Many businesses must file GST/HST and/or QST annual information returns by June 30, 2018.
This deadline affects financial institutions that have a December 31 year-end, as well as other types of entities, such as corporations and partnerships, that are deemed to be financial institutions under the GST/HST and QST rules. While the GST/HST and/or QST annual information returns are not related to any GST/HST and QST payments, financial institutions and qualifying businesses could face significant penalties if they do not file this return correctly and on time.
These taxpayers should also ensure they file the correct annual information return. This form can vary based on the type of entity and whether the entity is administered by the CRA or Revenue Quebec for GST/HST and QST purposes.
As a reminder, most corporations that have made section 150 elections, which essentially allows an FI and a closely related corporation to treat certain supplies as exempt financial services, are required to file GST/HST and/or QST annual information returns. Corporate groups should review all entities subject to section 150 elections, as well as entities that have significant financial revenues, to ensure that all annual information returns are properly filed.
The tax authorities have recently increased audit activities, related to GST/HST and QST annual information returns, as well as the amount of penalties assessed. As a result, financial institutions and other entities should determine whether they are required to file this return as soon as possible.
In addition, the CRA has started to apply non-compliance holds on any tax refunds for all GST/HST registrants that have any outstanding tax returns, including the GST/HST annual information return, as of May 2017. For details, see Canadian Tax Adviser, "CRA to Put Holds on Refunds for GST Non-Compliance", dated April 25, 2017.
Who has to file the annual information return?
Whether a financial institution or any other business that is deemed to be a "financial institution" must file the annual information return depends on its registration status and its total amount of revenue. However, certain investment plans that qualify as selected listed financial institutions (SLFIs) are exempt from filing the annual information returns.
In general, a financial institution, or a business deemed to be a financial institution, that is registered for GST/HST and has income of more than $1 million in the taxation year must file an annual information return no later than six months after its year-end. For example, a financial institution with a December 31 year-end must file the annual information return by June 30, 2018 for its 2017 fiscal year. Similar rules apply for QST.
Corporations that have filed section 150 elections are considered financial institutions under the GST/HST and QST rules. Corporate groups should ensure that all their closely related entities with section 150 elections in place have filed all their GST/HST and/or QST annual information returns as required.
Some businesses, known as "de minimis financial institutions", are also deemed to be financial institutions under the GST/HST and QST rules if they have revenues related to qualifying financial services, including interest earned from receivables and certain guaranteed income certificates (GICs), that meet certain thresholds. Specifically, these businesses may have to file information returns where they have for their taxation year prior to the particular year:
The CRA generally considers interest from GICs and deposits to be interest from lending money that may cause a company to qualify as a "financial institution" under these de minimis rules. However, certain kinds of interest are now excluded from the calculation of the de minimis rules' $1 million threshold (but not the 10% or $10 million threshold). Under changes introduced in 2016, interest for demand deposits, term deposits and GICs with an original due date to maturity not exceeding 364 days are no longer considered when calculating whether a company meets that $1 million threshold.
For example, a construction company that has significant deposits invested in GICs for more than 364 days may qualify as a "de minimis financial institution" due to the interest generated from these deposits.
Entities that are required to file the annual information return with the CRA must file form GST111, "Financial Institution GST/HST Annual Information Return", or the combined form RC7291, "GST/HST and QST Annual Information Return for Selected Listed Financial Institutions". Entities that are required to file the return with Revenu Quebec must file form FP2111 ,"Financial GST/HST and QST Annual Information Return".
Penalties - Fill out the form correctly and file on time
The GST/HST and QST annual information returns must be carefully completed. The CRA can assess a penalty of up to $1,000 for each qualifying line on the form for failure to file or for misreporting amounts. Theoretically, this could add up to more than $100,000 in penalties. Similar rules apply for QST purposes.
It is important that entities ensure that the information included in their annual information returns corresponds with their GST/HST and QST returns, income tax information and transfer pricing information that has also been provided to the CRA and Revenu Quebec.
As noted previously, certain investment plans that qualify as SLFIs are exempt from filing the annual information returns. A similar exemption applies for QST purposes. However, some investment plans qualify as a SLFI only for HST or for QST purposes. As such, some of these plans may still have to file an annual information return for GST/HST or QST.
We can help
KPMG can help businesses determine whether they are required to file the GST/HST and QST annual information return. We can assist them with their indirect tax compliance obligations. We can also help identify areas where certain tax costs may be managed.
KPMG's Financial Institutions Indirect Tax Compliance Centre has a team of multi-disciplinary professionals who specialize in indirect tax compliance requirements for the financial services sector. These professionals use sophisticated proprietary compliance software developed specifically for financial institutions with partly exempt businesses to help these businesses extract the required data from their systems, fulfill their filing requirements and perform checks to help manage compliance indirect tax risks.
For more information, contact your KPMG adviser.
Information is current to May 08, 2018. 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