GST/HST Memorandum 14-5, Election to Deem Supplies to be Made for Nil Consideration, June 2023

Michael, a GST/HST-registered sales person, uses his car to meet clients. His car breaks down, and he calls for emergency roadside assistance, which is covered under warranty. There is no dealer nearby, and the only repair shop within towing distance is an independent garage. The garage tows and repairs the car for a total of $630 ($500 plus $100 for remote service charge, plus $30 GST). Michael sends this bill to the warrantor who agrees to pay the bill except for the remote service charge. There is a $50 deductible plus GST under the warranty. The warrantor reimburses Michael $472.50 calculated as follows:

Total paid by Michael

$630.00

Less $100 remote service charge plus $5 GST

− 105.00

Less $50 deductible plus $2.50 GST

− 52.50

Amount reimbursed to Michael

$472.60

Using the formula above, the warrantor can claim an ITC of $22.50 calculated as follows:

ITC

= $30.00 × ($472.50 ÷ $630.00)

= $30.00 × 0.75

= $22.50

Example 1

Where OpCo (a registrant substantially all of whose preoperty was acquired for use or supply exclusively in commercial activities) establishes NewCo, which performs activities in connection with the establishment of the commercial activity which it plans to carry out "and therefore becomes a registrant." The s. 156 election is available for a transfer of electronic equipment from OpCo to NewCo.

Various charted examples are given of closely related Canadian partnerships (Examples 2 to 5) and closely related Canadian partnerships and corporations (Examples 7 to 9).

Example 10

In the structure below, U and V are closely related to each other because they both are closely related to T:

Example 11

Notes that the s. 156 election does not apply to butterflied real estate (s. 156(2.1)(a).

30. The election has no effect on the ability of the electing specified members to claim ...ITCs...in accordance with the general rules found in sections 169 and 141.01. In this regard, subsection 141.01(7) ensures that any provision deeming a supply to be made for no consideration does not apply for the purposes of determining the extent to which inputs used in making the supply are acquired, imported, used or consumed by the person for the purpose of making taxable supplies for consideration in the course of an endeavour of the person.

Parent a continuation of wound-up subsidiary for s. 156(2) purposes

60. Where a corporation (the subsidiary) is wound up into another corporation (the parent) that holds qualifying voting control and owns at least 90% of the issued shares of each class of the capital stock of the corporation that has been wound up, section 272 deems the parent corporation to be the same corporation as, and a continuation of, the subsidiary corporation for certain GST/HST purposes, including section 156 as prescribed in the Regulations.

61. Consequently, where a subsidiary corporation had a valid section 156 election with another person who is a specified member of the qualifying group of which the subsidiary is also a member and the subsidiary is wound up into its parent corporation (which is also a specified member of the same qualifying group), the election will continue to exist between the parent corporation and the other person that was party to the election with the subsidiary, as long as the requirements for the election are met by the parent corporation and the other person.