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Recently Reorganized? Remember to Register for GST/HST

Recently Reorganized? Remember to Register for GST/HST

Businesses must remember to register certain entities for GST/HST on-or-before an acquisition or reorganization

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This is a reminder that organizations should ensure that any entity acquiring taxable assets as part of an overall reorganization or acquisition, is registered for GST/HST effective on or before the transaction date. It is important to also confirm that the correct entity is registered, particularly in the case of partnerships or where legal and beneficial ownership are held by different entities.

There is a common perception that any GST/HST incurred before registration can be recovered once the entity is registered; however, that is only true in very limited circumstances.

Exception for "small suppliers"

Under the GST/HST legislation, a "small supplier" can claim an input tax credit for any GST/HST incurred on property acquired before registration if the property is still owned by the small supplier upon registration.

However, for a person to qualify as a "small supplier," that person and all associated persons must have collective annual revenues subject to GST/HST of less than $30,000. Although the entity acquiring the assets at issue may not have any GST/HST taxable revenues, such entities are often part of an associated group that does, in which case the entity is not a small supplier.

If an entity is not a "small supplier" and it acquires taxable assets at a time when it is not registered for GST/HST, that entity will not be able to claim an input tax credit for the GST/HST payable on such assets.

Registering the correct entity

It is also important to ensure the right entity is registered for GST/HST prior to acquiring taxable assets.

Two common examples of situations where mistakes may be made include:

  • Where partnerships acquire taxable assets
    • The partnership must be registered—not the general partner of the partnership
  • Where legal title to real property is acquired in trust for another person
    • If the person acquiring legal title has no other duties or powers as trustee of the real property, the CRA considers this structure to be a "bare trust" which cannot register for GST/HST purposes because it has no commercial activity
      • The person acquiring beneficial ownership of the real property must be registered, not the person (the bare trustee or nominee) who acquires legal title in trust for that beneficial owner
  • If the person acquiring legal title for another person will have independent decision-making powers and responsibilities relating to the real property, the CRA considers this to be a "true trust"
    • The trust would be required to register for GST/HST purposes in connection with commercial activity (e.g., commercial leasing) involving the property held in trust.

Timing issues with registration

The CRA will generally allow for an effective registration date up to 30 days prior to the date the request for registration is submitted. The only time when the CRA will allow for an effective registration date beyond 30 days, is if it can be established that the entity made a taxable supply and was required to register at an earlier date.

Prepare for a longer process

In addition, while entities have been able to obtain GST/HST registrations within a few days in the past, the process may take longer now, particularly when dealing with entities such as partnerships and trusts or non-resident persons.

Non-filing GST/HST registration numbers

Some entities may be assigned non-filing GST/HST registration numbers by the CRA, if for example they claim a GST/HST rebate. However, these entities are not registered for GST/HST until they request to be registered, even though they have been assigned an "RT" account.

Similar rules apply for QST purposes.

For more information, contact your KPMG advisor.

Information is current to October 22, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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