Download Financial Institutions — Get Ready for GST/HST Obligations

Financial Institutions — Get
Ready for GST/HST Obligations
December 13, 2016
No. 2016-58
Your financial institution will soon face various GST/HST, QST and payroll deadlines. As
the end of 2016 approaches, financial institutions can take proactive steps to manage their
tax compliance obligations, risks and unrecoverable tax costs as they prepare for upcoming
indirect tax deadlines and other compliance obligations. This is increasingly important as
the rules get more complicated and tax authorities across Canada appear to be increasing
their audit and enforcement activities.
As you start to review your upcoming indirect tax deadlines and obligations, consider how
your deadlines and obligations may be affected by recent changes to your corporate
structure as well as changes to tax laws and CRA administrative policies. As many financial
institutions require a significant amount of data to complete certain returns due by June 30,
this information should be gathered well in advance of any filing deadlines. These financial
institutions should also determine whether their allocation method can be updated before
filing their return, and ensure they properly update any spreadsheets they use to complete
the returns.
Key obligations at a glance — Checklist
To assist you in assessing your upcoming GST/HST and QST obligations, the following
list of items may apply to many financial institutions with a December 31 year-end. Other
obligations and deadlines may apply, particularly for financial institutions with other yearends.
□ Are you an investment fund manager or an insurer?
•
Calculate your 2017 blended tax rates, if applicable
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December 13, 2016
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Follow up with distributed investment plan unit holders to collect any missing
data by December 31, 2016
□ Do you have closely related group elections in place?
•
Determine whether a new test for closely related groups affects your current
elections
□ Do you have any “de minimis” financial institution in your corporate strucutre?
•
Consider whether the entity will still be a financial institution in 2017 under new
rules
□ Have you previously been assessed GST on imported reinsurance services?
•
Determine whether you should request a reassessment by June 22, 2017
□ Are you required to file GST/HST and/or QST annual returns?
•
•
Get ready to file final returns and updated instalment amounts
Get ready to file annual information returns for financial institutions
□ Do you offer a registered pension plan to your employees?
•
•
•
Remit taxes related to supplies made to a pension plan
Claim your pension entity rebates that can be transferred to the employers, if
available
Make an election to eliminate double taxation on supplies made to a master
trust by December 31, 2016
□ Are your CPP contributions and EI premiums in order?
•
Claim overpaid contributions and premiums by December 31, 2016
□ Do you provide taxable benefits for your employees?
•
Remit GST/HST and QST based on the value of your taxable benefits
□ Does your business have insurance coverage with an unauthorized insurer outside
of Canada?
•
Pay a 10% federal tax on your cross-border premiums by April 30, 2017
□ Do you review your input tax credit allocation method annually?
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Financial Institutions — Get Ready for GST/HST Obligations
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December 13, 2016
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Review your input tax credit allocation methods and correct errors, if eligible
File your annual request to use a particular input tax credit allocation method, if
applicable
Investment fund managers and insurers
Calculate your 2017 blended tax rates, if applicable
Managers of investment funds and insurers with segregated funds that use GST/HST and
QST “blended rates” must ensure they have calculated their 2017 “blended rates” and have
them running in their systems on January 1, 2017. Properly calculating the new blended
rates by taking the effect of new and amalgamated funds into account, and incorporating these
rates in to your systems by that date, is important to help limit errors that could result in
assessments of uncollected tax and interest. In some cases, these uncollected tax amounts
may not be recoverable from investment plan clients.
In general, managers that have tax adjustment transfer elections (TATE elections) in place
with their investment plans collect the GST/HST and the QST from these funds based on
rates known in the industry as the “blended rates”. The TATE election essentially helps
manage the investment plans’ cash flow. The blended rates are intricate calculations that
take into consideration the GST/HST and the QST that apply on the managers’ services, as
well as the tax adjustment amounts transferred from the investment funds to the managers
throughout the year.
Managers should remember that, while they may use blended rates to collect the taxes
from their investment plans, they must account and report these amounts of GST/HST and
QST separately.
Follow up with distributed investment plan unit holders to collect any missing data by
December 31, 2016
Distributed investment plans should review the GST/HST and QST information collected
from their investors and follow-up on any missing data to help them fulfill their GST/HST
and QST compliance obligations by December 31, 2016. Some calculations relating to
distributed investment plans’ GST/HST obligations are based in part on information
collected from their investors.
While some investors are required every year to provide information under the GST/HST
and QST rules to distributed investment plans, other investors must provide the required
details only if they receive a written request from these plans.
Distributed investment plans should follow up to collect missing data to ensure they have all
the required information by December 31, 2016. Similar rules apply for QST purposes.
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Financial Institutions — Get Ready for GST/HST Obligations
December 13, 2016
No. 2016-58
Closely related group elections
Determine whether a new test for closely related groups affects your current elections
Businesses with GST/HST and QST closely related elections in place to generally treat
certain taxable supplies as having been made for nil consideration or as financial services,
depending on the particular election filed, must determine if their members meet a new
condition of the closely related test. Where the test is not met, current elections may no
longer be valid.
In addition to satisfying the current tests requiring 90% of the value and number of the
issued and outstanding shares having full voting rights, members of a closely related group
now have to meet a new voting control test introduced by the 2016 federal budget. This
new condition generally applies as of March 22, 2017.
For more information, see TaxNewsFlash-Canada 2016-13, “Financial Services Industry Prepare for 2016 Budget Measures”.
De minimis financial institutions
Consider whether the entity will still be a financial institution in 2017 under new rules
Certain businesses with a December 31 year-end that are considered to be “de minimis”
financial institutions in 2016 may will no longer be considered a financial institution in 2017.
This is because interest income from certain short-term deposits will no longer be included
in the calculation of the $1 million interest income threshold for de minimis financial
institutions, as announced in the 2016 federal budget. Businesses that lose this designation
should ensure they have determined how they may be affected.
For more information, see TaxNewsFlash-Canada 2016-13, “Financial Services Industry -Real Estate Industry — Prepare for 2016 Federal Budget Measures”.
Imported reinsurance services
Determine whether you should request a reassessment by June 22, 2017
Financial institutions may request a reassessment of previously assessed GST related to
certain reinsurance premiums for cross-border reinsurance services acquired from a nonarm’s length entity no later than June 22, 2017. Note that ceding commissions and the
margin risk transfer, two specific components of imported reinsurance services, are not
considered part of the tax base subject to the self-assessment rules under the GST/HST
imported supply rules for financial institutions. This was clarified in the 2016 federal budget.
For more information, see TaxNewsFlash-Canada 2016-13, “Financial Services Industry -Real Estate Industry — Prepare for 2016 Federal Budget Measures”.
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December 13, 2016
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Your GST/HST and QST annual returns
Get ready to file final returns and updated instalment amounts
A financial institution that qualifies as a GST/HST and QST selected listed financial
institution (SLFI) with a December 31 year-end must file a GST/HST and QST final return
for SLFIs by June 30, 2017 regardless of whether the entity is registered for GST/HST and
QST purposes. These final returns must be filed within six months after their fiscal yearend.
A SLFI is generally a listed financial institution that has a permanent establishment in an
HST-participating province and one in another province for GST/HST purposes, and in
Quebec and in another province for QST purposes. The meaning of “permanent
establishment” varies by type of financial institution.
Many SLFIs with a December 31 year-end are GST/HST and QST annual filers and, as
such, are required to pay quarterly GST/HST and QST instalments within one month after
the end of each of their fiscal quarters. It is important to update these calculations each
year. As a reminder, the calculations of the amounts of instalment for GST/HST purposes
and for QST purposes must be done separately.
Get ready to file annual information returns for financial institutions
Many financial institutions, including most SLFIs, with a December 31 year-end are
required to file a GST/HST (and QST) annual information return by June 30, 2017. In
general, a financial institution, including an entity deemed to be a financial institution, that is
registered for GST/HST purposes and has more than $1 million of annual income must file
a GST111 or RC7291 annual information return within six months after its fiscal year-end.
Similar rules apply for QST purposes.
However, some eligible investment plans that qualify as SLFIs, including eligible pension
entities, do not have to file.
Because the annual information return requires a significant amount of information,
including details on sales, purchases and imports, you should prepare well in advance of
your filing deadline. The information included on annual information returns should also be
linked to the information on the entity’s GST/HST and QST returns, income tax returns and
transfer pricing information, if applicable. Failing to file this return or misreporting amounts
could lead to penalties and to have eligible rebates withheld.
Revenue Quebec also has a specific GST/HST and QST annual information return for
financial institutions under its jurisdiction.
You should also ensure you have a process in place to cross-reference final returns, annual
information returns as well as your income tax returns.
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December 13, 2016
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For more information, see TaxNewsFlash-Canada 2016-42, “SLFIs - Identify Efficiencies and
HST Savings Now”.
Registered pension plan for employees
Remit taxes related to supplies made to a pension plan
Many employers with a December 31 year-end that offer pension plans to their employees
are deemed to have made taxable supplies to the pension entities of the registered pension
plans on December 31, 2016 (i.e., the last day of their fiscal year). Under the GST/HST and
QST pension plan rules, these employers must calculate and remit taxes related to these
supplies in their GST/HST and QST reporting period that includes December 2016. For
example, a SLFI with a December 31 year-end and an annual reporting period must file its
annual GST/HST annual return no later than June 30 (i.e., no later than six months after its
fiscal year). Certain tax calculations for 2016 may also be affected by proposed GST/HST
changes announced on July 22, 2016.
Claim your pension entity rebates that can be transferred to the employers, if available
Qualifying pension entities that have a December 31 year-end and are not registered for
GST/HST and QST purposes have until December 31, 2016 to file their rebate application
to claim their pension entity rebate for the claim period of July 1, 2014 to December 31,
2014. Note that this rebate must be transferred to the financial institutions.
The GST/HST pension plan rules are complex and can vary based on the facts and
circumstances of the entities, including claim periods and filing deadlines. In general, the
pension entity rebate is equal to 33% of the GST/HST paid to suppliers and the GST/HST
deemed paid under the pension plan rules. In some cases, eligible pension entities can
transfer the rebate to the employers. Pension entities should try to limit any calculation
errors as only one rebate application may be filed for any particular claim period.
Make an election to eliminate double taxation on supplies made to a master trust by
December 31, 2016
Based on proposed changes, eligible employers with a December 31 year-end that have a
master trust in their employees’ pension plan structure may in some circumstances, along
with the master trust, file an election by January 1, 2017 to essentially eliminate double
taxation for actual and deemed supplies made to the master trust.
Under the proposed changes, employers with a December 31 year-end will be deemed to
make taxable supplies to their master trusts starting in 2017, and will be required to
calculate and remit GST/HST and QST on those deemed supplies. However, eligible
employers and master trusts can file an election to eliminate any double taxation resulting
from the actual supplies and deemed supplies. The election must generally be filed on or
before the first day of the employer’s fiscal year. Note that a pension plan may be able to
include in its 2016 rebate calculations the tax on supplies that the master trust was legally
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December 13, 2016
No. 2016-58
liable to pay, and that a financial institution’s determination of whether it should make a
similar election for supplies made to a pension plan may be affected by other changes to the
pension rules.
Similar pension plan rules apply for QST purposes.
For more information on the pension plan rules and the proposed changes related to
master trusts, see TaxNewsFlash-Canada 2016-32, “Pension Plans — GST/HST Filing
Deadlines Fast Approaching” and TaxNewsFlash-Canada 2016-57, "Employers and
Pension Plans —Upcoming GST/HST Deadlines".
CPP contributions and EI premiums
Claim overpaid contributions and premiums by December 31, 2016
Employers that overpaid contributions of Canada Pension Plan (CPP) or of Employment
Insurance (EI) may be eligible to apply for a refund by December 31, 2016 where the
overpayment is in excess of the maximum amount required, other than within the current
year. For CPP contributions, qualifying employers must file the refund application no later
than four years from the end of the year in which it made the overpayments. For example,
for eligible overpaid CPP contributions in the year 2012, an employer’s last chance to file a
refund application is December 31, 2016. For EI premiums, the deadline is three years from
the end of the year in which the overpayment occurred.
Your employees’ taxable benefits
Remit GST/HST and QST based on the value of your taxable benefits
Employers that provide taxable benefits to employees should ensure they update their
GST/HST calculations related to these benefits to reflect the 2016 HST rate increases in
New Brunswick, Prince Edward Island and Newfoundland and Labrador. These amounts of
tax must be remitted in the employer’s GST/HST reporting period that include the last day
of February. For example, these amounts should be included in the February GST/HST
return which is due no later than March 31 if the employer has monthly GST/HST reporting
periods. Similar rules and deadline apply for QST purposes.
Insurance coverage with an insurer outside of Canada
Pay a 10% federal tax on your cross-border premiums by April 30, 2017
Businesses that acquire insurance coverage for certain risks in Canada with an insurer that
is not legally authorized to write insurance in Canada must self-assess and pay a 10%
excise tax on taxable insurance premiums by April 30, 2017.
Certain provinces also levy tax on insurance premiums. In addition, businesses may be
required to remit tax directly to these provincial governments where an insurer is not
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December 13, 2016
No. 2016-58
registered to collect the provincial tax on these insurance premiums. However, the taxes
and rules on insurance premiums, including deadlines and penalties for non-compliance,
vary by province.
For more information, see Canadian Tax Adviser, “Cross-Border Insurance Coverage - Don't
Miss April 30 Deadline for 10% Excise Tax” (April 12, 2016).
Your input tax credit allocation methods
Review your input tax credit allocation methods and correct errors, if eligible
Certain financial institutions are eligible to review their allocation method for input tax
credits and input tax refunds for a particular fiscal year and correct errors before filing their
first GST/HST and QST returns for that particular year. An eligible financial institution with a
December 31 year-end and an annual reporting period would generally have until it files its
2016 final return to review or substitute its 2016 input tax credit allocation methods.
However, due to the time required to assess these allocation methods, eligible financial
institutions should complete these reviews well in advance of preparing and filing their 2016
GST/HST and QST returns.
File your annual request to use a particular input tax credit allocation method, if
applicable
Certain qualifying financial institutions with a December 31 year-end are required to file by
July 5 an annual request to the CRA to use particular input tax credit allocation methods
(i.e., the request must be filed no later than 180 before the first day of the fiscal year to
which the application applies). Under the GST/HST and QST rules, while certain SLFIs are
required to use particular input tax credit allocation methods, the rules also allow qualifying
institutions to apply to be authorized to use particular methods to determine their ITCs for a
particular fiscal year.
We can help
Your KPMG adviser can provide assistance in managing the impact of these and other
indirect tax deadlines that may affect your business. We can also help you determine how
indirect tax rules in other jurisdictions apply to your business, help you manage your related
compliance obligations and help you ensure that you are not missing refund opportunities.
For details, contact your KPMG adviser.
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TaxNewsFlash – Canada
Financial Institutions — Get Ready for GST/HST Obligations
December 13, 2016
No. 2016-58
Information is current to December 6, 2016. The information contained in this TaxNewsFlash-Canada 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.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of
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