent is deemed not to be a supply under paragraph 272(b) of the ETA, and no GST/HST applies. If a partnership dissolves, for example, by operation of law when one partner buys the partnership interest of the other, the partnership is deemed to continue to exist until it is deregistered for GST/HST purposes under subsection 272.1(6) of the ETA. The supply of property from the partnership to the partner is not relieved from GST/HST, unless a section 167 election can be made.
A partnership of which the appellant was a member was liable for unremitted GST given its improper reliance on the trade-in rule in s. 153(4). In finding that a direct assessment of the appellant as a partner of the partnership under the joint and several liability rule in s. 272.1(5) was valid, Létourneau JA stated (at paras. 12-13)
Subsection 272.1(5)… imposes joint and several liability on a partnership and its members (unless the member is a limited partner and not a general partner) for the payment or remittance of "all amounts that become payable or remittable by the partnership . . . before or during the period during which the member is a member of the partnership":
…The tax debt arises not from the assessment but from the Act: see, by analogy under the Income Tax Act, Canada v. Riendeau,  F.C.J. No. 559; The Queen v. Simard-Beaudry Inc. et al., 71 DTC 5511 (F.C.T.D.).
Furthermore, subsection 299(2) states that "liability under this Part to pay or remit any tax, penalty, interest or other amount is not affected by . . . the fact that no assessment has been made":
before going on to find that an assessment under s. 272.1(5) was directly authorized by s. 296(1)(e).
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|Tax Topics - Excise Tax Act - Section 153 - Subsection 153(4)||not available where only a credit note issued||136|
|Tax Topics - Excise Tax Act - Section 299 - Subsection 299(2)||assessment of partnership before assessment of partner not required||179|