June 3, 2013
Many businesses may not realize that they face some important GST/HST filing deadlines on June 30, 2013, in addition to their regular GST/HST returns. Employers offering registered pension plans to employees, large businesses and financial institutions (FIs) may be required to complete and file complex GST/HST returns, many of which have significant penalties for non-compliance.
Some businesses may be surprised to discover that they are required to file these additional GST/HST returns by this date. They may have to fulfill these requirements because they meet the broad definition of an FI and must therefore file appropriate returns to avoid penalties. Some of these large businesses can include, for example, large retailers or construction businesses because of their credit card operations or because of large deposits or loans that generate a certain amount of financial revenue.
|Do you have GST/HST returns due on June 30, 2013? |
Certain types of businesses may have one or more GST/HST returns due no later than June 30, 2013. Check to see whether you have to file the following returns, among other GST/HST returns, by this date.
Are you an employer?
Some employers may have to include amounts in their regular June 2013 GST/HST return for pension plan rebates transferred to them by their pension entities during the reporting period.
Are you a financial institution?
Some pension entities, investment plans and other FIs, even if they are not GST/HST registered, must file GST/HST final returns that require detailed information and complicated calculations.
Are you a pension entity?
Many pension entities that are registered for GST/HST purposes and that have to file GST/HST annual returns by June 30 will take the opportunity to also file their 2012 pension plan rebate application forms and decide whether to transfer amounts to qualifying employers. As a reminder, qualifying pension entities that are GST/HST registered and have annual reporting periods have until June 30, 2013 to file unclaimed GST/HST pension plan rebate application forms for 2010.
Are you a large business or financial institution?
Many FIs and some large businesses with a December 31 year-end are required to file GST/HST annual information returns by June 30 (i.e., within six months after the end of their fiscal year). Large businesses may find themselves unexpectedly swept into the broad definition of an FI and subject to this GST/HST reporting.
No matter what kind of business you carry on, all GST/HST returns must be completed carefully to fully comply with all of your GST/HST filing requirements, as penalties and interest can quickly accumulate. For example, the form GST111, “Financial Institution GST/HST Annual Information Return” includes more than 100 boxes that can carry a penalty of up to $1,000 per box for failure to file the return or for misreporting amounts in these boxes.
Businesses should also remember that the CRA may compare completed form GST111 with other filed returns and question any discrepancies. If you have already filed some of these returns and other types of GST/HST returns for 2010 and 2011, you may also wish to review these returns for any inconsistencies.
Generally, qualifying pension entities of registered pension plans (pension entities) can elect to transfer part or all of their eligible pension plan rebates to participating employers. Eligible employers are entitled to deduct the transferred amounts in their GST/HST returns. However, the employers must claim the deduction in the reporting period that includes the day on which the election is filed with the CRA. Eligible employers should carefully determine when the amounts are transferred and ensure they claim the deduction in the appropriate reporting period.
Selected listed financial institutions (SLFIs), even if they are not GST/HST registered, are required to file form GST494, “GST/HST final return for selected listed financial institutions” (GST494 final return).
|What is a SLFI? |
A SLFI is generally a listed FI that has a permanent establishment, as defined for the particular type of FI, in an HST participating province and a permanent establishment in another province.
Many FIs across Canada qualify as SLFIs and are required to file the GST494 final return. These SLFIs generally include, among other FIs, banks, insurers, securities dealers, investment plans as well as segregated funds.
To file the GST494 final return and interim returns, SLFIs must apply complex rules, which were just recently finalized and published by the federal government. These complex rules had been in draft form since 2010. Many parts of the rules deal with how SLFIs calculate their liability for the different provincial components of the HST across Canada under the special attribution method (SAM). If your business is a SLFI, you should carefully review the final rules to determine the effect of any clarifications and new measures, and also to make sure that you’ve applied the rules correctly over the last few years.
Different allocation rules can apply for different types of FIs, including pension plans and other investments plans, banks, trust and loan corporations, insurers and other corporations. Some of these rules came into force in 2010, and others in 2011.
In addition, SLFIs must remember that they have to include on the GST494 final return an amount of self-assessed GST on cross-border charges with related entities.
To review and complete your 2010, 2011, and 2012 GST494 final return, you must understand the final SLFI rules as they apply specifically to your business’ facts and circumstances, and you will also have to:
- Track the GST and the different provincial components of the HST paid in your systems
- Calculate your provincial attribution percentages and make sure you obtain and use the appropriate information for the type of SLFI
- Understand the special elections for consolidated filings and transfers of amounts under the SLFI rules, if applicable
- Understand and apply the numerous adjustments, including the adjustments related to the recaptured input tax credit requirements (also known as RITCs), section 150 elections and inter-company transactions, and the 2010 and 2011 transitional adjustments.
Some managers are eligible to elect with qualifying investment plans to have the managers take care of some of these plans’ compliance requirements, including filing the GST/HST returns and remitting tax owed. When these managers complete these plans’ GST494 final returns, they should ensure that they reconcile the returns with the blended rates used throughout the year as discrepancies could cause issues.
Finally, SLFIs as well as FIs will have to carefully understand and apply the sharing of information requirements as published in the final rules to property calculate their provincial attribution percentage. Under the sharing of information requirements, unit holders are required by law to provide information to various investment plans. Some investment plans are required to make a written request to certain unit holders. However, some other unit holders are required by law to submit some information without receiving a written request from the plans. You must carefully understand these requirements in light of significant penalties that may apply for failure to provide information as required by the law.
Many qualifying pension entities with a December 31 year-end may qualify as SLFIs and will have to file GST494 final returns no later than June 30, 2013. Many of these pension entities should take this opportunity to calculate partial pension plan rebates for 2012 if they have not already done so and decide whether to transfer all or part of the rebates to qualifying employers. Whether pension entities transfer any part of pension plan rebates to qualifying employers will affect the calculation of the rebates and the amounts reported on GST494 final returns.
Under the GST/HST pension plan rules, a qualifying pension entity is generally entitled to a partial rebate of the GST/HST paid on goods and services purchased by the pension entity and also a partial rebate of the tax it is deemed to have paid under the pension plan rules (i.e., GST/HST paid by the employer on “deemed” supplies). The process for claiming the rebate will depend on whether the pension entity qualifies as a SLFI.
While the pension plan rebate for a qualifying pension entity that is not a SLFI generally includes the GST/HST components of the tax paid or deemed paid, the 33% partial rebate for qualifying SLFI pension entities will only apply to the GST and the GST component of HST paid or deemed paid. The partial rebate for the provincial component of the HST would be claimed either in the rebates transferred to qualifying employers or, subject to more special rules, as adjustments used to calculate amounts for GST494 final returns that are generally due June 30.
Other issues may arise depending on your circumstances, such as additional adjustments or remittances for the employers and the pension entities.
As a reminder, pension entities that are registered for GST/HST purposes and that have annual reporting periods generally have until June 30, 2013 to file unclaimed pension plan rebates for 2010. Similar rules apply for Quebec Sales Tax (QST).
Many FIs, as well as some large businesses that don’t fit the ordinary meaning of an FI that are GST/HST registrants with annual income exceeding $1 million, are generally required to file the form GST111, “Financial Institution GST/HST Annual Information Return” (GST111 return). The return must be filed no later than six months after your business’ year-end. As such, a large business that qualifies as an FI with a December 31 year-end with annual income exceeding $1 million must file the GST111 return no later than June 30, 2013 for its 2012 fiscal year.
Large businesses that qualify as an FI under the broad definition of FI for GST/HST purposes may find extracting the required information from their systems to be extremely complicated. Planning is key — this return requires a significant amount of detail which may be difficult to extract without a great deal of time and effort.
|Large businesses — Have you been swept into the broad definition of FI? |
The definition of “financial institution” not only includes commonly known FIs such as banks, insurers and securities dealers but also includes businesses across Canada that would not generally be known or recognize themselves as an FI. These businesses may qualify as an FI under one of the following conditions:
- A business with “financial revenue” that is greater than 10% of its total revenues and that is equal to more than $10 million, or
- A business with greater than $1 million in income with respect to lending of money
- A business that has made a particular election with a financial institution.
The CRA recently reconfirmed that interest generated from guaranteed income certificates (GICs) is generally included in the calculation of these thresholds.
Some entities may also be surprised to learn that having made an election with an FI to deem some supplies to be financial services, and as such relieved from GST/HST, has also made them FIs under the law. As such, these entities will also fall under the broad FI definition and will most likely be required to file the GST111 return if they have more than $1 million of income.
Some SLFIs that are qualifying investment plans are excluded from having to file the GST111 return. However, these investment plans are generally required to file other GST/HST returns, including the GST494 final return. A careful review of the facts and circumstances will help determine the filing requirements.
Your KPMG adviser can help you understand and fulfill your indirect tax compliance requirements related to all your GST/HST returns. We can also help you manage your indirect tax obligations in other jurisdictions and help you ensure that you are not missing refund opportunities. For details, please contact your KPMG adviser.
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Information is current to June 3, 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.
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