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GST/HST Closely Related Relief Election Gets a Makeover 

Canadian Tax Adviser


March 11, 2014


The 2014 federal budget proposed a significant makeover to one of the most popular GST/HST relief elections used by many businesses across Canada. In light of the upcoming proposed changes, corporations that have elected to use the closely related group election to treat qualifying taxable supplies to be made for nil consideration will soon have to review those elections to ensure they meet all the related conditions. Businesses will be required to file the election forms with the CRA for all closely related elections in 2015 (the actual date will vary depending on the circumstances). Any current elections not filed with the CRA within the timeline could expose the parties to potential tax liabilities.

Businesses may want to take this opportunity to review all their intercompany transactions and all current elections to take steps to address any requirements and potential issues.


Quebec is also proposing similar changes for QST purposes.


Under the GST/HST and QST legislation, a corporation that qualifies as a member of a closely related group may elect with another qualifying member of the same group to not account for GST/HST and/or QST on certain taxable transactions between the two electing members. This election effectively removes GST/HST and QST on many intercompany transactions and thus helps cash flow.


For a corporation to qualify as a member, a corporation must generally be a GST registrant engaged exclusively in commercial activities. In general, two corporations may qualify as closely related corporations if the degree of ownership between the two entities is at least 90%. This election will not apply on some specific taxable supplies as well as when the member has made a similar election with another closely related member that qualifies as a financial institution. The closely related group election can also apply to some qualifying partnerships.


Proposed upcoming changes
The 2014 federal budget proposed changes to the GST/HST election for closely related persons, including amendments to:


  • Extend the election to some new members that do not meet the current conditions to elect, as long as it is reasonable to expect the new member to continue, over the next 12 months, as a going concern engaged exclusively in commercial activities, among other conditions
  • Implement new filing requirements for new and current relief elections.


The budget also proposed different filing deadlines for current elections and new elections effective after December 31, 2014. For new elections, qualifying members to a new election on or after January 1, 2015 will be required to file the election form no later than the day one of the members is required to file a GST/HST return for the reporting period that includes the day on which the election becomes effective. For elections in place before January 1, 2015 and still in effect on that day, members will also have to file the election form. However, these members will have to file the forms starting January 1, 2015 and no later than December 31, 2015.


KPMG observation
The proposed changes to extend the election to some new members may not be practical for some restructuring transactions. These businesses may want to review the proposals and determine whether other approaches may apply to help with cash flow issues.


Under the proposed legislation, an election filed before January 1, 2015 will be deemed never to have been filed. As such, businesses will have to carefully review their intercompany transactions and file their elections on time. It is likely that the CRA will update the current election form to reflect the new conditions before businesses are required to file the forms. We expect further details to be released before the filing deadlines.


For more information, contact your KPMG adviser.






Information is current to March 11, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500


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