Fall is officially here, and we are all settling back to our regular work schedules now that the children are back in school and our summer vacations are a fading memory. Among the measures included within the February 2014 Federal Budget is a new filing requirement for the closely related group election for GST/HST and QST purposes. Previously, this election had to be kept on file and not filed with the government. If your corporate group has made this election in the past and have not filed the relevant form, you must file it before January 1, 2016. Revenue Quebec has issued a new form in this regard (FP-4616-V) which when completed and filed would be effective for GST/HST and QST. What does the election accomplish?
Generally, GST/HST and/or QST must be charged to all members of a related group on goods or services provided between the members. If the election is filed, members of a closely related group choose to treat most taxable supplies between them as having been made for no consideration. Effectively, no GST/HST or QST is charged between electing parties which can reduce cash flow timing concerns with respect to remittance of taxes and recoveries of Input Tax Credits (“ITC”) and Input Tax Refunds (“ITR”).
What are closely related corporations?
In general, two corporations are considered to be closely related if at least 90% of the value and number of the issued and outstanding shares, having full voting rights under all circumstances, of the capital stock of one of the corporations are owned by:
- the other corporation (parent and subsidiary);
- a qualifying subsidiary of the other corporation;
- a corporation of which the other corporation is a qualifying subsidiary;
- a qualifying subsidiary of a corporation of which the other corporation is a qualifying subsidiary; or
- any combination of the above-mentioned corporations or subsidiaries.
Partnerships may also be a party to the election and the rules work similarly to corporate entities; however certain nuances to these rules are beyond the scope of this publication and should be discussed with your FL Fuller Landau Tax Advisor. Watch out for!
- If an individual owns two or more corporations directly, the corporations are not considered to be closely related and as such do not qualify for the election;
- Changes in corporate structure will cease the effect of the election where one of the members ceases to be a specified member of the qualifying group;
- If no structure changes, the election remains in effect until revoked;
- The election does not apply with respect to the following transactions:
- Sale of real property;
- Property not acquired for exclusive use in commercial activities;
- The QST portion of the election does not apply where an ITR cannot be claimed due to the restrictions applicable to large businesses.
- The effective date for the election should be January 1st, 2015 in situations where an election was in effect prior to January 1st, 2015.
Do not procrastinate, file the election now before you become distracted with planning your winter vacation and purchasing holiday gifts for your friends and family! .