O. Reg. 391/04: GENERAL

 

ontario regulation 391/04

made under the

retail sales tax act

Made: December 8, 2004
Filed: December 13, 2004
Printed in The Ontario Gazette: January 1, 2005

Amending Reg. 1013 of R.R.O. 1990

(General)

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 and application rules

13. (1) This section contains interpretation and application 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 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 are owned directly or indirectly,

(a) by the person; or

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

(4) A corporation that wholly owns another corporation (the “subsidiary corporation”) shall be deemed to wholly own any corporation that the subsidiary corporation wholly owns.

(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,

i. by the individual,

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

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

in respect of the consumption or use of the property.

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

i. by the corporation,

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

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

in respect of the consumption or use of the property.

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

i. by the partnership,

ii. by an individual or corporation that contributed the property to the partnership and was a partner in the partnership after the tax was paid, or

iii. 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 partner in the partnership after the tax was paid,

in respect of the consumption or use 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 consumption or use of tangible personal property,

(a) if no tax was payable under the Act in respect of the consumption or use of the property; or

(b) if no tax was payable under the Act in respect of the sale 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 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 continues to own 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,

i. continues to own the new shares until the end of the 180-day period, or

ii. transfers the new shares to a member of his or her family, for no consideration, and the member of the family continues to own 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 continues to own 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 continues to own the share until the end of the 180-day period.

5. Where the person is a corporation,

i. if the corporation amalgamates with another corporation during the 180-day period and the amalgamated corporation continues to own the share until the end of the 180-day period, or

ii. if the corporation transfers the share during the 180-day period to another corporation in the course of winding-up and the other corporation continues to own the share until the end of the 180-day period.

6. Where the corporation that issued the share,

i. amalgamates with one or more other corporations that are related to the corporation, or

ii. is dissolved within the period of 180 days and the corporation’s assets are transferred, as a result of the dissolution, to another corporation.

(8) Sections 13.1 to 13.7 do not apply on a sale of eligible property if an agreement in writing for the sale of the property was entered into before July 20, 2004, unless the purchaser under the agreement elects to have those sections apply on the sale.

(9) If sections 13.1 to 13.7 do not apply on a sale of eligible property by reason of subsection (8), section 13 as it read on July 19, 2004 applies in respect of the sale.

(10) 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,

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

(b) 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

(c) have been living together in a conjugal relationship outside marriage,

(i) continuously for a period of not less than three years, or

(ii) 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,

(a) by an individual to a corporation that the individual wholly owns;

(b) to an individual by a corporation that the individual wholly owns;

(c) by a partnership to a corporation that the partnership wholly owns;

(d) to a partnership by a corporation that the partnership wholly owns; or

(e) 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 corporations
Shareholder to corporation

13.2 (1) This section applies to a sale of eligible property after July 19, 2004 between 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,

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 owned directly or indirectly 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 corporations
Corporation to shareholder

13.3 (1) This section applies to a sale of eligible property after July 19, 2004 between 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,

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 directly or indirectly 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 immediately after 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,

(a) an individual who directly or indirectly owns shares of the corporation, but who does not wholly own the corporation, or

(b) 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,

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 owned directly or indirectly 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,

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 which the transferor continues to own 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,

(a) from a person to a partnership in which the person is a partner immediately after the sale; or

(b) 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 × J

in which,

  “A” is the fair value of the eligible property, and

“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 × K

in which,

  “A” is the fair value of the eligible property, and

  “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 except on the amount, if any, by which the total value of all consideration for the sale exceeds the value of the partnership interest acquired on the sale.

2. A sale of eligible property from a partnership to a person who is a partner in 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 any tangible personal property held by a partnership, on the transfer of an interest in a partnership from a partner in the partnership to another person.

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

(2.1) 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.