Critically Important Changes to the “Closely Related Corporations” Election: File Your Old GST25 Forms!

As I am reminded by MNP’s John Frim, there has been a critically important change to the GST/HST regime concerning sales between closely related corporations. Section 156 of the Excise Tax Act deems a supply of property between such corporations, in certain circumstances, to be made for nil consideration. Effectively, it creates a GST/HST exemption for these transactions. This is very handy for certain transfers of property and the section is frequently used within corporate deals.

The 2014 Federal Budget proposed to change these rules and now there are several new restrictions. Most important, though, is the need to file an election (via Form RC4616) with CRA. Previously, the parties to such a transaction had to complete an election in Form GST25. But the parties merely needed to keep the form in case CRA wanted to see it. This is no longer the case. Not only for all such transactions going forward, but for all such past transactions, for which the parties want to continue to rely on the deeming rule, a Form RC4616 must be filed with CRA. This means that in all instances where you or your business have relied on a GST25 in the past to exempt a transaction from GST or HST, you must go back and file a Form RC4616 with CRA, and you must file this by December 31, 2015.

Corporate lawyers who have advised clients in the past about sales of assets between closely-held corporations, or have used GST25 elections for other purposes, should review old files and advise clients, where appropriate, to avoid audit risk and file the RC4616 with CRA. Of course, this may not always be the most risk-minimizing approach, depending on the transaction: getting good tax advice in this area is critical.

Written by Craig Burley

Craig is a tax lawyer in private practice in Hamilton, Ontario. Call Craig at (905) 296-3378 to discuss issues that you think may need independent tax advice. In addition to tax, Craig writes and works publicly on a number of other issues related to law, justice, and public affairs.