Tax Letters: Election for Nil Consideration – Filing Deadline Coming December 31, 2015Date: December, 2015
Nil consideration election for goods and services tax/harmonized sales tax (GST/HST) purposes
GST/HST rules allow qualifying members of a closely-related group to elect to treat particular taxable supplies made between members as being made for nil consideration. This election provides cash-flow relief where a member would otherwise have to pay the tax and then claim an input tax credit to recover the tax. This election essentially removes the requirement to collect GST/HST on most inter-group supplies.
There are now new rules that will require the nil consideration election to be filed with the Canada Revenue Agency (“CRA”). Previously, the election form needed to be maintained by taxpayers but only provided to the CRA when the agency requested the form.
The new election 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) must now be filed with the CRA for all pre-existing and new elections.
Elections that were put in place before the start of 2015 and continue to be used will not be valid in 2016 unless the new election form is filed with the CRA before January 1, 2016. If the form is not filed, the election will not apply and there may be a liability for any tax not collected on inter-group supplies.
The effective date of pre-existing elections will be the same as the original effective date of the election. One single election form can be used for multiple members of a closely-related group.
Existing elections – review of requirements
Reorganizations and the transfer of shares can affect the eligibility of group members to make the election. Where an election has been in place for some time, a review of the group structure should be carried out to confirm that members still qualify for the election.
New elections made in 2015 – reminder
New elections that have become effective since January 1, 2015 are subject to a different deadline for filing the election form. The filing deadline is the earliest due date for the electing parties’ GST/HST returns for the reporting period that includes the effective date of the election.
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This article was prepared by Crowe Soberman’s Tax Group.
Frédéric Pansieri has extensive commodity tax experience, as well as corporate income tax experience at the federal level and in various provincial tax jurisdictions across Canada. Frédéric specializes in various areas of taxation including scientific research and experimental development (SR&ED), commodity taxes and cross-border tax issues. He also has extensive experience negotiating with tax auditors and handling day-today management of tax-related issues within a corporation.
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Frédéric Pansieri, BAA, CPA, CA
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.