GST/HST & QST alert for financial institutions: Penalties are being assessed for failing to file Annual Information Returns

January 18, 2018

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Issue 2018-02

In brief

The Canada Revenue Agency (CRA) is issuing notional assessments to financial institutions for failing to file GST/HST Annual Information Returns; significant penalties have been imposed. Similar requirements apply for Quebec Sales Tax (QST) purposes for QST registrants. 

Banks, credit unions, insurers, security dealers and registrants that are a de minimis financial institution as a result of having financial revenues that exceed certain thresholds are affected.

Because the definition of “financial institution” is very broad, all GST/HST and QST registrants should: 

  • determine whether they are required to file an Annual Information Return
  • consider whether any past non-compliance should be rectified through a voluntary disclosure

In detail

Requirement to file an Annual Information Return

A “reporting institution” must file an Annual Information Return within six months of its fiscal year end. A person is generally a “reporting institution” if:

  • it is a “financial institution” at any time in the fiscal year
  • it is a “registrant” at any time in the fiscal year, and
  • its taxable income under the Income Tax Act for the last taxation year exceeds $1 million

“Financial institution”

A person can be a “financial institution” because:

  • of the type of business it operates, or
  • it is a “de minimis financial institution” as a result of the amount of financial revenue it earns in a particular year 

Persons who are a financial institution by virtue of the type of business they operate are generally a “listed financial institution.”1 This includes businesses that have filed the section 150 election and are deemed to be a financial institution. 

De minimis financial institutions 

There are two ways that a person can be a de minimis financial institution:

Test 1: Financial revenue exceeds thresholds 

A person can be a financial institution under the de minimis rules if the financial revenue (i.e. the interest, dividends and separate fees or charges) it: 

  • earned in the previous taxation year from supplying a financial service, and 
  • included in computing its income, 

exceeds both: 

  • $10 million (prorated for short taxation years), and 
  • 10% of revenues earned from most supplies 

Financial revenue excludes interest and dividends from a related corporation and proceeds derived from the sale of financial instruments. 

Test 2: Interest income of $1 million from lending money

Alternatively, a person can be a de minimis financial institution if the total interest, fees and charges relating to lending money, granting credit or issuing credit cards it earned in the previous taxation year exceeds $1 million (prorated for short taxation years).

With respect to the 2016 taxation year, interest earned from guaranteed investment certificates, demand deposits and term deposits with maturity dates that do not exceed 364 days from the day on which the deposit is made are excluded from the interest calculation. 

Penalties 

For each line item on the Annual Information Return, a person is liable for a penalty2 equal to the lesser of:

  • $1,000, and
  • 1% of the difference between the amount that should have been reported and the amount reported

Recently, the CRA has assessed financial institutions penalties3 for failing to file an Annual Information Return. Depending on the type of financial institution, the penalty can exceed $250,000 for each fiscal year. 

The takeaway

GST/HST registrants should determine if they were a financial institution that was required to file an Annual Information Return. 

As there is a general four-year assessment period for the CRA to assess penalties, as well as discretion to waive or cancel the penalties, GST/HST/QST registrants should: 

  • rectify any past non-compliance and, 
  • consider initiating a voluntary disclosure, if eligible


[1.]  Referred to in paragraph 149(1)(a) of the Excise Tax Act (ETA).
[2.]  Subsections 284.1(1) and 284.1(2) of the ETA.
[3.]  Section 284.1 of the ETA.

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