28 August 2000 GST/HST Interpretation 30915 - Group Relief Election Under Subsection 156(2) of the Excise Tax Act

Dear XXXXX:

Thank you for your letter of April 19, 2000 (with attachment) concerning the election for nil consideration under section 156 of the Excise Tax Act.

Interpretation Requested

You are requesting confirmation that section 156 permits a valid election to be made by specified members of a closely related group at any time before or after a transaction has been completed, with effect at the time of the transaction.

This is based on your interpretation that the legislation permits an election to be made at any time, with effect as of an earlier time, if that time is specified in the election.

Your arguments may be summarized as follows:

1. While subsection 156(4) states that the election must be made in prescribed form and specify the effective date, the subsection does not specify the time by which an election must be made.

2. No other provision of the ETA requires or implies that this election be filed by a certain date.

3. Subsection 156(3), as it read prior to April 27, 1992, required that the election be filed on or before a date determined by reference to the due date for filing a return under Division V. Accordingly, it is implicit that the election would have to be made before that date. Amendments effective as at April 27 and October 1, 1992 removed the requirement to file the election and lead to the inference that section 156 now permits an election to be made at any time effective on and after the effective date set out in the election.

4. The formal requirements for making the section 150 election between closely related groups which include a financial institution are different than those of section 156, in that the election form under section 150 must be filed by a specific date. Subsection 150(3) states:

"(3) Form and manner of filing - An election under subsection (1) relating to supplies between a member of a closely related group and a corporation shall

(a) be made in prescribed form containing prescribed information;

(b) specify the day the election is to become effective; and

(c) be filed by the member with the Minister in prescribed manner on or before the day on or before which a return under Division V for the reporting period of the member in which the election is to become effective is required to be filed."

Accordingly, the election under section 150 would have to be made before the date on which it has to be filed. As section 156, as amended, does not contain a similar provision, therefore no time limit on making the election is intended.

5. The Explanatory Notes (February 1993) issued by the Department of Finance in respect of the amendments to section 156 (effective October 1, 1992), support the conclusion that an election under subsection 156(2) can be made at any time[.] These Notes state, in part:

"Existing section 156 specifies that an election under that section is effective from the beginning of the first day of a fiscal year, or the first day of a reporting period for new members of the group. The section also permits voluntary revocation of the election effective the first day of any reporting period that ends in any fiscal year after the election was filed. Under new section 156, the joint election or voluntary revocation may be made at any time, but must specify its effective date. As such, the election will be effective from the date of the election until the effective date of any voluntary revocation."

6. The prescribed form, GST 25, makes no reference to a requirement that the form be signed before any particular time (such as the date the taxable supply was made). Further, the form sets out the execution date and the effective date separately.

Interpretation Given

As stated in the legislation, the election must be made in prescribed form containing prescribed information and must specify the effective date of the election. It is not necessary to submit the completed election form to the CCRA, but it must be kept with the books and records of the members that made the election.

The CCRA has considered its position with respect to this question and our conclusion follows.

The parties may make the election at any time, as the relevant legislative provision states that the parties must specify the effective date of the election but does not impose any limitations as to the time of making the election. In their election form, they may specify an effective date that is before the date of execution of the form.

If the parties have conducted themselves as if an election were in place (and if the conditions for making the election are met at all relevant times), then it is possible that a valid election may be made which would apply to a transaction which has already occurred, if the election form specifies an effective date that is prior to the date of the transaction.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-1512.

Yours truly,

Mark Seigel
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate