November 14, 2012
Deadline Crunch Time — Are You Ready?
Complying with all your business’ indirect tax filing obligations may become more complicated and time-consuming in the coming months because you will have to meet your current filing deadlines along with some new requirements arising from federal and provincial tax changes. Many businesses will have to meet an array of these upcoming indirect tax deadlines, starting as soon as November 15, 2012.
This TaxNewsFlash-Canada highlights some upcoming deadlines that affect a wide range of businesses and non-profit organizations (NPOs). Your business or NPO may have to meet some of these deadlines if it:
· Is an investment plan or a unit holder in an investment plan
· Manages an investment plan
· Is a financial institution for GST/HST purposes
· Does construction in Ontario
· Does business in Quebec, B.C. or P.E.I.
· Has paid Ontario RST in the last few years
· Has an employee pension plan or is a pension plan
· Provides taxable benefits to employees.
Investment plans and their unit holders — November 15, 2012
Many investment plans that qualify as selected listed financial institutions (SLFIs) require information from their unit holders to fulfill their GST/HST requirements for the upcoming year. 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. The requirements differ based on the type of unit holders, and the amount and the total value of the units they hold.
The deadline to submit the information is generally November 15, 2012 or later in some circumstances.
Unit holders should carefully review and determine their requirements and responsibilities in light of significant penalties that may apply for failure to provide information as required by the law. (Generally the penalty may be the lesser of $10,000 and 0.01% of the total value of the units held by unit holders.)
Last chance for Ontario RST refunds — December 31, 2012
The final deadline to claim overpaid old Ontario Retail Sales Tax (RST) is December 31, 2012. The province had maintained the four-year deadline for taxpayers to claim overpaid RST when it replaced its RST with the HST on July 1, 2010. However, in its 2012 budget, Ontario announced that it was shortening this deadline to no later than December 31, 2012.
There are many reasons why businesses may have unknowingly overpaid Ontario RST, such as incorrectly applying the transitional rules when Ontario RST was replaced with the HST or paying Ontario RST on exempt goods and services. While the deadline is approaching soon, such overpayments can be quickly identified with the help of sophisticated technology. Businesses can still benefit from this refund opportunity if they have overpaid Ontario RST and file refund claims in 2012.
For more information, see KPMG’s Canadian Tax Adviser, “Act Now — Ontario RST Refund Final Deadline Looming”, dated October 16, 2012.
Pension plans could lose potential rebates — December 31, 2012
Under the GST/HST pension plan rules, qualifying pension plans may be eligible to claim a 33% pension plan rebate for the tax paid to suppliers and the tax deemed paid under the GST/HST pension plan rules.
A qualifying pension plan may file only one application for any particular claim period. If the pension plan is registered for GST/HST, its claim period is its normal GST/HST reporting period. If the pension plan is not registered for GST/HST, the claim periods are the first six months of its fiscal year and the last six months.
If a pension plan is registered, the plan must claim its rebate for a claim period within two years of the day the pension plan has to file its GST/HST return for the claim period. If the pension plan is not registered for GST/HST, the plan must file its application within two years of the last day of the claim period.
So, if a qualifying pension plan with a December 31 year-end is not registered for GST/HST purposes and has not claimed any rebates in the past, the rebate application related to tax paid or deemed paid for the claim period of June 2010 to December 2010 must be filed no later than December 31, 2012.
Similar pension plan rules apply for QST purposes.
For more information, see TaxNewsFlash-Canada 2011-31, “GST/HST Reporting for Pension Plan — Deadlines Looming.”
Fund managers — Get your GST/HST right — December 31, 2012
Many managers of investment plans collect the GST/HST on their management fees based on “blended rates” rather than the rate of GST or HST applicable to the province where the funds are actually located. With the upcoming amended Quebec Sales Tax (QST) on January 1, 2013, the transition in British Columbia from the HST back to a GST and a new B.C. provincial sales tax (PST) system and the introduction of the new HST in Prince Edward Island on April 1, 2013, fund managers will have to carefully calculate their blended rates for most funds effective January 1, 2013 and April 1, 2013.
Miscalculating blended rates could result in assessments of uncollected tax and interest that fund managers may not be able to recover from their investment plan clients.
Prepare for upcoming Quebec QST changes — January 1, 2013
Quebec will amend its QST to further harmonize some of the QST rules with the GST rules effective January 1, 2013. However, it should be noted that Quebec is not adopting an HST.
Under the amended QST, Quebec proposes several significant changes including:
· Making financial services QST-exempt (from QST zero-rated)
· Increasing the QST rate to 9.975% (from 9.5%)
· Applying the QST on the consideration before GST (i.e., removing the GST from the QST tax base).
Financial institutions providing financial services in Quebec, as well as holding companies, will generally no longer be entitled to claim input tax refunds for the QST paid on their related expenses, resulting in higher unrecoverable tax costs. Quebec also proposes to eliminate the compensation tax in two steps. Financial institutions will have to make numerous changes to systems and processes as a result of the new tax status of their services and will also have to understand the impact on their costs.
Also, many other businesses that are registered for QST may have to adjust their systems to accommodate the new QST rate with three decimal points and the new QST tax base. Some financial institutions, including some pension plans, outside Quebec may have to register for QST purposes.
Quebec recently also announced new rates to calculate the QST to remit on employee taxable benefits and factors to calculate the QST for employee expense reports. Quebec also released details on the effects of the amended QST on the new housing rebate calculations.
Construction businesses Ontario WSIB changes — January 1, 2013
Mandatory Ontario Workplace Safety and Insurance Board (WSIB) coverage takes effect for independent operators, sole proprietors, some partners in a partnership and some executive officers who work in construction, effective January 1, 2013.
Many individuals working in construction that do not currently have WSIB coverage will be required to register with the WSIB by January 1, 2013. Independent operators that don’t already have WSIB optional insurance can voluntarily pre-register and have WSIB premiums payable and coverage effective on the implementation date.
The new compulsory coverage and registration does not apply to individuals who only do home renovation work directly for homeowners. The WSIB may review written documentation such as work proposals, contracts, invoices and other similar documentation to confirm the home renovation exemption.
The WSIB rates that will apply to companies and individuals included in the new compulsory coverage will depend on their construction activities. These activities include, among others, electrical and plumbing work, industrial maintenance and repair, road building and excavating, drywall installation, painting, carpeting and flooring installation, interior design, roofing, heavy civil construction, millwrighting, masonry and other forms of outside finishing, along with homebuilding and commercial land development.
For many executive officers in construction, the new rules will result in the requirement to pay premiums on earnings that were previously not insurable. In the industry, premiums for 2013 can range from $3.69 to $18.31 per $100 of insurable earnings (subject to maximum insurable earnings). However, Ontario recently announced a new reduced rate for some partners and executive officers in construction. Partners and executives officers who are approved for the lower rate may be permitted to do periodic on-site visits, provided that they do not perform construction work. You should determine whether your executive officers in construction qualify for this new rate group. Otherwise, the new measure could result in WSIB premium cost increases between $3,000 and $15,000 per executive officer.
As a reminder, it’s important for construction companies and other entities to ensure they obtain a WSIB clearance certificate which confirms that a business is registered with WSIB and has an account in good standing. The clearance certificate relieves a principal (e.g., a person awarding a contract) of liability for payment obligations to the WSIB that a contractor or subcontractor may incur as a result of carrying out the construction contract. A principal who directly retains a contractor or subcontractor to perform construction work must obtain a clearance certificate before the contractor or subcontractor undertakes the work. The certificate must be in effect for the entire time the contractor or subcontractor is performing the work.
Employers with pension plans — January 31, 2013
Most employers that offer pension plans to their employees will soon have to review their obligations and options under the GST/HST pension plan rules for 2012.
Employers with a registered pension plan are deemed to make taxable supplies to their pension plans on the last day of their fiscal year and to have collected the GST/HST based on some complicated rules. The CRA has taken the position that there is an actual supply as well as a deemed supply to the pension plan if pension plan-related expenses are paid out of the pension plan, thus causing double taxation. However, there are complex rules that should reduce the liability resulting from both an actual supply and a deemed supply to the pension plan.
The CRA’s position could also apply to pension-related expenses paid out of a master trust but no rules exist to reduce the double taxation in such a case.
As many qualifying employers have a December 31 year-end and are monthly GST/HST filers, they will be deemed to have made taxable supplies on December 31, 2012 and will be required to remit tax in their December 2012 GST/HST return, due at the end of January 2013.
Similar rules apply for QST purposes.
Remit GST/HST related to taxable benefits — February 28, 2013
Employers that provide taxable benefits to employees are required to calculate and remit an amount of GST/HST on many of these benefits. The calculations of the amount of tax remittable generally depend on the nature of the benefit and the province in which the employee ordinarily reports for work. The GST/HST related to employees’ taxable benefits must generally be included in the GST/HST returns for the reporting period that include the last day of February.
Other rules apply to shareholders’ taxable benefits.
Similar rules apply for QST purposes.
Get ready for new B.C. PST and P.E.I. HST — April 1, 2013
British Columbia will transition from HST back to a GST and a new PST system effective April 1, 2013. Businesses have to carefully plan for all the changes to their systems and processes to address the new PST and transactions that straddle April 1, 2013, including credit notes, promotional supplies, and new PST self-assessment rules for goods brought into the province. While regulations are still outstanding, B.C. has recently released additional administrative information relating to its new PST including:
· General transitional rules for the new PST and how the PST will apply to transactions that straddle April 1, 2013
· Registering to collect the new PST
· Legal services
· Goods brought into B.C.
· Purchase of goods in B.C.
· Leases of goods in B.C.
· Charging, collecting and remitting the new PST.
Prince Edward Island plans to harmonize its current 10% PST with the 5% GST to create a new 14% HST effective April 1, 2013 (reduced from an effective combined GST/PST rate of 15.5%). P.E.I. recently released transitional rules for the new HST and the wind-down of the current PST. Transitional rules generally determine which tax applies to transactions that straddle the April 1, 2013 implementation date. The transitional rules include general rules, provisions for prepayments made after January 31, 2013 and rules for several specific circumstances, (e.g., sales of new homes). Based on the transitional rules, some entities will also have to self-assess the provincial component of the HST on some prepayments paid after November 8, 2012 for goods and services to be provided after March 31, 2013.
P.E.I. also released details on the temporary recapture of input tax credits requirements for the provincial component of the upcoming 14% HST.
File pension plans’ and FIs’ GST/HST annual returns — June 30, 2013
Many pension plans and other financial institutions with a December 31 year-end have to file one or two GST/HST 2012 annual returns no later than June 30, 2013.
The first return is the form GST494 “Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions” (final return). A selected listed financial institution (SLFI) generally means a qualifying financial institution that has a permanent establishment in an HST-participating province and one in another province. The meaning of “permanent establishment” varies by type of financial institution.
The second return is the form GST111 “Financial Institution GST/HST Annual Information Return” (Annual Information Return), which applies more broadly to financial institutions, including most SLFIs. The form GST111 requires a significant amount of detailed information on different items, including sales, purchases and imports. Significant penalties can apply for failure to file this return or misreporting amounts on it.
Some SLFIs face some differences in the application of the rules for the form GST494 between 2011 and 2012. SLFIs may want to carefully review the content of their form GST494 before filing with the tax authorities.
Starting in 2012, many pension plans now qualify as SLFIs and will be subject to the form GST494 final return for the first time. As such, these plans are now subject to complex rules to calculate their final GST/HST liabilities for 2012. Based on proposed regulations, SLFIs that are qualifying investment plans may be exempt from filing the form GST111 Annual Information Return.
Other pension plans not required to file the form GST494 final return may be required to file the form GST111 Annual Information Return.
Some pension plans may want to review their GST/HST registration status and determine whether they should make some of the elections available to SLFIs.
We can help
Your KPMG adviser can help you manage the impact of these and other federal or provincial indirect tax deadlines and changes that may affect 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.
Information is current to November 13, 2012. 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/
© 2012 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.