The February 27, 2018 federal budget proposes to expand the application of the Selected Listed Financial Institution (SLFI) rules to investment limited partnerships effective January 1, 2019. If an election is made, the rules can apply as of January 1, 2018. As this election can be beneficial to investment limited partnerships that reside in HST provinces, all investment limited partnerships should consider the implications of the SLFI rules, and if system changes are required to comply with the rules.
The budget also contains the September 8, 2017 GST/HST draft legislative and regulatory proposals that:
The budget expands the definition of a “listed financial institution” to include an investment limited partnership. As such, an investment limited partnership will be considered to be a SLFI if it has a permanent establishment in a participating province and any other province.
An investment limited partnership will have a “permanent establishment” in a particular province if any of its partners are resident in a particular province.
As a SLFI, an investment limited partnership will be required to adjust its net tax in accordance with the “special attribution method” formula, which generally results in the SLFI paying a “blended rate” of GST/HST based on the percentage of partnership interests that are held by residents in the HST provinces.
An investment limited partnership that is a SLFI must file the GST/HST and QST Final Return for Selected Listed Financial Institutions (SLFI Return) for taxation years commencing after December 31, 2018. However, an investment limited partnership can elect to be treated as a SLFI for the 2018 taxation year.
The potential costs and benefits of making this election should be considered.
Should an election be made?
All investment limited partnerships should consider the implications of making the election, including:
Investment limited partnership
In general, the budget defines an “investment limited partnership” as a limited partnership:
Provincial attribution percentage
An investment limited partnership that is a SLFI must determine its provincial attribution percentage based on the residency of its investors and the value of the holdings at a particular point in time (the “attribution point”). The default attribution point for the 2019 year is September 30, 2018, and if an election to be treated as a SLFI for the 2018 year is made, the default attribution point is September 30, 2017.
An investment limited partnership that makes the election to be treated as a SLFI for the 2018 year should ensure that the residency data for 90% or more of its investors is available. If this is not the case, certain investors may be treated as being resident in the “highest rate province” (e.g. Nova Scotia, which imposes HST at the rate of 15%).
An investment limited partnership that is a SLFI must make written requests to its investors to obtain information, in order to determine its provincial attribution percentage so that the GST/HST and QST liabilities can be calculated. The required information from the investor will depend on the particular type or class of investor.
The information must be provided to the investment limited partnership on or before the later of:
Accordingly, it is important that investment limited partnerships issue the information requests by September 30, 2018, to ensure they receive all of the required information by November 15, 2018. If the information request is not sent in a timely manner, certain investors may be deemed to be resident in “the highest rate province” (e.g. Nova Scotia).
Registration and available elections
An investment limited partnership that is a SLFI in the 2018 and/or 2019 year(s) should register for GST/HST and QST purposes to avoid filing SLFI Returns on a monthly basis. Investment limited partnerships should also consider filing the following elections that are currently available to investment plans:
General partners that provide management and administrative services to an investment limited partnership after September 7, 2017, will be required to collect GST/HST on those services. As a result, all general partners of an investment limited partnership should:
Generally, the general partner is deemed to have received consideration for the provision of any management or administrative services during the reporting period in which the services were rendered, and there is a general four-year assessment limitation period for the Canada Revenue Agency to assess a registrant that has filed a GST/HST return for non-collection of tax.
Residency of investment limited partnership
A relieving measure provides that, subject to the regulations, if 95% of the total value of all interests in an investment limited partnership are held by non-resident members of the partnership, the investment limited partnership is deemed to not be resident in Canada. Consequently, the partnership should not have to pay GST/HST on management and administrative services, because most services provided to a non-resident are zero-rated.
Application of the proposed rules can be uncertain.
PwC can help: