Association and HST

Posted on November 9th, 2023 in Commodity Tax (HST), Domestic Tax

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In the tax world, association can have a significant impact on your income taxes, but it can also impact your GST/HST as well. When it comes to having to register for GST/HST, the small supplier threshold of $30,000 (or $50,000 for public service bodies) applies to a company and its associates. Association is defined in section 127 of the Excise Tax Act (ETA) and subsections 256 (1) to (6) of the Income Tax Act (ITA). The rules of association for ITA purposes can be found at: http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-256.html

When it comes to association and GST/HST, a common error is not factoring in all of the taxable sales of all associated parties when looking at the small supplier test. Unlike the ITA definition of association, which applies to corporations only, the ETA extends this definition to apply to other persons (such as individuals). It is common for an individual who controls a corporation to charge management fees or commercial rent to their corporation. Assuming the corporation they control is not a small supplier, due to the association rules, these fees would be taxable for GST/HST. Having the individual registered and charging for these services is often overlooked on the incorrect assumption they are not taxable if under $30,000 of taxable supplies. Please note the appropriateness and income tax consequences of such management fees are beyond the scope of this article.

It should also be noted that, as a trust and a partnership is a person for GST/HST purposes, they should also be factored into association with any corporations with common ownership.

If you have a corporate group with transactions amongst all of the entities and shareholders, it would be prudent to have a GST/HST review done to ensure that all taxes are being charged appropriately.