Global

Details

  • Service: Tax, International Corporate Tax, Global Indirect Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 8/15/2012

Canada - Banks facing more indirect tax changes, CRA audits 

August 15:   Banks are now facing more indirect tax law changes, and thus may find it challenging to calculate and pay the right amount of taxes and fully comply with all the GST/HST, PST/RST and QST rules.*

*GST: goods and services tax; PST: provincial sales tax; QST: Quebec sales tax; RST: retail sales tax; HST: harmonized sales tax


For example, financial services will become QST-exempt on 1 January 2013. Banks operating in Quebec may see an increase in their unrecoverable QST that could cost more than the current compensatory tax.

CRA audits

Also, the Canada Revenue Agency (CRA) has started to audit financial institutions for GST/HST related to charges for cross-border financial services with related parties.


To prepare for a CRA audit, banks need to determine their compliance with amendments to the law made in response to the State Farm decision in 2005. These amendments require banks to self-assess tax on deductible expenses for supplies coming from outside Canada from related parties, with certain exceptions. The changes also include an extension of the audit period for the new self-assessment rules to seven years (from the general four-year audit period).


The CRA is also focusing its audits on other items including allocation methodology, intercompany transactions, loyalty programs, and “arranging for” sale of financial instruments.


With a significant number of new GST/HST auditors, the CRA appears to be increasing its audit activities for all businesses including banks.


Read an August 2012 report prepared by the KPMG member firm in Canada: Banks Facing More Indirect Tax Changes and CRA Audits




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