On July 27, 2018, the Department of Finance ("Finance") released the Legislative and Regulatory Proposals Relating to the Excise Tax Act (Canada) (the "ETA"), including amendments to sections 186 and 289.2 and subsection 292(7) (the "Proposals").

Section 186 – Holding Corporation Rules

The holding corporation rules in section 186 of the ETA generally allow for a holding corporation to claim input tax credits for GST/HST paid by the holding corporation to the extent it incurred the expense in relation to the shares or indebtedness of a related corporation, where all or substantially all of the property of the related corporation is used for consumption, use, or supply exclusively in commercial activities ("commercial operating corporation property test").

The Proposals broaden the "commercial operating corporation property test" to include property that was last manufactured or produced by the operating corporation for use or supply by that corporation exclusively in the course of its commercial activities. Previously, the "commercial operating corporation property test" only considered property that was last acquired or imported by the operating corporation.

The Proposals also contain provisions that clarify the extent, and in what circumstance an input tax credit can be claimed by the holding corporation under these rules.

Generally, the amendments to section 186 are applicable to any acquisition, importation or bringing into a participating province of property or a service after July 27, 2018.

Finance also released a consultation paper.  It is seeking comments regarding the limitation of the holding corporation rules to corporations and the required degree of relationship between the parent corporation and the commercial operating corporation. Finance is proposing to replace the requirement that the two corporations be merely "related" with a test that they be "closely related." Instead of the requirement that the holding corporation hold a controlling interest in the commercial operating corporation, it is proposed that there be at least 90% common ownership among the corporations. Finance is also proposing to expand the holding corporation rules to apply to partnerships and trusts. Currently, the rules only apply to corporations.

Section 289.2 and Subsection 292(7) – Time Period Not to Count

Similar to the proposals to amend the Income Tax Act (Canada), the Proposals introduced a new "stop-the-clock" rule. Under the newly proposed section 289.2 of the ETA, the reassessment period under section 296 or 297 of the ETA will be extended when a person challenges a requirement for information or a compliance order. The time period of an application for judicial review, the filing of a notice of appearance or the challenging of an application for a compliance order will not be considered in calculating the statutory limitation period for making assessments. Pursuant to subsection 298(1) of the ETA, the limitation period for most assessments under the ETA is four years.

The amendment to subsection 292(7) of the ETA will ensure consistency with the newly proposed section 289.2, by clarifying that the time between when an application for review of a requirement for information is made and its final disposition will not be included in a calculation of the statutory limitation period for making assessments. Under the existing subsection 292(7) of the ETA, the period of time between an application for review and final disposition does not contribute to the limitation period under section 296 or 297 of the ETA, or the production of foreign-based information or documents under section 292.

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