As the last quarter of 2015 approaches, it is important for
advisors and registrants to be aware of the new requirement to file
elections in respect of any previously-made section 156 "nil
consideration" elections (section 156 election) with the
Canada Revenue Agency (CRA) on the recently released Form RC4616
before January 1, 2016.
Recent amendments to the Excise Tax Act (the ETA)
impose new filing requirements on corporations and Canadian
partnerships. Previously, registrants were not obligated to file a
section 156 election with the CRA and were only required to keep a
copy of the completed form or a statement containing certain
prescribed information in their records. Now, parties are required
to file newly-made section 156 elections with the CRA and will have
until December 31, 2015 to file new form RC4616 for their section
156 elections to remain valid. For new elections, parties must
ensure that form RC4616 is filed prior to the earliest required
return filing date for the period in which the election is intended
to be effective.
Background on the section 156 election
Section 156 of the ETA is aimed at relieving the administrative
cost and cash flow problems that can arise in certain transactions
involving closely related corporations and partnerships. This is
achieved by deeming certain taxable supplies made to each related
registrant to be made for no consideration. As a result,
"closely related" parties transacting among one another
that have filed a section 156 election will not be required to
account for GST/HST in these transactions, and this will alleviate
the cash flow and administrative cost of collecting GST/HST and
claiming input tax credits on inter-group transactions.
To qualify for the section 156 election, parties are typically
required to be "qualifying members" of a "qualifying
group". In general, this requires parties to be "closely
related" within the meaning of the ETA. Generally, parties are
closely related when one party owns at least 90 percent of the
other party. Two parties can also be closely related if they are
each closely related to the same party. In addition, to be a
"qualifying member" a corporation or partnership must
have: (i) acquired property to be used exclusively in the course of
commercial activities; (ii) owned no property but made supplies
that are all, or substantially all, taxable supplies; or (iii)
owned no property but will reasonably be expected to make supplies,
all or substantially all of which will be taxable supplies,
throughout the next 12 months.
File before the end of 2015
We strongly encourage all GST/HST registrants to review all
filing obligations before year's end. Non-compliance may
invalidate existing section 156 elections which could add unwanted
costs and administrative burdens for you or your clients.
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