Section 156 election: no GST/HST between 90% related companies

Who can make the section 156 election?

Both parties have to be specified members of the same qualifying group. In practice that means each one is a GST/HST registrant, is a corporation resident in Canada or a partnership whose members are all corporations or partnerships resident in Canada, isn't party to a section 150 financial services election, and holds all or substantially all of its property (or makes its supplies) in commercial activities laws-lois.justice.gc.ca. You can confirm each one's registration through a GST number lookup on the CRA registry.

Two corporations are closely related when one holds qualifying voting control and owns at least 90% of the value and number of the other's fully voting shares, directly or through qualifying subsidiaries. Two corporations closely related to the same corporation are closely related to each other laws-lois.justice.gc.ca.

The individual row is the one that catches owner managed groups. The CRA says that when an individual holds the voting control and the shares, sections 128(1) and (2) generally don't apply, so two companies owned by the same person aren't closely related for GST/HST canada.ca. Put both under a holding corporation that owns 90% or more of each and the test is met.

"Exclusively" means 90% or more for most registrants and 100% for financial institutions canada.ca. A holding company with nothing but shares and loans passes the property test, because financial instruments are left out of it, as long as all or substantially all of the supplies it makes are taxable canada.ca.

What does the election do to a $25,000 monthly management fee?

Worked example: HoldCo charges its wholly owned OpCo a $25,000 management fee every month. Both are in Ontario, where the HST is 13% canada.ca, and OpCo uses the services only in its commercial activities.

The group's net tax is zero either way. What the election removes is the cash going out with HoldCo's return before OpCo recovers it, plus the audit risk of an ITC denied for a missing invoice detail or a mismatched period. If HoldCo files quarterly, that's $9,750 of HST it no longer has to remit each quarter.

The supplier keeps its input tax credits. Subsection 141.01(7) stops the deemed nil consideration from counting against the supplier when its ITC entitlement is measured, so HoldCo still claims the HST on its own rent, software and professional fees canada.ca. The documents an ITC needs are on our ITC documentation page.

Which supplies stay taxable even with an election in place?

Subsection 156(2.1) carves three kinds of supply out of the election laws-lois.justice.gc.ca:

For an excluded supply the normal rules apply as if no election existed canada.ca. So a parent selling a building to its subsidiary charges or self assesses HST on the sale, even with a valid RC4616 on file, while monthly rent from parent to subsidiary on the same building can be covered.

The exclusive use test is applied supply by supply, by the recipient. An OpCo that also owns residential rentals can still receive covered management services for its commercial side, but not services it uses across both activities.

When is Form RC4616 due?

Form RC4616 has to be received by the CRA by the earliest day either electing member must file its GST/HST return for the reporting period that includes the effective date canada.ca. One form can list several members, and every pairing of the names on it is treated as an election (three members make three elections). Revoking uses the same form and the same deadline. The form says to send it to your tax centre canada.ca.

Monthly and quarterly returns are due one month after the period ends, annual returns three months after the fiscal year end canada.ca. For an election effective November 1, 2026:

Miss it and the election only stands if the CRA uses its discretion under subparagraph 156(4)(b)(ii). The request goes in writing, on paper, to the Assistant Director of Audit at the first member's tax services office. Both parties must show they already treated the supplies as nil consideration from the effective date, filed every return and paid every balance, and weren't negligent or careless canada.ca. Even an accepted late form doesn't confirm the election is valid. If the members turn out not to qualify, the CRA assesses the HST that should have been charged, with interest and penalties.

The filing dates themselves, including weekend shifts, are on the GST filing deadline page.

When does the election end, and who pays if it was wrong?

An election ends on the earliest of the day either member stops being a specified member and the day both revoke it laws-lois.justice.gc.ca. It ends on its own. If OpCo issues 15% of its shares to a key employee, HoldCo's stake drops below 90%, the election stops that day, and HST goes back on the invoices from then on. The CRA asks to be told when a member stops qualifying so the records under each business number are updated canada.ca.

Both members are jointly and severally liable for unpaid net tax on supplies between them while the election is in effect. The liability also applies if they keep acting as if an election exists after it has ended, or act on one that was never validly made laws-lois.justice.gc.ca. The recipient of a zero HST invoice can be assessed for the supplier's missing tax.

An amalgamation doesn't end it. Section 156 is a prescribed purpose, so the amalgamated corporation continues the predecessor's election with the other member while the conditions are still met, and the same applies when a 90% subsidiary is wound up into its parent canada.ca. If the group doesn't want the election to carry over, it has to file a revocation. The income tax side of that merger is on the amalgamation page.

What has changed in the section 156 rules?

The 2015 rule and the 2024 amendment are in the section itself laws-lois.justice.gc.ca. The June 2023 memo notes it replaces P-255 canada.ca, and the form's current edition and the RC7296 instruction for selected listed financial institutions are on the RC4616 page canada.ca.

Section 156 covers ongoing supplies inside a group. A one time sale of a business to any buyer that acquires 90% or more of its assets is the section 167 election on Form GST44.