Time is running out to file an important Goods and Services Tax (GST/HST) election form that, until recently, was not required to be filed.
Specifically, Canadian corporations and partnerships that have historically relied on an existing election under section 156 of the Excise Tax Act to relieve cash flow on intra-group transactions have until December 31, 2015 to file a new election form with the CRA.
Section 156 provides for an election that allows certain closely-related corporations and partnerships to deem transactions made between them to be made for nil consideration. This saves one entity from having to collect and remit GST/HST on the transaction and saves the other entity from having to pay the tax and claim an input tax credit.
While the cash flow savings can be significant, there are a number of conditions to be met in order to qualify for the election, some of which have been added relatively recently. For example, since January 1, 2015, parties to a new section 156 election are required to file a prescribed form (RC4616) with the CRA. Previously, the election needed only to be made, but the form did not need to be filed. The forms for new elections must be filed by the earlier of the electing parties’ return due date for the reporting period which includes the effective date for the election.
Importantly, a filing requirement also applies to existing section 156 elections, i.e. elections that were in place on December 31, 2014. As a result, groups that are currently relying on existing elections are required to file the prescribed form by December 31, 2015 (CRA has indicated that groups may enter December 31, 2014 as the effective date for all existing elections). If they miss the deadline, the existing election essentially ceases to be valid as of January 1, 2015. Although the legislation contemplates that CRA may accept late-filed elections, there are no guidelines to date.
The new filing requirement presents an opportunity for businesses and their advisors to consider whether the conditions for the election are in fact being met. For example, the parties to an election must continue to be “closely related,” which requires common corporate ownership. As a result, two corporations owned by the same individual or group of individuals are not closely related. As corporate reorganizations and other events subsequent to the making of an original election may have adversely affected this requirement, we recommend closely reviewing the requirements before filing the election form. If it is discovered that an invalid election has been relied upon, appropriate steps should be taken to mitigate the consequences.
There are similar opportunities, requirements and filing deadlines with respect to Quebec Sales Tax for corporations and partnerships that are resident in Quebec. The QST election is made pursuant to section 334 of the An Act Respecting the Québec Sales Tax, and the new prescribed form, which can only be filed by mail, is FP- 4616.