Subsection 150(1) - Election for Exempt Supplies
See Also
CIBC World Markets Inc. v. The Queen, 2018 TCC 103, rev'd 2019 FCA 147
Administrative services provided by CIBC World Markets Inc. (WMI) to its parent (CIBC) respecting activities carried on by CIBC through its non-resident branches would have been zero-rated but for an ETA s. 150(1) election that had been made between them (which deemed services and licences of property supplied between members of the closely-related CIBC group to be exempt financial services). (Zero-rating would have generated input tax credits.) WMI made a subtle argument that although those non-resident branches were deemed non-resident persons respecting their branch activities for zero-rating purposes, they could not be members of a closely-related group to the extent of such activities.
Bocock J recognized that finding that the election denied zero-rating “renders a ‘sub-species’ of exported financial services less competitive.” Nonetheless, he found the statutory language deeming financial services following a s. 150 election to be exempt rather than zero-rate to be too emphatic and specific to accommodate what might have been the broader policy.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part IX - Section 1 | an ETA s. 150(1) election denied zero-rating for services provided to a parent’s non-resident branches | 391 |
Administrative Policy
GST/HST Memorandum 17-14 Election for Exempt Supplies June 2023
Requirement for LFI to be a member means that it must be registered
5. In order for a member of a closely related group to exist, in addition to other requirements, every person in the group must be a registrant. A special rule in paragraph 240(3)(c) permits a listed financial institution resident in Canada to voluntarily register for the GST/HST where it would not otherwise be required or eligible to be registered because it only makes exempt supplies. For example, if each corporation in a group of corporations is closely related to each other corporation in the group within the meaning assigned by section 128 and all the corporations but the one listed financial institution in the group are registered, the group would not be a closely related group as defined in subsection 123(1). However, by registering for the GST/HST, the listed financial institution would create a closely related group for GST/HST purposes. Once registered, the listed financial institution and the other corporations would form a closely related group and would be eligible to make the section 150 election with each other.
Requirement that election corporations be resident
13. Besides being closely related, corporations wishing to make the election under section 150 must also be members of a closely related group of which a financial institution is a member. "Closely related group" is defined in subsection 123(1) to mean a group of corporations each member of which is a registrant resident in Canada and is closely related, within the meaning assigned by section 128, to each other member of the group and for the purposes of this definition,
- a non-resident insurer that has a permanent establishment in Canada is deemed to be resident in Canada, and
- credit unions and members of a mutual insurance group are deemed to be registrants.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 132 - Subsection 132(2) | 112 | |
| Tax Topics - Excise Tax Act - Section 150 - Subsection 150(3) | 678 |
6 July 2012 Headquarters Letter Case No. 142921
A taxpayer which absent a s. 150 election would not have been a small supplier and had made such election on a valid basis with two financial institutions who were closely related then had its registration inadvertently cancelled. At that time, the "closely related" related definition required that it be a "registrant."
Ruling that such cancellation "did not cancel the Election under section 150 since the Taxpayer would have been required to be registered, i.e., was a registrant, throughout the period in question."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Registrant | 84 |
GST M 300-4-7 "Exempt Supplies - Financial Services"
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) | 21 |
Guide for Providers of Financial Services under "GST Registration and Reporting of Tax"
The election under s. 150 is available to a listed financial institution resident in Canada has registered even if it is not involved in the commercial activity.
Guide for Providers of Financial Services under "Special Provisions" - "Election for Exempt Treatment of Supplies"
General synopsis.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 205 - Subsection 205(3) | 26 |
Articles
Allan Gelkopf, Zvi Halpern-Shavim, "Five Arbitrary Differences between Corporations and Partnerships for GST/HST Purposes", Sales and Use Tax, Federated Press, Volume XIII, No. 2, 2015, p. 674.
Election only available for corps (p. 675)
. . . for some reason, only corporations can benefit from the section 150 election. The election does not apply to partnerships that are listed financial institutions, or to partnerships that are closely related (e.g., wholly-owned) to listed financial institutions.
Michael Firth, Brent Murray, "Section 150 Elections and the GST Rate Cut: Do the Benefits Continue to Outweigh the Costs?", Canadian GST Monitor, July 2008, No. 238, p. 1.
Subsection 150(2)
Cases
CIBC World Markets Inc. v. Canada, 2019 FCA 147
Administrative services provided by the appellant (“WMI”) to its parent (“CIBC”) respecting activities carried on by CIBC through its non-resident branches were treated by CRA as not being zero-rated under Sched. V, Pt. VII, s. 2 because of an ETA s. 150(1) election made between the two companies, which deemed “every supply” between them to be an exempt financial supply (so that WMI’s related inputs did not generate input tax credits). The Crown argued that ETA s. 132(3), which merely deemed CIBC to be a non-resident person in respect of “activities” carried on by it through its non-resident permanent establishments, was not adequate to the task of deeming those PEs to be separate persons for s. 150 purposes.
Essentially, Noël C.J. considered that the “activities” language in s. 132(3) indeed was adequate because the GST (a “transactional tax”) is therefore essentially only about activities, including those engaged here in the debate as to whether s. 132(3) or s. 150(1) applied in relation to them (para. 40). The fact that other ETA provisions raised by the Crown had more exacting separate-person language only demonstrated that they were addressing more difficult issues that required the full bench press. Furthermore, respecting the Crown’s argument that s. 150(2), which expressly provided that s. 150(1) did not apply to imported supplies, implied an intention the s. 150(1) would apply to the exported services of WMI, Noël C.J. stated (at para. 50):
[S]ervices in contrast with tangible goods cross the border only in a virtual sense so that the exigible tax on imported services cannot be collected in the usual way – i.e., at the time of entry when the goods are released … . As a result, reliance had to be placed on self-assessment by the parties to the importation in order to collect the tax (ETA, s. 218). The prospect of collecting the tax was made more challenging when a joint election under subsection 150(1) was in place between the parties to the importation. As explained in the commentaries which accompanied the amendment to subsection 150(2), “[a]pplying the closely-related group election to those supplies would result in both parties to the election avoiding tax altogether …” … . The amendment to subsection 150(2) closes this avenue by preventing parties to an election from relying on subsection 150(1) to justify a decision to not report or self-assess. For example, using the present set of facts, but reversing the flow of the cross-border services, it would not be open to the appellant to justify a decision not to report the importation of these services on the basis of the incorrect, but nevertheless reasonably arguable position that, as the Crown maintains here, CIBC’s foreign permanent establishments are not deemed to be non-resident persons for the purpose of the subsection 150(1) election.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 132 - Subsection 132(3) | a non-resident PE had deemed separate person status sufficient to insulate it from an ETA s. 150 election | 305 |
| Tax Topics - Excise Tax Act - Section 132 - Subsection 132(4) | expansive deemed person language required because 2 PEs involved | 372 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Closely Related Group | definition has the effect of extending s. 150 election to exported supplies of Canadian PEs of non-resident insurers | 189 |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | ambiguity can arise on consideration of how the provision interacts with another | 172 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply | no supplies between PEs of the same person in the absence of s. 132(4) | 70 |
Paragraph 150(2)(b.1)
Administrative Policy
GST/HST Notice No. 303 - Changes to the Closely-related Test
Example
Corporation A and Corporation B have an election under section 150 in place on March 22, 2016. Corporation A owns 90% of the value and number of the issued and outstanding shares, having full voting rights under all circumstances, of the capital stock of Corporation B. However, Corporation A does not have qualifying voting control of Corporation B, as set out in the proposed changes to section 128 and consequently, they would not be members of the same closely related group on March 22, 2017. They enter into an agreement on January 1, 2017 for the provision of services by Corporation A to Corporation B. Under the agreement, 60% of the services will be performed before March 22, 2017 and the remaining 40% on or after that date.
Since the corporations are not members of the same closely related group on March 22, 2017 and not all or substantially all of the services to be provided under the agreement will be performed before that date, none of the services performed under this agreement would be deemed to be financial services.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 128 - Subsection 128(1.1) - Paragraph 128(1.1)(a) - Subparagraph 128(1.1)(a)(i) | exception for special voting matters provided by statute, or where a statute provides a special class vote | 286 |
| Tax Topics - Excise Tax Act - Section 156 - Subsection 156(1.1) - Paragraph 156(1.1)(b) | examples of CBCA exceptions | 108 |
Subsection 150(3)
Administrative Policy
GST/HST Memorandum 17-14 Election for Exempt Supplies June 2023
Filer should be named 1st, and is the one with the earliest filing-due date
35. While there is no legislative requirement as to which member of the closely related group should file Form GST27 or Form RC7227, the forms are designed such that the first member identified in Part A of the form would be the member filing the form. If the parties to the section 150 election have the same reporting period and the election (or revocation) is to become effective in their current reporting period, either party could file Form GST27 or Form RC7227 as long as it is filed on or before the due date of their GST/HST returns for that current reporting period. However, if the due date of the return for the reporting period in which the election (or revocation) is to take effect is, in one party’s case, a day that is earlier than in the other party’s case, then Form GST27 or Form RC7227 must be filed on or before that earlier day, and the first party would ordinarily be the one to file the form.
Filing due date is that for the earliest required filer
Example 3
Corporation X is not a financial institution described in any of subparagraphs 149(1)(a)(i) to (x) and it has a quarterly reporting period based on calendar quarters. Corporation X must file its GST/HST returns no later than one month after the end of its quarterly reporting periods. Corporation Y is an insurer and a listed financial institution described in subparagraph 149(1)(a)(v). Corporation Y has an annual reporting period based on the calendar year (ending December 31) and must file its GST/HST return no later than six months after the end of its annual reporting period (that is, by June 30).
If Corporation X and Corporation Y wish to make a section 150 election to be effective on January 1, 2020, they must file the prescribed form on or before April 30, 2020; that is, by the due date of Corporation X’s GST/HST return for the quarterly reporting period that is January 1 to March 31, 2020.
Late election not accepted
36. Since subsection 150(3) specifies that the prescribed form for the section 150 election must be filed on or before the particular day that is the due date of the electing member’s GST/HST return for the member’s reporting period in which the election is to take effect, the effective day of the election cannot be a day that is within a reporting period for which the GST/HST return filing due date has already passed. Therefore, a Form GST27 or Form RC7227 filed after the particular day will not be accepted and elections filed late or requesting retroactive effect are not permitted.
Effective date must fall within the respective reporting periods for all filers such that no return is overdue
Example 4
Continuing with Example 3 above, if on the prescribed form Corporation X and Corporation Y specify January 1, 2020, to be the effective day of the section 150 election and they file the form on May 1, 2020, the form will not be accepted. In these circumstances, the earliest effective day that they may specify for the section 150 election would be April 1, 2020. This is because the effective day of the section 150 election must be a day that is within a reporting period where the filing of a GST/HST return is not past due for either of the parties to the election. In this example, the due date of Corporation X’s GST/HST return for its quarterly reporting period of April 1 to June 30 has not yet passed, since Corporation X would have until July 31, 2020, to file that return.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 150 - Subsection 150(1) | 321 | |
| Tax Topics - Excise Tax Act - Section 132 - Subsection 132(2) | 112 |
Forms
GST27 Election or Revocation of an Election to Deem Certain Supplies to be Financial Services for GST/HST Purposes
LFI qualifying member need not be a filer
The listed financial institution that must be a member of the group does not have to be one of the members making or revoking this election, but the corporation cannot be a listed financial institution only because it has made this election.
Election for SLFIs
… Do not use this form if one of the corporations making or revoking this election for GST/HST and QST purposes is a selected listed financial institution for GST/HST or QST purposes or both. Instead, use Form RC7227 … .
Filing deadline
The election is effective on the day specified in Part C of this form. This form is to be filed by the earliest date that a GST/HST return is due from the members who intend to make the election.
For example, if Corporation X has a quarterly reporting period based on calendar quarters and Corporation Y is an annual filer on a calendar-year basis, for an election to become effective on January 1 of a particular year, the election by the two corporations must be filed on or before April 30 of that year, that is, the due date of the return for Corporation X.
Subsection 150(6) - Credit Unions Deemed to Have Elected
Administrative Policy
18 November 2021 GST/HST Interpretation 232687 - Application of the election under section 150 of the Excise Tax Act to a closely related group
CRA noted that the effect of s. 150(6) in relation to the s. 150 election is that “a credit union does not have to file the election and cannot revoke the election in regards to supplies made to another credit union.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 128 - Subsection 128(1) - Paragraph 128(1)(a) - Subparagraph 128(1)(a)(i) | s. 150 election can accommodate a minority interest of management employees | 496 |
| Tax Topics - Excise Tax Act - Regulations - Closely Related Corporations (GST) Regulations - Section 3 - Paragraph 3(a) | s. 3(a) can accommodate minority employee incentive shares | 218 |
Guide for Providers of Financial Services under "Special Provisions" - "Supplies between Credit Unions"
This provision permits credit unions to exchange taxable supplies with each other on a GST-exempt basis without having to file an election with the Department.