September 23, 2009 No. 2009-28
	Finance Overhauls Proposed GST Rules for Financial Services Sector and Pension Plans The Department of Finance today announced changes to previously released proposals affecting GST rules for the financial services sector and pension plan trusts. These changes follow industry consultations on the proposals released on January 26, 2007. The changes announced today will affect the new GST rebate for pension plan trusts, the self-assessment rules for imported supplies, the new annual GST information return and input tax credit (ITC) allocation method for financial institutions. Finance also proposes to extend the filing due date for GST returns for some financial institutions. This TaxNewsFlash-Canada summarizes selected changes proposed in Finance’s September 23, 2009 announcement. New GST rebate for pension plan trusts On January 26, 2007, the government announced consultations for a new GST rebate for pension plan trusts that would ensure that the benefits of GST relief accrue to pension trusts (rather than to the employers who establish them) to help the pension trusts provide benefits to pensioners. Under the proposed rebate, an employer would be entitled to claim ITCs on all taxable inputs that it uses in relation to the pension trusts. However, the employer’s ITCs would essentially be cancelled because the employer would be required to remit GST for all of those taxable supplies. The pension plan trust would be deemed to have paid that tax. Thus, the rebate would be provided to the pension plan trust whether the expenses were originally incurred by the pension plan trust itself or by the employer. Pension trusts for which 10% or more of the contributions to the plan are made from listed financial institutions may not be eligible to claim the proposed new rebate. The proposed rebate would be 33% of the GST charged on all pension plan-related expenses (i.e., pension plan trust’s expenses and employer’s expenses). Changes proposed on September 23, 2009: · An election would be provided so that the pension entity and all the participating employers could jointly elect to transfer some or all of the entity’s rebate entitlement to some or all of the plan’s participating employers that are GST registrants (linked to their ability to recover GST). · The new pension plan rebate provisions, including the deeming rules, would generally apply for fiscal years of employers beginning on or after the announcement date of September 23, 2009. For the pension entities, the proposed rules would apply to claim periods beginning on or after September 23, 2009. New regime for financial institutions’ imported taxable supplies Finance previously announced draft legislation for imported taxable supplies for financial institutions, effective November 17, 2005. Based on that draft legislation, a branch or subsidiary is required to self-assess GST on certain financial services received from non-resident related parties. The amount on which the self-assessment must be made could be all, a portion or none of the amount for the financial service that may be deducted for income tax purposes. The timing of the self-assessment requirements in the original release was different for branches and subsidiaries. Changes proposed on September 23, 2009: · The revised draft legislation allows financial institutions resident in Canada that conduct business through foreign branches to elect to use a simpler alternative approach to self-assess tax. A financial institution that makes the election for a particular year would self-assess tax for that year on an internal charge that is generally treated both as income or profit in a particular country other than Canada and as a deduction from income in Canada (for income tax purposes). This election could be made retroactively for periods back to the proposed 2005 effective date for eligible financial institutions. · The more detailed cost-based approach as proposed in the draft legislation of January 26, 2007 remains an option. · Certain qualifying financial derivative transactions would be excluded from self-assessment under the new rules for financial institutions. New ITC allocation methods for financial institutions Finance proposed detailed ITC allocation rules for financial institutions on January 26, 2007. Large banks, insurers and securities dealers are required to use a prescribed rate for allocations or to obtain the CRA’s pre-approval to use their own ITC allocation method. The prescribed rates are 12% for banks, 10% for insurers and 15% for securities dealers. Changes proposed on September 23, 2009: · Finance proposes to allow large banks, insurers and securities dealers to use a method that the CRA has not pre-approved if certain conditions are met. · If the CRA directs a financial institution (other than a large bank, insurer or securities dealer) to use an allocation method, the financial institution will be able to challenge it at the Tax Court of Canada. The CRA will be required to prove that the proposed method is fair and reasonable. · Finance proposes to provide the CRA and financial institutions with more flexibility in the use of the pre-approval process and permit the CRA to extend the deadline for pre-approval at a financial institution’s request. New GST information return for financial institutions As announced on January 26, 2007, financial institutions need to file GST information schedules once per fiscal year, six months after the fiscal year-end. This rule applies to financial institutions that have annual income exceeding $1 million, including those deemed to be “de minimis” financial institutions. Changes proposed on September 23, 2009: · Finance proposes penalties for failure to report or misstatements of amounts on the GST information return. The penalty would apply for fiscal years commencing after 2008. The draft legislation provides an exception where the taxpayer has exercised due diligence. · The fields on the information return would be classified into tax amounts and non-tax amounts. · The CRA would have the authority to exempt any financial institution or class of financial institutions from filing the information return. Extension of filing due date of GST returns for financial institutions Unless they elect to file monthly or quarterly, financial institutions generally file their GST returns annually within three months after the end of their fiscal year. Changes proposed on September 23, 2009: · The filing due date of GST returns of financial institutions that are annual filers is proposed to be extended to six months after the end of the fiscal year, for reporting periods of a financial institution commencing after 2009. We can help Your KPMG adviser can help you assess the effect of Finance’s draft legislation and other proposals on your financial institution or other affected businesses. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to Finance’s attention. For details, contact your KPMG adviser.
	Information is current to September 23, 2009. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500. KPMG LLP, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG, a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than 104,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services. KPMG's Canadian Web site is located at www.kpmg.ca © 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.