2015-0570381I7 Exemption under paragraph 149(1)(o.2)

Principal Issues: Whether a corporation is exempt under paragraph 149(1)(o.2) of the Act?

Position: Where a corporation meets the requirements of subparagraph 149(1)(o.2)(ii) and is also a prescribed person for purposes of clause 149(1)(o.2)(iv)(D), the corporation would be exempt under paragraph 149(1)(o.2). In the particular situation the particular corporation may be exempt if it factually meets subparagraph 149(1)(o.2)(ii) and is owned by a prescribed person.

Reasons: Legislation and question of fact.

Author: Pietrow, Victor
Section: 149(1)(o.2); Reg. 4802(1) "prescribed persons"

                                                                                      November 19, 2015

      Brian Chamberlain                                                  HEADQUARTERS
      Field Support Section                                              Income Tax Rulings
                                                                                       Directorate
      Non-Filer Programs Division                                    Victor Pietrow
      Debt Management Compliance Directorate            613-404-2142
      Collections and Verifications Branch

                                                                                      2015-057038

      XXXXXXXXXX (the “Company”)
      Exemption under paragraph 149(1)(o.2) of the Income Tax Act (“Act”)

We are writing in response to your email dated February 11, 2015 (with attachments) to our Directorate, which was sent by Jenn Kiervin on your behalf.  You are seeking our assistance in connection with your question as to whether the Company is a corporation exempt under paragraph 149(1)(o.2) of the Act.  We understand this question arises for you in your determination as to the Company’s eligibility to obtain the release of the Company’s GST credit pursuant to the administrative position of CRA that is mentioned at http://www.cra-arc.gc.ca/nwsrm/fctshts/2012/m04/fs120425-eng.html (“Canada Revenue Agency to ease burden on tax exempt corporations”). From your email, we understand that the Company states that it is a corporation exempt under paragraph 149(1)(o.2).

Based on your submissions, it would appear that the Company’s argument is premised on the assumption that XXXXXXXXXX (the “Board”) is, and was at all relevant times, the sole shareholder of the Company. 

Requirements under paragraph 149(1)(o.2)

To be exempt under paragraph 149(1)(o.2), the Company must meet the conditions set out in one of subparagraphs 149(1)(o.2)(i), (ii), (ii.1) or (iii) (the “Activities Test”) and one of the clauses in subparagraph 149(1)(o.2)(iv) (the “Ownership Test”). Our analysis concerning these tests is set out below. 

(a) Activities Test

Based on the background information in your submissions, which indicates that the Company is involved in certain activities relating to real estate, it is possible that the facts and circumstances are such that the Company meets subparagraph 149(1)(o.2)(ii). That subparagraph contains three requirements as set out in clauses (A), (B), and (C).  The Company must meet all three of those requirements at all times since its incorporation.

Clause (A) requires the Company to limit its activities to

*     acquiring, holding, maintaining, improving, leasing or managing capital property that is real property (or an interest in real property) owned by the Company, another corporation described by subparagraphs 149(1)(o.2)(ii) and (iv), or a registered pension plan, or

*     investing in a partnership that limits its activities to those described above.

Clause (B) requires the Company to not make any investments other than in real property (or an interest in real property) or investments that a pension plan is permitted to make under the Pension Benefits Standards Act, 1985 or a similar law of a province.

Clause (C) requires that the Company can only borrow money solely for the purpose of earning income from real property (or an interest in real property).

Whether the Company meets subparagraph 149(1)(o.2)(ii) is a question of fact.  You will need to obtain further information from the Company before you can make such a determination.

(b) Ownership Test

The Company must meet the Ownership Test at all times since its incorporation. The Ownership Test requires all of the shares and the rights to acquire shares of the Company be owned by one of the persons described in clause (A), (B), (C) or (D) of subparagraph 149(1)(o.2)(iv).

Based on our review of the XXXXXXXXXX legislation, the Board is a corporation established by virtue of an act of XXXXXXXXXX the principal activities of which are to administer, manage or invest the monies of a pension plan that is also established pursuant to an act of XXXXXXXXXX. Therefore, it is our view that the Board is a person described in clause (D) of subparagraph 149(1)(o.2)(iv).

However, you will need to satisfy yourselves that, at all times since the time the Company was incorporated, the Board has owned all of the shares, and rights to acquire shares, of the capital stock of the Company.  In this regard, we note that any Annual Reports filed by the Company with the XXXXXXXXXX would give an indication about shareholdings on specific dates, but not about rights to acquire shares. 

We trust the above satisfies your request.

Lita Krantz
Manager
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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