Related corporations and partnerships

Consultation Draft
ONTARIO REGULATION
made under the
RETAIL SALES TAX ACT
Amending Regulation 1013 of R.R.O. 1990
(General)


Note: Regulation 1013 has previously been amended. Those amendments are listed in the Table of Regulations - Legislative History Overview which can be found at www.e-laws.gov.on.ca.

  1. Section 1.1 of Regulation 1013 of the Revised Regulations of Ontario, 1990 is revoked.

  2. Section 13 of the Regulation is revoked and the following substituted:

TRANSFERS OF TANGIBLE PERSONAL PROPERTY BETWEEN RELATED PERSONS

Interpretation
13
  1. This section contains interpretation rules that apply for the purposes of this section and sections 13.1 to 13.7.

  2. A corporation is related to another corporation if one corporation wholly owns the other corporation or if both corporations are wholly-owned by the same person.

  3. A corporation is wholly-owned by a person or an individual, as the case may be, if the beneficial ownership of shares representing not less than 95 per cent of the sum of the stated capital of all classes and series of shares of the corporation is held directly or indirectly,

    1. by the person; or

    2. by the individual and one or more individuals who are members of his or her family.

  4. A corporation (the "subsidiary corporation") that is wholly-owned by another corporation shall be deemed to include any other corporation that is itself wholly-owned by the subsidiary corporation.

  5. Subject to subsection (6), tangible personal property is eligible property if one of the following conditions is satisfied:

    1. Where the transferor of the property is an individual, it is eligible property if tax was paid under the Act,

      1. by the individual,

      2. by a corporation that the individual wholly owns at the time of the transfer, or

      3. by a corporation that is related to a corporation that the individual wholly owns at the time of the transfer,

      in respect of the purchase, use or consumption of the property.

    2. Where the transferor of the property is a corporation, it is eligible property if tax was paid under the Act,

      1. by the corporation,

      2. by an individual who wholly owns the corporation at the time of the transfer, or

      3. by a corporation that is related to the transferor at the time of the transfer,

      in respect of the purchase, use or consumption of the property.

    3. Where the transferor of the property is a partnership, it is eligible property if tax was paid under the Act,

      1. by the partnership,

      2. by an individual or corporation that contributed the property to the partnership and was a member of the partnership after the tax was paid, or

      3. by a corporation that, at the time of the transfer, is related to a corporation that contributed the property to the partnership and was a member of the partnership after the tax was paid,

      in respect of the purchase, use or consumption of the property.

  6. For the purposes of subsection (5), tax is not considered to have been paid under the Act in respect of the purchase, use or consumption of tangible personal property,

    1. if no tax was payable under the Act in respect of the purchase, use or consumption of the property; or

    2. if no tax was payable under the Act in respect of the purchase of the property because it was purchased for the purposes of resale.

  7. A person shall be deemed in each of the following circumstances to continue to own or to hold a beneficial interest in a share for a period of 180 consecutive days:

    1. Where the person is an individual, if he or she transfers the share during the 180 day period to a member of his or her family, for no consideration, and the member of the family retains the beneficial interest in the share until the end of the 180-day period.

    2. Where the person is an individual, if he or she transfers the share during the 180 day period to a corporation in exchange for consideration that consists only of shares of the corporation that have a fair market value at least equal to the fair market value of the transferred share and the individual,

      1. retains the beneficial interest in the new shares until the end of the 180-day period, or

      2. transfers the new shares to a member of his or her family, for no consideration, and the member of the family retains the beneficial interest in the new shares until the end of the 180-day period.

    3. Where the person is a partnership, if the partnership transfers the share during the 180-day period to a corporation in exchange for consideration that consists only of shares of the corporation that have a fair market value at least equal to the fair market value of the transferred share, and the partnership retains the beneficial interest in the new shares until the end of the 180-day period.

    4. Where the person is a corporation that is wholly owned by an individual or a partnership, if the corporation transfers the share during the 180-day period to that individual or partnership and the transferee of the share retains the beneficial interest in the share until the end of the 180-day period.

    5. Where the person is a corporation,

      1. if the corporation amalgamates with another corporation during the 180-day period and the amalgamated corporation retains the beneficial interest in the share until the end of the 180-day period, or

      2. if the corporation transfers the share during the 180-day period to another corporation in the course of winding-up and the other corporation retains the beneficial interest in the share until the end of the 180-day period.

  8. In this section,

    "member of his or her family" means the father, mother, spouse, grandfather, grandmother, son, daughter, grandson, granddaughter, son-in-law, daughter-in-law, father-in-law or mother-in-law of the purchaser;

    "spouse" means either of two persons who,

    1. are married to each other within the meaning of clause (a) of the definition of "spouse" in section 1 of the Family Law Act,

    2. have together entered into a marriage that is voidable or void, in good faith on the part of a person relying on this clause to assert any right, or

    3. have been living together in a conjugal relationship outside marriage,

      1. continuously for a period of not less than three years, or

      2. in a relationship of some permanence, if they are the natural or adoptive parents of a child.
Sale between related corporations or between wholly-owned corporation and shareholder
13.1
  1. This section applies to a sale of eligible property after July 19, 2004,

    1. by an individual to a corporation that the individual wholly owns;

    2. to an individual by a corporation that the individual wholly owns;

    3. by a partnership to a corporation that the partnership wholly owns;

    4. to a partnership by a corporation that the partnership wholly owns; or

    5. by a corporation to a related corporation.

  2. No tax is payable on a sale to which this section applies if any of the following conditions is satisfied throughout a period of not less than 180 consecutive days after the day on which the sale occurs:

    1. The transferor continues to wholly own the purchaser, if the purchaser is a corporation and the transferor is an individual or partnership.

    2. The purchaser continues to wholly own the transferor, if the purchaser is an individual or partnership and the transferor is a corporation.

    3. The purchaser and the transferor continue to be related, if both the transferor and the purchaser are corporations.
Sale between unrelated corporations
Shareholder to corporation
13.2
  1. This section applies to a sale of eligible property after July 19, 2004 between unrelated corporations, if the transferor directly or indirectly owns shares of the purchaser immediately after the sale.

  2. On a sale of eligible property to which this section applies, no tax is payable by the purchaser on the portion of the fair value of the eligible property that is calculated using the formula,
    A x B
    C
    in which

    "A" is the fair value of the eligible property,

    "B" is the amount that would be the sum of the stated capital of all classes and series of shares of the purchaser if the only issued and outstanding shares of the purchaser were shares that are held by the transferor throughout the period commencing immediately before the sale and ending on the 180th day after the day of the sale, and

    "C" is the sum of the stated capital of all classes and series of shares of the purchaser immediately after the sale.
Sale between unrelated corporations
Corporation to shareholder
13.3
  1. This section applies to a sale of eligible property after July 19, 2004 between unrelated corporations, if the purchaser directly or indirectly owns shares of the transferor immediately before the sale.

  2. On a sale of eligible property to which this section applies, no tax is payable by the purchaser on the portion of the fair value of the eligible property that is calculated using the formula,
    A x D
    E
    in which,

    "A" is the fair value of the eligible property,

    "D" is the amount that would be the sum of the stated capital of all classes and series of shares of the transferor if the only issued and outstanding shares of the transferor were shares that are owned by the purchaser throughout the period commencing immediately before the sale and ending on the 180th day after the day of the sale, and

    "E" is the sum of the stated capital of all classes and series of shares of the transferor at the time of the sale.
Sale between corporation and shareholder that is an individual or partnership
13.4
  1. This section applies to a sale of eligible property after July 19, 2004 by a corporation to an eligible shareholder or by an eligible shareholder to a corporation, if the eligible shareholder directly or indirectly owns shares of the corporation immediately after the sale.

  2. In this section,

    "eligible shareholder" means, in respect of a corporation,
    1. an individual who directly or indirectly owns shares of the corporation, but who does not wholly own the corporation, or

    2. a partnership that directly or indirectly owns shares of the corporation, but that does not wholly own the corporation.

  3. On a sale of eligible property to which this section applies, no tax is payable on the portion of the fair value of the eligible property that is calculated using the formula,
    A x F
    G
    in which

    "A" is the fair value of the eligible property,

    "F" is the amount that would be the sum of the stated capital of all classes and series of shares of the corporation if the only issued and outstanding shares of the corporation were shares that are held by the eligible shareholder throughout the period commencing immediately before the sale and ending on the 180th day after the day of the sale, and

    "G" is the sum of the stated capital of all classes and series of shares of the corporation immediately after the sale.
Sale where consideration includes shares of purchaser corporation
13.5
  1. This section applies to a sale of eligible property after July 19, 2004 to a corporation, if all or part of the consideration for the sale consists of shares of the corporation.

  2. On a sale of eligible property to which this section applies, no tax is payable on the portion of the fair value of the eligible property that is calculated using the formula,
    A x H
    I
    in which,

    "A" is the fair value of the eligible property,

    "H" is the amount that would be the sum of the stated capital of all classes and series of shares of the corporation if the only issued and outstanding shares of the corporation were shares that are issued by the corporation to the transferor as consideration on the sale and in which the transferor continues to hold the beneficial interest for a period of at least 180 consecutive days after the day of the sale, and

    "I" is the total value of the consideration paid by the corporation to the transferor on the sale.
Sale between partner and partnership
13.6
  1. This section applies to a sale of eligible property after July 19, 2004,

    1. from a person to a partnership in which the person is a partner immediately after the sale; or

    2. from a partnership to a person who is a partner in the partnership immediately before the sale and the eligible property was not previously transferred to the partnership by another person who was a partner of the partnership immediately after the property was transferred to the partnership.

  2. On a sale described in clause (1) (a), no tax is payable on the portion of the fair value of the eligible property that is calculated using the formula,
    A x J
    in which,

    "A" is the fair value of the eligible property,

    "J" is the person's percentage share of the income or loss of the partnership immediately after the sale.

  3. On a sale described in clause (1) (b), no tax is payable on the portion of the fair value of the eligible property that is calculated using the formula,
    A x K
    in which,

    "A" is the fair value of the eligible property,

    "K" is the person's percentage share of the income or loss of the partnership immediately before the sale.

  4. Despite subsections (2) and (3), no tax is payable in the following circumstances:

    1. No tax is payable on a sale of eligible property from a person to a partnership on the creation of the partnership on the amount, if any, by which the total value of all consideration received by the person for the sale of the property does not exceed the value of the partnership interest that is received by the person.

    2. A sale of eligible property from a partnership to a person who is a member of the partnership immediately before the sale, if the partnership had acquired the property from the person in a sale described in paragraph 1.
Transfer of interest in partnership
13.7

No tax is payable under the Act, in respect of the value of any tangible personal property held by a partnership, on the transfer of an interest in a partnership from a member of the partnership to another person.

3. Section 18 of the Regulation is amended by adding the following subsection:

  1. For the purposes of this section, subsection 13 (3) sets out the circumstances in which a corporation shall be considered to be wholly owned by a person or an individual.

Page: 892  |