GST/HST election for closely related persons: Important changes for 2015
The GST/HST joint election available to closely related persons (the “156 Election”) under section 156 of the federal Excise Tax Act (the “ETA”) saw significant amendments after the last federal budget was tabled last February.
Generally speaking, a Related Party Election may be made by qualifying members of a qualifying group (i.e., certain closely related corporations and partnerships). It allows corporations resident in Canada as well as partnerships each member of which is: (a) a corporation or partnership and is resident in Canada; (b) a GST/HST registrant; and (c) engaged exclusively in commercial activities, to make supplies to other similar corporations or partnerships in the same closely related group without being required to collect or remit any GST/HST. Under a Related Party Election, supplies between related persons are deemed to be made for nil consideration.
Mandatory filing in 2015
As of January 2015, to be effective, these elections must be filed with the tax the Canada Revenue Agency via form RC4116 (not yet released). This means that “retroactive” elections (where the parties acted as if an election had been made, but did not sign the required form) will likely no longer be valid without the approval of the CRA. Historically, these forms did not have to be filed, and could often be completed retroactively so long as the parties acted as if the election had been made.
A Related Party Election will have to be filed on or before the first day on which the particular specified member, or the other specified members, must file a GST/HST, for the period that includes the effective date of the election.
For related parties that currently have a Related Party Election in effect, the election will have to be filed before 2016. However, the parties are not allowed to file the election prior to January 1, 2015 (otherwise it is deemed not to have been filed). Taxpayers who have a Related Party Election in effect should ensure that they file their elections in 2015 (preferably in January, 2015); otherwise, they will no longer be valid.
Please contact your Lipton representative in order to discuss how these changes may apply to you.
Jeff Nightingale is the Senior Tax Partner and a Managing Partner at Lipton LLP, Chartered Accountants. Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada. He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.