May 1, 2013
The federal government will publish the long-awaited final GST/HST regulations affecting many financial institutions on May 8, 2013. Selected listed financial institutions (SLFIs) will have to carefully review more than 150 pages of regulations, including clarifications and new measures, to determine the effect on their businesses and to make sure they’ve applied the rules correctly for the last few years.
The Selected Listed Financial Institutions Attribution Method Regulations (SLFI Regulations) provide most of the details related to the special attribution method (SAM) formula used by SLFIs across Canada to recalculate their liability related to the provincial components of the HST.
Some financial institutions should note that even if they may not qualify as a SLFI, they may still be subject to some rules in the SLFI Regulations such as the information sharing requirements and their related non-compliance penalties, which can be severe.
Now that the federal SLFI Regulations are final, SLFIs are one step closer to the release of more Quebec Sales Tax (QST) legislative amendments related to the further harmonization of the QST rules with the GST rules on January 1, 2013. These amendments are coming because Quebec had previously noted that the QST system would be harmonized effective January 1, 2013 with the proposed SLFI rules but related QST amendments would only be released after the federal regulations were finalized.
In general, the SAM formula ensures that service providers in non-HST provinces do not have a competitive advantage over those in HST provinces in providing services to SLFIs across Canada.
Essentially, the SAM formula involves multiplying the SLFI’s net GST paid by a “provincial attribution percentage” for each HST province, multiplied by the provincial component rate of the HST divided by the GST rate, less any provincial component of the HST paid.
Many of the SLFI regulations deal with rules and calculations related to the provincial attribution percentage as well as a long list of many adjustments and special rules. Draft rules and regulations relating to the upcoming final regulations were previously announced and amended on May 19, 2010, June 30, 2010, and January 28, 2011.
The final SLFI regulations total more than 150 pages and include many revisions from the previous draft version.
Some of the revisions include:
- Clarifying amendments throughout the document
- Codifying many rules for new investment plans and new series of a plan
- Providing rules for British Columbia’s return to a GST and PST system
- Bringing into force the penalties related to the requirement to share information for many investment plans and the penalties related to electronic filing requirements on the day the regulations are published.
It is our understanding that while the final SLFI regulations of May 8, 2013 will codify rules for new investment plans, the final regulations generally will not address items that were noted for consultation on January 28, 2011, such as master trusts, some partnerships and de minimis financial institutions with a significant level of investment activities.
As noted above, the draft SLFI rules and regulations have been subject to various changes and amendments over the last few years. The CRA has had to release many new or updated forms to address these changes. Many situations related to these complex rules can arise if the rules are misunderstood and applied incorrectly. The following are some related issues that SLFIs should carefully review now that the regulations have been finalized:
- Have you filed all the final returns known as form GST494 for prior years?
- Have you applied the SAM formula on all the appropriate returns?
- Have you included in the SAM formula all the proper provincial attribution percentages?
- Have you claimed any provincial component of the HST as an input tax credit (ITC) instead of including those amounts in your SAM formula?
- Have you treated any intercompany transactions subject to the section 150 election correctly in your SAM formula?
- Have you applied the recapture input tax credit rules correctly in your SAM formula?
- Have you calculated and applied, or paid, the correct blended rates on fund manager fees?
Your KPMG adviser can help you understand and manage the impact of these final SLFI regulations on your business. We can help you manage your indirect tax compliance obligations in all relevant jurisdictions and also help you ensure that you are not missing refund opportunities. For details, contact your KPMG adviser.
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Information is current to April 30, 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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