The nil consideration election for GST/HST purposes in section 156 of the Excise Tax Act (ETA) was updated recently with changes in effect Jan. 1, 2015. Section 156 allows members of a closely related group to treat certain taxable supplies between them as having been made for no consideration. Essentially, the election eliminates the need to collect and remit taxes by one member and then claim an input tax credit by the other member, which can sometimes result in cash flow issues, particularly with large transactions and differing reporting periods.
Prior to 2015, members who qualified for the election were required to complete a prescribed form (GST25 Closely Related Corporations and Canadian Partnerships) and retain a copy of it with their books and records. The Canada Revenue Agency did not require the members to file this form.
As of Jan. 1, 2015, members who make the election are required to complete a new prescribed form (RC4616 Election or Revocation of an Election for Closely Related Corporations and/or Canadian Partnerships to Treat Certain Taxable Supplies as Having Been Made for Nil Consideration for GST/HST Purposes). The due date for this new election form will depend on whether the election is new (the members did not previously complete an election) or a continuation of an existing one (the members previously completed an election before 2015).
Generally, where the members complete an election form for the first time, the due date will be the earlier of the GST/HST return-filing deadlines of the members that includes the effective date of the election. For example, if the effective date of the election is Dec. 1, 2015, and there are two members listed in the election form with different filing frequencies (monthly and quarterly), the election form would be due Jan. 31, 2016, which is the earliest return-filing deadline among the two members. (The assumption in this scenario is that the total revenue of the two is less than $6 million and one member has elected to file monthly. If total revenue exceeds $6 million, both members are required to file monthly.)
Where the members continue to apply an existing election in 2015 (having completed an election form before 2015), the original election form is deemed never to have been filed, and they are required to complete a new RC4616 form. The effective date of the new election will be the original effective date as per the GST25 originally filed, and the due date of the new election form will be between Jan. 1, 2015, and Dec. 31, 2015.
As with the GST25, the new RC4616 allows for multiple members to file an election on one single election form even though an election is between two members. Filing one form with multiple members has the effect that every combination of members that appears on the form will be considered to have made an election on the effective date. However, with the new form, the first specified member in Part A of the form can file the election on behalf of all of the specified members identified in Part A, and only one signature is required. The first specified member, by signing, certifies that they are authorized to file the election on behalf of the other members and they will notify the members of the joint election.
Though the new election form has the same effective date as the original election form, and the original form is deemed never to have been filed, the old GST25 election form should still be maintained with the members' books and records in case of audit, as this election would be used to support treatment of supplies made prior to Jan. 1, 2015.
Other changes to this section of the ETA include a change to the definition of a "qualifying member," which may allow additional members to elect under the new election who did not previously qualify under the old election. In addition, a joint and several liability subsection has been added to the ETA.
Members should also consider any equivalent elections in provinces with non-harmonized sales tax systems (e.g. Quebec's QST).
Given these recent changes, it is a good time to reconsider the nil consideration election; this is true both for corporations and partnerships currently using the election and for those that are not. Those currently using the election should review the conditions to qualify for the new election to determine if any new members can be added and to confirm that all existing members continue to qualify. They should verify the election exists and has in fact been filed in the books and records, and the election has not been used for transactions to which it does not apply. For corporations and partnerships not currently using the nil consideration election, now is a good time to consider if you qualify, as it may simplify record-keeping for bookkeeping transactions and GST/HST filings and potentially improve cash flow.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
