Most GST/HST and QST registrants that are a financial institution are required to file an Annual Information Return and those that are a selected listed financial institution (SLFI) are required to file a SLFI Return. These returns must be filed within six months of a registrant’s fiscal year end. Registrants with a December 31, 2019 year end must file these returns by June 30, 2020.
Banks, credit unions, insurers, security dealers, insurance brokers, public trustees, trust and loan corporations, investment plans and persons that are a de minimis financial institution (as a result of having financial revenues that exceed certain thresholds) may be affected.
Because the definition of “financial institution” is very broad, all GST/HST and QST registrants should:
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:
A person can be a “financial institution” because:
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 a section 150 election and are deemed to be a financial institution.
There are two ways that a person can be a de minimis financial institution:
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 for financial services) it:
Financial revenue excludes interest and dividends from a related corporation, and proceeds derived from the sale of financial instruments.
Alternatively, a person can be a de minimis financial institution if the total interest, fees and charges earned from lending money, granting credit or issuing credit cards in the preceding taxation year exceeds $1 million (prorated for short taxation years). However, 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.
For each line item on the Annual Information Return, a person may be liable for a penalty2 equal to the lesser of:
The Canada Revenue Agency (CRA) has started to assess penalties for failing to file an Annual Information Return, with the quantum of the penalty potentially exceeding $250,000 for each fiscal year.
A SLFI is required to adjust its net tax in accordance with the “Special Attribution Method” (SAM) Formula3 by filing a SLFI Return. The SAM Formula and the filing of the SLFI Return ultimately result in a SLFI paying a blended rate of GST/HST and QST based on its “provincial attribution percentage,” which varies depending on the particular class of listed financial institution (e.g. the rate of tax paid by an investment plan is based on the percentage of unit holders that reside in the “participating provinces”).
A SLFI is a listed financial institution that is:
Banks, credit unions, public trustees, insurers, security dealers, insurance brokers, trust and loan corporations, and investment plans:
What constitutes a PE depends on the particular classification of the listed financial institution. For example, an insurer is deemed to have a PE in the provinces where the insured resides and a bank is deemed to have a PE where the deposit holders and borrowers reside.
GST/HST and QST registrants should determine if they are a financial institution and, if so, what particular class of financial institution. If they are a financial institution that is registered, they will generally have to file an Annual Information Return.
As there is a general four-year assessment period for the CRA to assess penalties for failing to file an Annual Information Return, as well as discretion to waive or cancel the penalties, GST/HST and QST registrants should:
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 225.2 of the ETA and section 433.16 of the Act respecting the Québec sales tax.