The purpose of the 156 election is to avoid having to charge GST/HST on transactions between closely related companies. Prior to the change which occurs effective January 1, 2015, companies could enter into the election without notifying CRA. The companies simply kept the election notice on file in case of an audit by CRA.
Starting in 2015, companies entering into the election are now be required to notify CRA. This requirement will apply to new elections as well as elections already in place.
Who can make the election
- Only closely related parties (meaning there must be at least 90% ownership as in a parent, subsidiary relationship) may enter into the election.
- All parties must be registered for GST/HST
- The election is only available to Canadian corporations and partnerships
- At least 90% of property acquired, last manufactured, produced or imported by all parties to the election must be used in the course of a commercial activity; or if the person has no property at least 90% of its sales must be subject to GST/HST
- Applicable for parent/sub relationships or sister companies where the parent is a corporation or a partnership.
Timing of election
- New elections must be filed by the earliest due date of the return which covers the period that includes the first date in which the election is to take place.
- Existing elections must be filed between January 1 and December 31, 2015.
A new election form, RC4616 must be used to make the election.
A new simplified procedure was announced in CRA’s Excise and GST/HST News No. 95 dated April 2015. The simplified procedure is applicable to elections which existed prior to January 1, 2015. It will be of particular interest to specified members of a qualifying group with multiple effective dates that are before January 1, 2015.
Under the simplified procedures, specified members of a qualifying group that have existing elections, each with a different effective date that is before January 1, 2015, now only need to file one Form RC4616 indicating December 31, 2014 as the effective date (covering all members instead of each filing separately).
This could be a significant advantage for large qualifying groups with different effective dates.
Mona Tessier, CPA, CA
Senior Manager, Indirect Tax