On January 28, 2011, the Department of Finance released its
initial response to industry calls for clarification and
modification of proposed draft legislation and regulations in
respect of the harmonized sales tax
("HST") by financial institutions. The
January 28, 2011 Backgrounder (the
"Backgrounder") contains a number of
changes and clarifications to the proposed rules announced by the
Department of Finance in releases dated May 19, 2010 and June 30,
2010.
The Backgrounder is divided into three parts: (1) proposed changes
reflected in draft amendments to the legislation and regulations,
which are attached to the Backgrounder; (2) rules for new
investment plans; and (3) issues requiring further research,
analysis and consultation with the financial services
industry.
The first part of the Backgrounder clarifies and changes various
rules announced in the Department of Finance's May 19 and June
30 releases, which have been captured in the draft legislation and
regulations accompanying the Backgrounder. Highlights include a
proposal to relieve non-distributed investment plans with
substantially all of their members in non-participating provinces
from the SLFI rules, a proposal to include section 172.1 deemed tax
as a factor in determining whether a pension entity qualifies as a
Qualifying Small Investment Plan and clarification on the
application of the specified investor rules.
The second part of the Backgrounder clarifies and changes
previously announced rules contained in the May 19 and June 30
releases for new investment plans or new series of an investment
plan, including those plans and series created by way of merger.
These proposed clarifications and changes have not been included in
the draft legislation and regulations attached to the
Backgrounder.
The third part of the Backgrounder identifies a number of issues
raised by the industry for which the Department of Finance requires
further research, analysis and consultation. These issues include
whether the SLFI rules should apply to entities not subject to them
but that are similar to investment entities that are (e.g.,
investment trusts and partnerships with investors in more than one
province, trusts holding assets of SLFI pension entities, etc.) and
the application of the SLFI rules to third party purchasers for an
SLFI investment plan (e.g., an employer that pays for the expenses
of a trust governed by a retirement compensation
arrangement).
As was the case with the existing proposals, the newly proposed HST
rules for financial institutions are complicated and important for
those in the financial services industry to understand. With this
latest package, the Department of Finance has signalled that its
consultations with the industry, and, therefore, modifications and
clarifications to the HST rules affecting it, remain ongoing.
The Backgrounder and accompanying draft legislation and regulations
can be found here: http://www.fin.gc.ca/n11/11-009-eng.asp.
Comments to the Department of Finance on the proposals described
above must be submitted by March 31, 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
