Tax Elections That Cancel GST/HST on the Sale of Assets: Section 156(1) of the Excise Tax Act – Form RC4616
In a previous article, we covered Election 167(1), an election that allows the sale of personal property on a tax-free basis when certain conditions are met. But section 167 has a hard limit: it doesn’t apply to real property (land, buildings, or anything permanently attached to land). And sometimes the conditions under section 167 simply aren’t met.
So what then? Fortunately, section 156 of the Excise Tax Act offers another path. When two or more qualifying entities within a closely related group transfer assets between themselves, section 156 can reduce the GST/HST on that supply to zero. It’s one of the most useful tools in a tax-efficient asset purchase and one of the most frequently overlooked.
What Is Election 156?
Section 156 allows certain supplies between closely related Canadian corporations or partnerships to be treated as having been made for NIL consideration, meaning no GST/HST applies.
The key requirement is ownership. To qualify, one entity must hold at least a 90% ownership interest or economic interest in the other. When that threshold is met, the two entities are considered “closely related” and together form what the Act calls a qualifying group.
A Concrete Example
Say Acme Corporation owns a 95% interest in Biology Inc. Because Acme’s ownership exceeds the 90% threshold, the two companies are closely related and constitute a qualifying group. A transfer of assets from Acme to Biology Inc. can qualify for zero-rated GST/HST treatment under section 156.
The rule extends across a broader group structure as well. Imagine Canadian partnership A owns a 95% interest in Canadian partnership B, which in turn owns a 95% interest in Canadian partnership C. All three are closely related to one another, and a sale of assets between any two entities in that chain can qualify for zero-rated treatment as long as the remaining conditions are met.
The Conditions You Need to Meet
Beyond the 90% ownership threshold, three additional requirements apply. Both parties must be resident in Canada, both must be registered for GST/HST, and both must be engaged exclusively in commercial activities. All four conditions, ownership, residency, registration, and commercial activity, must be satisfied at the time of the supply. Missing even one disqualifies the election.
What About Real Property?
Section 156 does not apply to real property. If you’re transferring land or buildings between related entities, you’ll need to look elsewhere.
Section 221 of the Excise Tax Act provides a separate mechanism. Under section 221, the responsibility for remitting GST/HST shifts from the vendor to the purchaser but only if the purchaser is a GST/HST registrant. The purchaser self-assesses and reports the GST/HST on their return for the relevant reporting period, provided the property is used 50% or more in taxable activities. If it isn’t reported in the regular return, the purchaser must file Form GST60 by the end of the month following the purchase.
The GST/HST remitted under this process may be recoverable as an Input Tax Credit (ITC) or rebate, depending on how the property is used.
How to File the Section 156 Election
The election is joint both parties must file together using Form RC4616. The filing deadline is the earlier of the two entities’ GST/HST reporting deadlines. If one party files monthly and the other quarterly, you go by the monthly filer’s due date.
Don’t wait until after closing to sort this out. The election must be filed on time or the zero-rated treatment doesn’t apply. For a broader overview of how tax elections interact with corporate restructuring and M&A transactions, our team can walk you through the options at any stage of a deal.
Why This Matters
GST/HST errors on related-party asset transfers can attract interest, penalties, and unwanted attention from the Canada Revenue Agency. Whether the supply qualifies, whether the election is available, and whether all four statutory conditions are actually met these are questions worth getting right before the transaction closes, not after. Sound corporate tax planning before the deal is structured is almost always cheaper than fixing a misstep once the CRA is involved.
Speak With a Lawyer at Kalfa Law Firm
Kalfa Law Firm advises on GST/HST elections, including section 156, section 167, and section 221, as part of structuring asset purchase transactions efficiently and compliantly.
Contact us today to discuss your transaction.
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-Shira Kalfa, BA, JD, Partner and Founder
Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.
© Kalfa Law Firm 2021. Updated August 26, 2026.
