Many businesses must file one or two annual GST/HST and QST returns by June 30, 2021. This upcoming deadline for the annual GST/HST and QST information returns applies to listed financial institutions (LFI), selected listed financial institutions (SLFIs) and other types of entities deemed to be financial institutions under the GST/HST and QST rules where they have a December 31 year-end. In addition, financial institutions that qualify as SLFIs and have a December 31 year-end are also required to file the annual GST/HST and QST final return by June 30, 2021.
Affected entities, including many financial institutions, pension plans, limited investment partnerships and entities that are not typical FIs, should get a head start on filing their annual GST/HST and QST returns, to ensure they are accurate and are filed on time. The CRA continues to closely review these returns, including the self-assessment obligations, and are cross-referencing them with details on other reports, such as transfer pricing and other income tax filings. For the annual GST/HST information return, 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. Similar rules apply for QST.
Note that "qualifying financial institutions" may also be required to act soon to ensure they elect to renew or change their 2022 input tax credit (ITC) allocation method by July 5, 2021.
Annual GST/HST and QST information return
Who has to file the annual information return?
Affected entities must file the annual GST/HST information return no later than six months after their year-end if they are:
- Financial institutions, or businesses deemed to be financial institutions
- Are registered for GST/HST, and
- Have annual income of more than $1 million in the last taxation year.
A financial institution with a December 31 year-end must file the annual information return by June 30, 2021 for its 2020 fiscal year. Similar rules apply for QST. Note that certain investment plans, such as pension entities, that qualify as SLFIs are exempt from filing the annual information returns.
Deemed financial institutions
Corporations also face this filing requirement if they have elected under section 150 to deem certain supplies to be GST/HST-exempt financial supplies, as they are considered financial institutions under the GST/HST and QST rules. Corporate groups should ensure that all closely related entities with section 150 elections in place have filed their GST/HST and/or QST annual information returns, as required.
Certain entities (e.g., corporations and partnerships) that may not be typical financial institutions also have this filing obligation if they qualify as "de minimis financial institutions". Such businesses are deemed 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:
- "Financial revenue" that is greater than 10% of their total revenues and is more than $10 million, or
- More than $1 million of income from lending money.
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, interest for demand deposits, term deposits and GICs with an original due date to maturity not exceeding 364 days, are excluded from calculations of the threshold of $1 million of income from lending money (but not the 10% or $10 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.
Corporate groups should review entities with significant financial revenues, to ensure all required annual GST/HST and/or QST information returns for the group are properly completed.
Entities 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 FP-2111, "Financial GST/HST and QST Annual Information Return".
While these annual information returns are not related to any GST/HST and QST payments, reporting institutions could face significant penalties if they do not file this return correctly and on time.
SLFIs — Annual GST/HST and QST final returns
Financial institutions that qualify as SLFIs and have a December 31 year-end must file the annual GST/HST and QST final return by June 30, 2021 for their 2020 fiscal year. In general, a financial institution qualifies as a SLFI if it has a permanent establishment in an HST province and in another province for GST/HST purposes, or in Quebec and in another province for QST purposes.
SLFIs must consider various factors when calculating tax adjustments for these returns, such as their specific type of entity and activities. As they prepare their GST/HST and QST filings, SLFIs may want to:
- Determine whether their systems separately track GST, the federal component of the HST and QST paid or payable
- Review allocation methods under the GST/HST and QST SLFI rules
- Identify any missed eligible input tax credits (ITCs) for years 2018, 2019 and 2020
- Determine whether they have any new operations or service lines that may affect ITC allocation methods
- Identify any significant business acquisitions over the past year
- Determine whether they have any new actual or deemed permanent establishments in any provinces over the past year
- Review transactions between related entities and the cost/benefit of any elections in place
- Adjust the recapture rate for ITCs and input tax refunds (ITRs) for Prince Edward Island and Quebec
- Cross-check all the information against details provided to the tax and regulatory authorities in other filings, before filing returns.
Depending on their circumstances, entities that are required to file the annual final return for SLFIs with the CRA must file combined form RC7294, "GST/HST and QST Final Return for Selected Listed Financial Institutions", or form GST494, "GST/HST Final Return for Selected Listed Financial Institutions".
SLFIs should carefully review all their allocation methods under the special attribution method (SAM). In general, SAM is a complicated formula that SLFIs must use to calculate an adjustment to their net tax that is included in their annual SLFI GST/HST final return. Similar rules apply for QST purposes. In some cases, an error in the allocation methods may translate into a tax recovery or an additional amount of tax to pay for current and prior reporting periods.
Review self-assessment obligations
Financial institutions and deemed financial institutions that are preparing to file one or both annual GST/HST and QST returns by June 30, 2021 should also review and confirm that they are fulfilling all their self-assessment obligations. Because the GST/HST and QST self-assessment rules are complex and can vary based on an entity's various operations, affected businesses may want to prepare their GST/HST and QST annual returns early.
Don't miss July 5, 2021 deadline for ITC allocation approval
Certain entities that meet the definition of "qualifying financial institutions" (QFIs) also have until July 5, 2021 to elect to renew or change their input tax credit (ITC) allocation method for 2022 to help reduce unrecoverable GST/HST and QST costs. This deadline applies to QFIs with a December 31 year-end. Some financial institutions that are not QFIs may still be able to develop improved allocation methods for their fiscal year 2020.
In general, all financial institutions and other entities that are not typical financial institutions should review their ITC allocation methods early, and ensure they claim all their eligible ITCs. Entities should remember that they may have to calculate various allocations for different tax purposes.
We can help
KPMG's Financial Institutions Indirect Tax Compliance Team, composed of multi-disciplinary professionals who specialize in indirect tax compliance, can assist you with your indirect tax compliance obligations, including the preparation or review of your 2020 GST/HST and QST final return and annual information return.
We can also help you:
- Identify issues and opportunities through data analytics
- Simplify the preparation of your returns
- Determine whether you have missed eligible ITCs, ITRs, and other deductions and adjustments
- Provide assistance to manage GST/HST and QST risks
- Identify areas where LFIs and SLFIs may be able to proactively reduce GST/HST and QST costs as well as compliance risks on an ongoing basis.
For more information, please contact your KPMG adviser or one of the following Indirect Tax professionals:
Information is current to May 17, 2021. 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