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SLFIs - Identify Efficiencies and HST Savings Now

SLFIs - Identify Efficiencies and HST Savings Now

Selected listed financial institutions should review their GST/HST and QST situation.


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Now that the year is coming to a close, it's important to get a head start on upcoming GST/HST and QST returns and many selected listed financial institutions (SLFIs) may be able to identify time-saving opportunities to meet their complicated GST/HST and QST obligations. It's also a good time for SLFIs to look at ways to improve their tax efficiency and reduce tax risks. To help with this assessment, we've identified some common compliance issues, risks and recovery opportunities.

SLFIs face unique challenges in meeting all of the complicated GST/HST and QST rules and exempting provisions for financial institutions, such as limited system capabilities to extract the required data. These challenges may have caused delays and potential errors when completing past GST/HST and QST returns. By reviewing GST/HST and QST return filing processes now, SLFIs may be able to uncover additional opportunities, including missed input tax credits (ITCs) and deductions, and identify tax automation opportunities that can address time-consuming workarounds.

SLFIs should also consider reexamining their 2015 and 2016 returns for missed rebates and adjustments, and have a closer look at any intercompany transactions to determine if they may be structured in a more tax-effective way. Not only can these reviews help SLFIs manage current and future tax costs, they could also help during a future audit.

GST/HST rules are always evolving

The tax obligations and exempting provisions that apply to financial institutions are some of the most complicated GST/HST and QST measures. With recent court decisions and administrative positions, interpreting these provisions has become more complicated. The tax authorities sometimes appear to apply a strict interpretation of some of the GST/HST and QST exempting provisions.

In light of current audit activities and the complexity of some of the GST/HST and QST measures, SLFIs should anticipate more audit queries from the tax authorities.

Make changes now to save time later

A SLFI's systems should have the capabilities to populate tax data and working papers in an accessible and reliable format, including extracting required tax details such as the amounts of provincial components of the HST and QST paid. These systems should also help perform analyses such as reviewing and improving allocation methods, preparing budgets and evaluating future tax costs.

Although SLFIs spend a lot of money on their systems, they do not always use some systems to their full capabilities. Instead, some SLFIs use time-consuming "workarounds", as well as manual checks and validations, as temporary solutions. Too often, SLFIs rely on spreadsheets to identify and extract the required data that must be recreated for each GST/HST and QST return.

A review of these systems, controls and processes can also help identify tax risks and opportunities. As SLFIs prepare their 2017 returns, they should focus on identifying areas of inefficiency to plan improvements.

Claim missed opportunities

SLFIs that discover missed tax opportunities have to determine if and how they can claim them. They may be able to claim certain missed opportunities on their 2017 return, while others may require amendments to previously filed returns. In some cases, they may only be able to claim an offsetting adjustment if a tax assessment is raised for the particular period by the tax authorities.

Reviewing 2015 and 2016 GST/HST and QST returns, including all of the working papers, may help identify missed ITCs and rebates as well as certain special attribution method (SAM) adjustments.

Reviewing allocation methods and calculations, including expense pools, may help in identifying potential improvements and misallocated expenses.

Some financial institutions should also carefully review whether they are "qualifying institutions". An entity that is considered a "qualifying institution" under the GST/HST and QST rules is required to follow strict rules related to allocation methods, and must seek pre-approval of its allocation methods well in advance of the fiscal year to which the methods will be applied. Financial institutions that misidentify their status and miss applicable deadlines could put some of their ITC claims in jeopardy.

Correct compliance issues and identify recovery opportunities

As SLFIs prepare for their upcoming GST/HST and QST filing obligations, they may want to reexamine their tax filing processes and consider some common GST/HST and QST compliance issues, risks and recovery opportunities. Some of these common issues include:

  • Challenges faced while preparing last year's GST/HST and QST returns
  • Miscalculated GST/HST and QST installments
  • Missed ITCs from not identifying all commercial activities, allocating costs to non-taxable expense pools, or making calculation errors in applying ITC allocation methods
  • Misidentified provincial component of the HST and QST paid that may reduce a SAM liability or increase a SAM deduction
  • Miscalculated provincial attribution percentages 
  • Overstated or understated tax amounts related to self-assessment requirements on cross-border transactions with related and third parties
  • Miscalculated SAM adjustments, including those related to intercompany transactions subject to section 150 elections
    Errors related to various compliance elections for certain investment plans
  • Miscalculated or unclaimed notional ITCs
  • Miscalculated recapture rates for the recaptured ITC rules under the Ontario HST
  • Tax paid in error on exempt supplies and items deemed not to be supplies
  • Inefficient corporate structures and intercompany transactions resulting in additional tax costs.

We can help

For some SLFIs, extracting the required data from their systems can be challenging and can lead to inefficiencies and missed opportunities. Automating some tax processes and implementing better controls can help SLFIs reallocate time previously spent compiling and reviewing data to more value-added activities such as planning, budgeting and managing tax costs. KPMG can assist in reviewing processes to help enhance automated functions, as well as to help improve their efficiency and accuracy.

KPMG Indirect Tax professionals can also examine 2015 and 2016 GST/HST and QST returns to help identify opportunities and recoveries, as well as identify corrective measures to address compliance risks and other issues.

For more information, contact your Indirect Tax adviser: Christian Thibault (416-777-3927), Simon Proulx (647-777-5318), Yakoob Vayani (416-777-3933) or Dave Schlesinger (416-777-3833).

Information is current to December 19, 2017. The information contained in this publication 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

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