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Investment plans — Act now to collect GST details

Investment plans — Act now to collect GST details

Investors must also prepare to share data with plans under GST/HST and QST rules

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Distributed investment plans, including investment limited partnerships, should be preparing to request in writing specific details from many of their investors by October 15, in order to comply with upcoming GST/HST and QST obligations. Certain investors should also be gearing up to provide specific information to their investment plans—even if they do not receive any formal request. Complying with the GST/HST and QST information sharing rules ensures that distributed investment plans have the proper information to update their systems and calculate certain amounts, which must be included in their GST/HST and QST returns. Plans that do not collect the proper data within specific deadlines may see their tax costs increase, while investors may face penalties if they do not share the data within specific timelines as required under the GST/HST and QST information sharing rules.

Summary — Investment plans and investors

The GST/HST information sharing rules can vary, based on investor type. Some common questions from distributed investment plans and investors are as follows:

  • Which investment plans must request information from investors?
    • Many distributed investment plans that are selected listed financial institutions (SLFIs) under the GST/HST and QST rules must request information from their investors
    • Distributed investment plans include mutual fund trusts, mutual fund corporations, investment corporations, mortgage investment corporations, unit trusts, certain pension entities, segregated funds of insurers and investment limited partnerships
  • Which investors must provide information to distributed investment plans upon receiving a request?
    • Most investors, other than individuals, are required to provide information if they receive a written request from distributed investment plans (e.g., distributed investment plans that invest in other distributed investment plans, corporations, partnerships and pension plans)
    • Some of the required information may differ based on investor type
  • Which investors must provide information to distributed investment plans without receiving a request?
    • Some investors, known as "qualifying investors", must provide specific information to distributed investment plans annually—even if they do not receive a written request from the plans.

Background

Investment Plans — Information sharing requirements

The GST/HST and QST information sharing rules help ensure that distributed investment plans that are SLFIs have the data they need to meet their GST/HST and QST obligations for the coming year. These plans will then use the collected data to calculate their provincial attribution percentages.

Plans that do not collect the data by December 31 and that have not requested the required information from their investors by October 15 may have their provincial attribution percentages increased, which can translate to higher tax costs.

While most distributed investment plans have been requesting this information from investors for several years, certain investment limited partnerships only began collecting this information since 2018 and 2019.

Distributed investment plans — Requesting data from investors

To meet its obligations under the GST/HST and QST information sharing rules, a SLFI distributed investment plan must understand the various types of investors and the specific data that it must request from them.

Distributed investment plans subject to these rules must request data from two types of investors: "selected investors" and other investors.

Who is a selected investor?

A selected investor is generally a person, other than an individual and a distributed investment plan, who is resident in Canada and who holds units of a total value of less than $10 million in the plan. Selected investors can include corporations, partnerships, pension plans, other types of investment plans and various other entities.

Special rules apply regarding the timing of the calculation for determining the total value of investors' holdings in the plan.

If a distributed investment plan makes a written request, a "selected investor" must generally provide:

  • Its address, as determined under the GST/HST rules, as of September 30, and
  • The number of units (or the number of units in each series) held by the investor on September 30.

What are the rules for other investors?

A distributed investment plan may also have to make a written request to investors who are not "selected investors" and not individuals. Such investors may include other distributed investment plans that have invested in the particular distributed investment plan (no total value threshold), or other investors holding units of a total value of $10 million or more in the plan. If the distributed investment plan makes a written request, these investors generally must provide:

  • Their "investor percentages" for each HST participating province as of September 30, as determined under the GST/HST rules, and
  • The number of units (or number of units in each series) held by the investors on September 30.

These investors must carefully determine their "investor percentages" under the GST/HST information sharing rules, a concept that may be new to them, especially if they are not SLFIs.

Similar rules apply for QST purposes.

Deadline to share data with plans

Investors that receive written requests for information from distributed investment plans must generally provide the data by whichever is later: November 15, or 45 days after the day they receive the request.

Qualifying Investors — Providing data under special rules

Who is a qualifying investor?

In general, investment plans—including pension entities of registered pension plans—are considered "qualifying investors" where they meet certain conditions. Under the GST/HST rules, an investment plan (other than a distributed investment plan) is considered to be a "qualifying investor" in a particular distributed investment plan if the investment plan is a "selected investor" (i.e., a resident in Canada that holds units of the particular distributed investment plan valued at less than $10 million as of September 30, 2020) and meets one of these criteria:

  • The investment plan is not a "qualifying small investment plan" on September 30 or is not excluded from the SLFI definition based on the rule where less than 10% of its members reside in participating provinces (other conditions apply to this rule)
  • The investment plan is a SLFI
  • The investment plan is a member of an affiliated group and the members hold units with a total value of $10 million or more of the particular distributed investment plan, or at least one member of the affiliated group is a SLFI.

A "qualifying small investment plan" is generally an investment plan that has $10,000 or less of GST or the federal component of the HST paid or deemed paid in the previous year. However, if a qualifying small investment plan is an SLFI, that plan would generally be considered a "qualifying investor".

Similar rules apply for QST purposes. However, based on the definitions and their specific circumstances, some investors may be considered "qualifying investors" for GST/HST purposes but not for QST purposes, and vice versa. Because some investors may have different obligations under the GST/HST and QST rules, they should consider both sets of rules carefully.

Data to be provided and deadline

Under the GST/HST rules, qualifying investors that hold units of a distributed investment plan must generally provide the following data to the plan by November 15, 2020, even if not requested:

  • A notice that they are a qualifying investor in the investment plan for 2020
  • The number of units (or number of units in each series) held in the investment plan on September 30, 2020
  • Their "investor percentage" for each HST-participating province as of September 30, 2020.

Similar rules apply for QST purposes.

Securities Dealers — Providing data under special rules

If a distributed investment plan makes a written request, a securities dealer must also provide details about the units, or units of each series, of the investment plan held by their clients.

Deadline to share data with plans

Securities dealers that receive written requests for information from distributed investment plans must generally provide the data by whichever is later: November 15, or 45 days after the day they receive the request.

Similar information sharing rules apply for QST purposes. The GST/HST and QST information sharing rules also include specific exceptions for exchange-traded funds (i.e., a distributed investment plan whose units are listed or traded on a stock exchange or other public market).

Penalties

Investors must carefully determine whether they must provide information as a "qualifying investor", which set of data they must provide and which appropriate deadlines are applicable to them.

Investors who do not meet their GST/HST and QST obligations face significant penalties. Failing to provide data as required under the GST/HST and QST information sharing rules by the relevant deadlines attracts a penalty for each failure to provide data equal to the lesser of $10,000 or 0.01% of the total value of the units held by the investor in the distributed investment plan.

We can help

KPMG can help managers of distributed investment plans determine the information that they are required to request from investors on the plan's behalf. We can also help investors determine their GST/HST and QST obligations and the specific data that they must provide to distributed investment plans.

For more information, contact your KPMG adviser or one of the following Indirect Tax professionals:

 

Walter Sisti

National Leader – Indirect Tax Services
T: 416-777-3920
E: wsisti@kpmg.ca

Simon Proulx
Toronto
T: 647-777-5318
E: sproulx@kpmg.ca

Annette Beshwaty
Montreal
T: 514-840-2349
E: abeshwaty@kpmg.ca

Christian Thibault
Toronto
T: 416-777-3927
E: cthibault@kpmg.ca

Information is current to August 25, 2020. 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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