The 2014 Federal Budget (Budget) contained some significant GST/HST changes. Most importantly, it proposes changes to the election contained in section 156 of the Excise Tax Act (ETA), which allows closely related parties to make intercompany supplies on a GST/HST-free basis. These changes are described in further detail below and should be reviewed by all parties to existing and anticipated elections. Other changes of interest include an expansion of the joint venture election and additional powers for the Canada Revenue Agency (CRA) to register an entity for GST/HST purposes.


The section 156 election allows closely related parties to make intercompany supplies on a GST/HST-free basis. Due to what was broadly viewed as a technical flaw in the ETA, the election was not available to a new entity that had no property and had not yet made any taxable supplies. Often, for example, in the context of an internal reorganization, a new entity will be formed for purposes of acquiring property and without the election it would be required to pay GST/HST on an intercompany supply. This issue would usually be addressed by way of a two-step transfer, by which the new entity would acquire some small amount of property before the reorganization occurred. Even a nominal amount of property would technically qualify the new entity for the election. A version of this workaround has been approved by the CRA in its GST/HST Memorandum 14.5 – Election For Nil Consideration (October 2012), but it is cumbersome to take extra steps in a commercial transaction merely to satisfy a technical tax requirement.

The Budget attempts to eliminate this flaw by explicitly permitting a new entity to use the election if it is reasonable to expect that:

  • the entity will make supplies throughout the next 12 months;
  • all or substantially all of those supplies will be taxable supplies; and
  • all or substantially all of the property to be manufactured, produced, acquired or imported by the entity within the next 12 months will be for consumption, use or supply exclusively in the course of the entity’s commercial activities.

However, the amendments may go further than necessary by requiring the new entity to be reasonably expected to exist for 12 months. In cases where the new entity will not carry on business for 12 months (e.g., if it will resell the assets) it may not qualify for the election even under the proposed amendments. Similarly, if the property is in a developmental stage and the new entity would not be expected to make any supplies for several years, the election would not apply. If the new entity will amalgamate with another entity, the amalgamated entity should be considered a continuation of the predecessors for purposes of the section 156 election and the 12-month rule pursuant to the Amalgamations and Windings-Up Continuation (GST/HST) Regulations.

The two-step workaround may also not be available because the proposed law will no longer recognize property having a “nominal value;” an inherently vague term that is not defined in the ETA. It will remain to be seen how these amendments will work in practice. This change is intended to come into force on January 1, 2015.

The proposed amendments also include a new joint and several (or solidary) liability provision with respect to the GST/HST liability that may arise in relation to supplies made between the parties to the election on or after January 1, 2015. The amendments would also require the election to be filed with the CRA for elections executed after January 1, 2015, due by the end of the reporting period containing the effective date for the election. Currently the election forms are retained on file by the parties in case of audit.

The proposed law also requires all previously executed section 156 elections to be filed between January 1, 2015 and January 1, 2016. Parties to an existing section 156 election will have to find their old election forms, or perhaps execute new ones, and file them within the statutory window. This is not a mere formality.

Late filed elections, both new and previously existing, may not be accepted by the CRA and the parties may be assessed for failing to charge GST/HST on their intercompany charges. Although the CRA has accepted in other contexts that an unfiled or unexecuted election may be accepted retroactively if the parties have consistently acted as though it were in place, it would have discretion to treat late filed section 156 elections as invalid.


A joint venture is not a “person” for GST/HST purposes, so under the basic principles of the ETAeach co-venturer is required to report and remit GST/HST on any taxable supplies made by the joint venture to the extent of that person’s co-ownership interest. Section 273 of the ETA and the Joint Venture (GST/HST) Regulations thereunder are intended to alleviate this burden by permitting joint ventures to elect to appoint an “operator” to account for GST/HST on behalf of the joint venture.  The effect of the election is to put a joint venture on similar footing with a partnership for purposes of GST/HST reporting.

Currently, only joint ventures involved in certain activities are permitted to use the election. For example, a joint venture for the exploration or exploitation of mineral deposits can use the election, but a joint venture for the purpose of developing computer software would not be eligible for the election. The Budget proposes to permit any joint venture to use the election as long as the activities of the joint venture are exclusively commercial and the participants are engaged exclusively in commercial activities.

Draft legislation is expected later in the year for review and comment by stakeholders. This is a welcome expansion of the joint venture election. Furthermore, we understand that the government is considering, as part of the proposed expansion of the election, to allow the joint venture election to apply to the initial acquisition of property in the joint venture. Currently co-venturers must register for GST/HST purposes in order to acquire the initial property to be used in the joint venture and claim input tax credits, or self-assess the GST/HST and claim offsetting credits in the case of real property. Following the appointment of the operator, unless the co-venturers have other commercial activities, they would file only nil returns. If the election could be used for the initial acquisition of the property, the technical requirement to register for purposes of claiming input tax credits on the initial acquisition of property may not be required.


Although GST/HST auditors have on occasion retroactively registered a non-registered entity that was required to be registered and assessed that entity for failing to collect GST/HST, the legislation does not explicitly permit such unilateral registration. Rather, it requires a person to apply for the GST/HST number, in which case the CRA has discretion to register the person or not. The courts have not yet considered the argument that the CRA had no legislative authority to unilaterally register the person. This power may be implicit in the overall scheme of the ETA for assessing suppliers that failed to charge and collect GST/HST. The CRA may always have had authority to assess a person who is not registered for GST/HST purposes on the basis that the person is a “registrant,” which includes a person “who is required to be registered.” But if the CRA did not have the power to register a person retroactively, the recipients of taxable supplies from such suppliers would not have the documentary requirements to support their input tax credits, though the CRA has discretion to waive such requirements.

The proposed amendments provide a mechanism for the CRA to register an entity for GST/HST purposes on a going forward basis. The CRA may contact an entity that it considers to be required to register and that entity will have 60 days to register or establish to the satisfaction of the minister that it is not required to be registered.  After 60 days, the CRA may register the person for GST/HST purposes and inform the person in writing that this has occurred. The person will be obligated to collect and remit GST/HST from the date of registration onward, like any other GST/HST registrant.

Depending on the complexity of the issues, the 60-day deadline seems rather short. By contrast, the period to file an objection to a GST/HST assessment is 90 days. The Budget indicates that the purpose of the amendment is to “strengthen GST/HST compliance and help the CRA combat the underground economy.” It will be interesting to see how this provision is used in practice. However, what will be more interesting to see is whether the CRA continues its practice of registering persons retroactively for purposes of issuing GST/HST assessments, in light of the Budget’s explicit recognition that “a business that fails to register as required cannot currently be compelled to do so.”

We wish to acknowledge the contribution of Robert Kreklewich to this publication.