Three years ago, on May 19, 2010, the Minister of Finance released proposed changes to the application of the harmonized sales tax (HST) to financial institutions. At the time, the relevant government authorities had determined that changes were "necessary to the existing [selected listed financial institutions 1] SLFI rules to ensure that the rules achieve the intended result in the context of the expanded and modernized HST framework" following the adoption of the HST regime by British Columbia and Ontario. After the subsequent publication of draft rules and regulations in June 2010 and January 2011, the Federal Government on May 8th of this year finally released a voluminous document containing the final version of the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (the Regulations). The adoption of the Regulations allows SLFIs to validate what has up to now been the temporary application of certain rules. In addition, since the Regulations also include some new measures, SLFIs should determine whether those measures impact their businesses.
Salient points
The Regulations provide important details relating to the application of the special attribution method (SAM). SLFIs are obliged to make a specific adjustment to their net tax using the SAM formula when they declare their net tax. The calculation establishes the provincial portion of the HST for participating provinces that is payable by the SLFIs. SLFIs will therefore have to carefully review the Regulations to determine whether changes are required to their SAM calculation.
The final version of the Regulations also provides several clarifications relating to the filing obligations of SLFIs, for both monthly and quarterly returns (using form GST34 if the SLFI is registered for GST/HST purposes) and annual returns (by completing prescribed form GST494). We also note that the annual return must be filed by an SLFI even if the latter is not registered under the GST/HST regime. An annual information return (using form GST111) must also be filed by certain SLFIs. The Regulations provide for significant penalties if the relevant forms are filed late or not filed at all. It is, therefore, essential that SLFIs take the necessary precautions to ensure that they comply with the prescribed formalities.
Since the Regulations are now finalized, corresponding legislative changes to the Quebec sales tax (QST) should be announced in the near future by the Quebec Government. It should be recalled that in March 2012, the Quebec Government committed under the Canada-Quebec Comprehensive Integrated Tax Coordination Agreement to harmonize the Quebec QST regime with the GST regime, including its rules on SLFIs. The Quebec Government preferred, however, to await the final version of the Regulations before adopting a harmonized version.
Footnotes
1. The concept of SLFI includes, inter alia, banks, investment dealers, trust and loan corporations, insurance companies, credit unions, investment plans and any person whose principal activity consists of lending money.
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.