Alert: New Requirement to File Existing GST/HST Closely Related Party Elections Quickly Approaching
Closely related Canadian corporations and partnerships often use an election under section 156 of the Excise Tax Act (Canada) to manage GST/HST on intercompany supplies of services and property (other than real property). The effect of the election is to deem every taxable supply between the electing parties to have been made for no consideration, resulting in no GST/HST payable. Until recently, the election was not required to be filed with the Canada Revenue Agency (CRA). Rather, the parties retained the election on file in case of audit to support the non-collection of GST/HST.
Recent amendments to the Excise Tax Act (Canada), which received royal assent on June 19, 2014, require any section 156 elections executed on or after January 1, 2015, to be filed with the CRA by the earliest date on which any of the electing parties is required to file a return for the period that includes the day on which the election becomes effective.
Furthermore, the amendments also require all previously executed section 156 elections to be filed sometime between January 1, 2015 and December 31, 2015 in order to remain effective for ongoing transactions on or after January 1, 2015. The CRA indicated in Excise and GST/HST News No. 91 (2014) that a new election form, Form RC4616, will replace the current election form (Form GST25). The new form will be called “Election or Revocation of an Election for Closely Related Corporations and/or Canadian Partnerships to Treat Certain Taxable Supplies as Having Been Made for Nil Consideration for GST/HST Purposes.” The CRA will make the new form available in January 2015.
The new filing requirement will provide the CRA with unsolicited information regarding entities that are, and have historically been, treating their intercompany supplies as not subject to GST/HST. Before filing the new election forms with the CRA to continue to avail themselves of the benefits of the section 156 elections, companies should ensure that the conditions for using the election continue to be met and historical transactions within the related group have been treated correctly.
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