Many businesses, including those who provide taxable benefits or pension plans to their employees, will soon have to take into account recent changes to the GST/HST and Quebec Sales Tax (QST) as they prepare to meet upcoming compliance deadlines such as filing returns, making elections and remitting indirect taxes.
In particular, several provinces made significant changes in 2013 to their HST, provincial sales tax (PST) or QST rules and the federal government announced changes to some of the GST/HST pension plan rules.
You may have to review some of your GST/HST and QST-related calculations and compliance requirements stemming from these changes, for example, you may want to file an election for pension plan relief by December 31, 2013 or you may have to use new 2013 rates to calculate your tax remittances relating to your employees’ taxable benefits.
Is your business affected?
This TaxNewsFlash-Canada provides an overview of how some of your upcoming indirect tax requirements may be affected by 2013 changes to the GST/HST, QST and PST. You may want to review some of these changes if your business:
- Provides taxable benefits to your employees
- Has a registered pension plan for your employees
- Has more than $1 million in financial revenues
- Is a financial institution with activities, employees or members in Quebec
- Imports taxable goods or services into Manitoba, where the RST rate was increased to 8% (from 7%) effective July 1, 2013
- Currently uses the 5% simplified method for large businesses for employee expense reports for QST purposes.
GST/HST and QST and taxable benefits
Many businesses across Canada are required to pay GST/HST and QST on the taxable benefits they provided to their employees in their reporting period that includes February 28, 2014. The related rules and rates can vary depending on several factors, such as the location of the last establishment of the employer where the employee ordinarily reported to or worked.
For 2013, you should carefully review the rates you use to remit these taxes, since the following provinces made indirect tax changes during the year:
- B.C. eliminated its HST and returned to a GST and new PST on April 1, 2013
- Quebec changed the QST rate to 9.975% (from 9.50%) on January 1, 2013
- P.E.I. introduced a new HST on April 1, 2013.
File election by December 31 for relief for GST/HST pension plan rules
If your business offers registered pension plans to your employees and your business is subject to the GST/HST pension plan rules, you may consider making an election before January 1, 2014 to apply the relieving measure related to these rules announced in the 2013 federal budget. For details, see KPMG’s TaxNewsFlash–Canada 2013-17 “Employers – New GST/HST Relief Available Under Pension Plan Rules”. Similar measures have been announced for Quebec’s QST purposes.
As a qualifying participating employer with registered pension plans, you will likely also have to consider some of the 2013 changes to calculate the amount of GST/HST and QST to remit on the supplies you may be deemed to have made to the pension entities of your pension plans. Many businesses with a December 31 year-end with monthly reporting periods will be required to remit these amounts no later than January 31, 2014.
The 2013 changes include the elimination of the British Columbia HST, the further harmonization of Quebec’s QST rules with the federal GST rules, and the new Prince Edward Island HST. For details, see TaxNewsFlash–Canada 2013-34 “Employers and Pension Plans – Act Now to Meet Upcoming GST/HST Deadlines”.
Quebec eliminates the 5% simplified method for large businesses
Quebec announced in 2013 that it would eliminate the 5% simplified method used by many large businesses to calculate eligible input tax refunds (ITRs) on expenses reimbursed or allowances paid to their employees.
These large businesses may have to adjust their systems to account for the elimination of the 5% simplified method for QST purposes for expenses incurred by employees or allowances paid to these individuals on or after January 1, 2014. (See KPMG’s Canadian Tax Adviser, “Prepare for Cash Flow Impact of QST Change for Employee Expense Accounts”, dated October 29, 2013.)
Financial institutions across Canada and QST
Quebec has significantly changed the QST application for financial services in 2013. If your business provides financial services across Canada, particularly if you are located in Quebec, you may have new QST compliance and filing requirements for 2013. Many pension plans that have members across Canada may also be affected.
Also, large businesses that have more than $1 million of financial revenue per year, including interest income, may be deemed to be financial institutions and may be affected by some of the QST changes. Some of these entities may have to comply with new rules and filing requirements, including a new annual information return for financial institutions for QST purposes.
Also, many financial institutions across Canada that have a permanent establishment in Quebec and one in another province have been known as Quebec “selected listed financial institutions” (SLFIs) since January 1, 2013, a change that also brought specific new QST rules and compliance requirements for these entities. For example, Quebec SLFIs have had the administration of their QST accounts transferred from Revenu Québec to the Canada Revenue Agency (CRA) as of January 1, 2013 and now have to file new combined GST/HST and QST forms with the CRA. Some entities may have become Quebec SLFIs during the year and may have to take action to make appropriate changes to their QST accounts.
As such, many financial institutions may want to review their QST SLFI status and determine whether they have to make corrections to their QST accounts. Note that “permanent establishment” is a defined term and has different meanings for different types of financial institutions.
These new requirements are part of the QST changes that took effect on January 1, 2013, when the QST rules were further harmonized with the federal GST rules and most financial services became QST-exempt supplies. Previously, many of these supplies were zero-rated. For details, see KPMG’s TaxNewsFlash–Canada 2012-40 “New QST Ins and Outs – Get Ready for January 1, 2013”.
Quebec also made further changes to the compensation tax for some financial institutions.
Provincial Sales Tax changes in 2013
Three provinces also made significant changes in 2013 to their PST:
- B.C. has eliminated its HST and returned to a GST and PST system
- Manitoba has increased its general RST rate to 8% (from 7%)
- P.E.I. has eliminated its PST and introduced a new HST.
These changes can bring a slew of related system and process issues for businesses, including how to apply the documentation and self-assessment requirements. Businesses may want to review their implementation of these PST-related changes, as well as testing their systems and processes to ensure they are remitting the proper amount of taxes.
Download KPMG’s Tax Hub Canada app
KPMG’s free Tax Hub Canada App for iPads and Blackberrys provides timely, convenient tax news and tax rates to help you respond to changes in tax rules and regulations. Download the app today.
We can help
Your KPMG adviser can help you manage the impact of the 2013 GST/HST, PST and Quebec’s QST changes 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.
Information is current to December 19, 2013. 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. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 145,000 professionals, in 152 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
KPMG's Canadian web site is located at http://www.kpmg.ca/
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.