Recently, the Canada Revenue Agency (CRA) has been sending out notices to businesses that CRA has identified as financial institutions for GST/HST purposes. These notices appear to indicate that their business is non-compliant as a result of not having filed a GST111 – Financial Institution Annual Information Return for one or more fiscal years.
However, it is important to note that the information the CRA is using to send out this notice may not be accurate or up to date. In other words, you may or may not be required to file the GST111 return.
To determine if, in fact, you are required to file a GST111 return, you need to establish for each fiscal year whether you are a “reporting institution” for GST/HST purposes, since this filing requirement only applies to reporting institutions.
Are you a reporting institution?
Generally, you are a reporting institution if:
- You are a financial institution at any time in your fiscal year;
- You are a registrant for GST/HST purposes at any time in your fiscal year; and
- The total of all amounts included in computing your income for income tax purposes for the last taxation year that ends in your fiscal year exceeds $1 million.
So let’s look at these three criteria in a little more detail.
- Are you a financial
institution?
There are three main types of financial institutions (FIs) for which this condition may be met.
- Listed financial institution
(LFI)
You are an LFI if you are one of the eleven types of LFIs. The more common LFIs are banks, credit unions or persons whose principal business is the lending of money, and/or the purchasing of debt securities. However, there are other businesses that may not think of themselves as LFIs, such as persons whose principal business is that of a trader, dealer, broker or salesperson of financial instruments or money; insurers or persons whose principal business is providing insurance; segregated funds of an insurer; investment plans; tax discounters and certain corporations that are deemed to be financial institutions.
For a more detailed description of these LFIs refer to CRA’s GST/HST Memorandum 17.6 – Definition of “Listed Financial Institution.”
- Selected listed financial institution
(SLFI)
You are an SLFI if you are a LFI (other than a deemed LFI) at any time in your taxation year and you have a permanent establishment1 in a participating province and a permanent establishment in any other province at any time during your taxation year.
- De minimis financial
institution
You are a de minimis FI if, in your preceding taxation year, your revenue for income tax purposes from interest, dividends, or a separate fee or charge for a financial service is more than both 10% of your total revenue and $10 million.
You would also be a de minimis FI throughout a particular taxation year if, in your preceding taxation year, your income for income tax purposes from interest, separate fees related to credit or charge cards issued by you, or with respect to the making of advances, lending of money or granting of credit by you is more than $1 million.
For purposes of the $1 million threshold, there are a number of exclusions as follows:
- penalties levied by you for late
payment of an account receivable in the normal course of your
business;
- interest from a related corporation;
and
- for taxation years beginning after
March 21, 2016, interest from certain deposits of money held by
entities such as a bank or a credit union in the usual course of
the deposit-taking activity of that entity where the entity is
required to pay the money in 364 days or less.
Note that such interest income is also excluded when determining whether you are required to file form GST111 for taxation years beginning before March 22, 2016, ending after March 21, 2016.
- Are you a GST/HST
registrant?
You are a GST/HST registrant if you are registered for GST/HST purposes (you have a Business Number ending in RT001) or you are required to be registered – i.e., you make one or more taxable supplies in Canada in the course of a commercial activity and you are not a small supplier.
- Does your total annual income
for income tax purposes for your last taxation year that ends in
your fiscal year exceed $1 million?
If your taxation year is less than 365 days, the $1 million threshold is prorated based on the number of days in your taxation year.
What happens if you fail to file a GST111 return as and
when required?
In addition to any other penalties that may apply, if you are a reporting institution and you fail to report or misreport an amount as and when required the penalty can be as great as $1,000 per amount required.
In addition to such penalties, effective May 2017 the CRA will apply a non-compliance hold to reporting institutions that have outstanding GST111 returns. While such a non-compliance hold is in place, any refunds or credits on the registrant’s account will not be issued until such time as the registrant becomes compliant by filing any and all outstanding GST111 returns.
What should you do if you receive a Notice to file outstanding GST111 return(s)?
Whether or not you are a reporting institution and therefore required to file a GST111 return can be a complex determination in any given fiscal year. If you receive a Notice from the CRA indicating that you may have failed to file such a return, contact your Collins Barrow advisor to discuss what steps, if any, need to be taken to avoid costly penalties or other negative impacts on your business.
Footnote
1 Note that for certain types of SLFIs the meaning of permanent establishment is expanded such that the existence of a permanent establishment would generally be determined based on the location of the financial institution's clients, operations, unit holders, and/or plan members in addition to where the financial institution has a fixed place of business.
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.
