Two brothers each wholly-own a corporation (Holdco 1 and Holdco 2) which, in turn, own equally all of the shares of Opco. Holdco 1 and Holdco 2 are equal participants (as to both revenues and expenses) in a joint venture. Opco earns all its revenues from providing services to the joint venture. Holdco 1, Holdco 2 and Opco each have their own payroll accounts used to pay their respective employees. Holdco 1 and Holdco 2 have both experienced a revenue decline, but neither has applied for the CEWS.
In finding that Opco could not use the rule in s. 125.7(4)(c), but generally could use that in s. 125.7(4) (d), in determining its qualifying revenue for a particular qualifying period, CRA stated:
[S]ince Opco does not deal at arm’s length with Holdco 1 and Holdco 2 (the participants of the joint venture), Opco would exclude from its qualifying revenue all amounts derived from the joint venture, pursuant to paragraph (d) of the definition of “qualifying revenue” … . As a result, Opco would not have any qualifying revenue and the [all or substantially all] test in paragraph 125.7(4)(c) … would not be met. Therefore, Opco would not be able to use paragraph 125.7(4)(c) to determine its qualifying revenue. If however, Opco were dealing at arm’s length with Holdco 1 and Holdco 2 (the participants of the joint venture), and all or substantially all of its qualifying revenue for a qualifying period is in respect of the joint venture, Opco would be able to use paragraph 125.7(4)(c) to determine its qualifying revenue.