Tax Insights: GST/HST & QST filing deadlines for financial institutions

April 27, 2020

Issue 2020-24

In brief

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:

  • determine whether they are required to file an Annual Information Return and/or a SLFI Return
  • consider whether any past non-compliance should be rectified by filing 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 a 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 for financial services) 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: $1,000,000 in interest income from lending money or granting credit

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.

Penalties

For each line item on the Annual Information Return, a person may be 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

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.

Requirement to file a SLFI Return

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”).

“Selected listed financial institution” (SLFI)

A SLFI is a listed financial institution that is:

  • described in subparagraphs 149(1)(a)(i) to (x) of the ETA, and
  • a prescribed financial institution

Banks, credit unions, public trustees, insurers, security dealers, insurance brokers, trust and loan corporations, and investment plans:

  • are generally considered to be a listed financial institution that is described in subparagraphs 149(1)(a)(i) to (x), and
  • will be a prescribed financial institution if it has a permanent establishment (PE) in:
    • a participating province (e.g. Ontario), and
    • any other province (e.g. British Columbia)

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.

The takeaway

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:

  • 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 225.2 of the ETA and section 433.16 of the Act respecting the Québec sales tax.

 

 

Contact us

Brent Murray

Brent Murray

Partner, PwC Law LLP

Tel: +1 416 947 8960

Helen Cai

Helen Cai

Senior Manager, PwC Canada

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Jason Cooper

Jason Cooper

Director, PwC Canada

Tel: +1 416 687 9226

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Brian Machin

Director, PwC Canada

Tel: +1 416 687 9190

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