News and Insights

New Filing Requirements for Nil Consideration Election 

Tax Development Dec 17, 2014

Currently, the election to permit Canadian resident, GST-registered closely-related corporations and partnerships to do business with each other without charging GST/HST (under section 156 of the Excise Tax Act – commonly referred to as the “election for nil consideration”) does not have to be filed with the Canada Revenue Agency (“CRA”), but must be kept on hand for audit purposes.

The 2014 Federal Budget proposed amendments to this election that become effective on January 1, 2015. The most important change is the new requirement to file the election, once completed, with the CRA.  To date, the new election form (to be numbered RC4616) is not yet available.

The CRA has indicated that, for transactions that occur on or after January 1, 2015, elections made prior to 2015 will be deemed not to have been made.  As a result, eligible entities with an election in place as of December 31, 2014 will be required to file a new election with the CRA, and will have to do so after 2014 and before January 1, 2016.  

Of particular interest is the fact that, previously, the legislation did not place a filing deadline on the election and permitted corporations to back-date such elections. This has been particularly useful when related entities acted as if they had an election in place without completing the necessary documentation (Form GST25).  Potential assessments during audits could be neatly avoided by completing an election form and back-dating it to the necessary date.  Unfortunately, this opportunity will no longer be available.

New Filing Deadlines

Parties to a new election (i.e., executed on or after January 1, 2015) will be required to file the election with the CRA by the first day on or before which any of the specified members is required to file a GST/HST return.  This is an important consideration when the parties to the election have different filing periods.  For example, if a monthly filer and a quarterly filer enter into an election with an effective date of April 1, 2015, the election will have to be filed by May 31, 2015 (the filing deadline for the monthly filer), even though the quarterly filer will not be required to file its GST/HST return related to April transactions until July 31, 2015.

Other Changes

There are also other changes to the election, such as amendments to the definition of “qualifying member” and a new joint and several liability for all parties to the election.  The new definition of “qualifying member” will make it possible for a newly created entity that has not processed any taxable transactions to be a party to the election (with the condition that the entity make taxable supplies within the next 12 months).

In addition, all parties to an existing or new election will be subject to joint and several liability (i.e., be individually and mutually responsible) for any GST/HST that may be applicable.

Revenue Quebec

The Quebec Minister of Finance announced in the 2014 Quebec Budget that any changes dealing with GST/HST and closely related corporations will be harmonized for purposes of the QST, with the same effective dates as those that apply for GST/HST purposes.

For further information regarding the new requirements for the nil consideration election, see the commentary beginning on page 3 of the CRA’s 2014 Excise and GST/HST News No. 91.