News and Insights

New GST/HST Memorandum 14.5, “Election for Nil Consideration”

Tax Development Dec 12, 2012

The Canada Revenue Agency (“CRA”) recently issued a new memorandum outlining the requirements for making an election for nil consideration under section 156 of the Excise Tax Act (“ETA”). This publication contains fourteen useful examples that help to clarify and illustrate some of the basic terms and conditions contained in this section of the legislation. 

Where the requirements under section 156 are met, registered Canadian corporations and/or registered Canadian partnerships that are closely related may jointly elect to have certain taxable supplies between them deemed to be made for nil consideration.  This election extends to corporations that are temporary members of a qualifying group, as a result of a corporate reorganization.  Each of these organizations is known as a “specified member” and no GST/HST will apply on taxable supplies made between these members, as long as the election is in effect.  However, it may not be used by entities such as trusts, individuals or non-resident corporations or partnerships.  In addition, this election may not be used in respect of: a sale of real property; property or services acquired for use in non-commercial activity; or a supply that is not a supply of property where the recipient is a temporary member of a qualifying group.  

An election can be made or revoked by completing CRA Form GST25.  Form GST25 is not required to be filed with the CRA, but a completed and signed copy must be retained by each member party to the election.  This memorandum clarifies that an effective date, prior to the actual date the election is signed, may be used where the parties have conducted themselves as if the election were in place and all the conditions for making the election were met as of the effective date.  It is important to also note that the existence of an election will not affect the entitlement of the members to claim input tax credits in respect of GST/HST paid on inputs acquired for use in their commercial activities.  Under section 156, this election will cease to be in effect on the day when the election is jointly revoked by the members, or when one member no longer qualifies as a “specified member” of the group.    

GST/HST Memorandum 14.5 
CRA Form GST25