Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings
Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 102901
Attention: XXXXX
October 6, 2008
Subject:
GST/HST INTERPRETATION
Form GST 111
Dear XXXXX:
Thank you for your XXXXX concerning the completion of Form GST 111, Schedule 1 - Financial Institution GST/HST Annual Information Schedule (Form GST 111). We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
We understand that you have a corporate client that is a financial institution within the meaning of subsection 149(1). The client's head office is in Canada and has a branch office in another country. Each office runs its own operations, but some activities and expenses benefit the other office. For accounting and income tax purposes, expenses funded by each office, such as salaries, rent and entertainment expenses, are assigned to the other office which benefited from them.
You are concerned that the amounts entered on certain lines of Form GST 111 do not reconcile with amounts on your client's financial statements. In particular, you are concerned about the amounts entered on lines 250, 293, 350 and 383 of Form GST 111 and that the amounts included on these lines should reconcile to a particular amount on the client's financial statement.
You have listed certain amounts that you understand should be included on certain lines of the Form GST 111 in a hypothetical situation as detailed below:
Hypothetical Situation
The financial institution has a Canadian head office and a foreign branch office. The financial institution would have the following information in its financial statements:
• $10,000,000 in total revenue (half of the revenue is for supplies of financial services made from the Canadian head office and the other half from the foreign branch office);
• expenses incurred of $8,000,000 ($6,000,000 of the expenses were incurred by the Canadian head office and the rest were incurred by the foreign branch office). It has allocated by journal entry, $2,500,000 of its expenses incurred by the Canadian head office to the foreign branch office where those expenses benefited the foreign branch office. These expenses relate to payroll, rent and entertainment. Similarly, the financial institution has allocated by journal entry, $500,000 of its expenses incurred by the foreign branch office to the Canadian head office where those expenses benefited the Canadian head office.
Interpretation Requested
You would like clarification as to whether the amounts in Section D and E of Form GST 111 should reconcile with certain totals from the financial institution's financial statements. Specifically, how the amounts provided in the hypothetical situation should be reported on Form GST 111.
Interpretation Given
A person is required to file Form GST 111 in respect of its fiscal year if the person:
• is a registrant;
• is a financial institution within the meaning of subsection 149(1); and
• has total annual revenue in excess of $1 million.
Information that needs to be reported on Form GST 111 includes detailed information on the net tax calculation, purchases and other expenditures, input tax credits and imports and exports of a financial institution.
In particular, under "Tax on imports" in Section D of Form GST 111, a financial institution is to provide detailed information on the total amount of GST/HST payable or paid without becoming payable or self-assessed during the fiscal year on imports. Under "Value of imports" in Section D of Form GST 111, a financial institution is to provide detailed information on the total amount of the value of property and services imported into Canada by the financial institution during the fiscal year. These amounts include the value of imports subject to tax under sections 212, 212.1, 218 and 220.07. It would also include the value of qualifying consideration that is greater than zero in respect of an outlay made or an expense incurred outside Canada that is subject to tax under proposed sections 218.01 and 218.1. As the amounts related to tax on imports are based on when GST/HST is payable, paid or self-assessed, they may relate to different amounts than the value of imports under Section D given the fact that the GST/HST may become payable, is paid or is self-assessed after the property or service is imported into Canada.
The value of imports specified in the second part of Section D of Form GST 111 is broken down into four categories (i.e., financial services, taxable goods, taxable supplies other than goods, and other inputs or qualifying consideration). The value is further broken down into various sources (i.e., from head office or branches, from related persons and from third parties). If the actual amounts are not reasonably ascertainable, estimated amounts may be used on lines 250-252, 260-262, 270-272 and 280-282 of Form GST 111. The grey box beside each number should be ticked if the amount entered on the line is an estimated amount.
For example, where the source of an import of a financial service is either a branch or head office, the value of this import should be included on line 250 of Form GST 111. A "financial service" is defined in subsection 123(1) and includes a service listed in any of paragraphs (a) to (m) of that definition unless it is excluded by any of paragraphs (n) to (t) of that definition.
Qualifying consideration of a branch office should be included on line 280 of Form GST 111. Whether an amount is qualifying consideration is determined by the application of the formula A-B in proposed subsection 217.1(1). Accordingly, certain branch office expenses incurred outside Canada in respect of a Canadian activity that are allocated to a Canadian head office such as salaries, rent and entertainment expenses may be considered to be qualifying consideration after the application of the formula A-B in proposed subsection 217.1(1).
Further information on qualifying consideration and import rules under proposed section 217.1 is included in GST/HST Technical Information Bulletin B-095, Import Rules for Financial Institutions under Section 217.1 and Dealings Between Permanent Establishments under Section 220.
Based on the information you provided in the hypothetical situation, if the amount allocated to the head office in Canada from the branch office (i.e., the $500,000 for salaries, rent, and entertainment) is determined to be qualifying consideration after the application of the formula A-B in proposed subsection 217.1(1), the amount should be included on line 280 of Form GST 111.
The amount shown on line 293 of Form GST 111 includes the total value of property and services that the financial institution imported into Canada during the fiscal year including the value of imports subject to GST/HST under sections 212, 212.1, 218 and 220.07 and the value of qualifying consideration determined under proposed subsection 217.1(1) that is greater than zero in respect of an outlay made or an expense incurred outside Canada and subject to GST/HST under proposed sections 218.01 and 218.1. All amounts must be supported and tie into the financial institution's financial information.
Under Section E of Form GST 111, the financial institution is to provide detailed information on the value of property and services exported by the financial institution during the fiscal year. Zero-rated supplies of exported goods and services are described in Part V and Part IX of Schedule VI.
The value of exported property and services is broken down on Form GST 111 into three categories (i.e., financial services, tangible personal property, and intangible personal property and services (other than financial services)). This value is further broken down into various recipients of the exports (i.e., exported to head office or branches, exported to related persons and exported to third parties). If the actual amounts are not reasonably ascertainable, estimated amounts may be used on lines 350-352, 360-362, and 370-372 of Form GST 111. The grey box beside each number should be ticked if the amount entered on the line is an estimated amount.
Exported supplies of financial services made by a financial institution may be zero-rated under section 1 or 2 of Part IX of Schedule VI. If the supply is a financial service as defined in subsection 123(1) but it is not a zero-rated supply under Part IX of Schedule VI, the consideration for that supply will not be included on any line of Section E of Form GST 111.
Depending on who the recipient of an export is, a supply of a service that is not a financial service and is a zero-rated supply included in Part V of Schedule VI should be included on one of lines 370 to 372 of Form GST 111.
Based on the information you provided, if the amount allocated to the foreign branch office from the Canadian head office in the hypothetical situation (i.e., $2,500,000), is for a service (other than a financial service) it may be a zero-rated supply under Part V of Schedule VI and as such, would be included on line 370 of Form GST 111. A supply of a zero-rated financial service made to a third party should be included on line 352. A supply made to a third party of a service that is not a financial service and that is a zero-rated supply under Part V of Schedule VI should be included on line 372 of Form GST 111.
The amount shown on line 383 of Form GST 111 should include the total value of zero-rated exports of property and services that a financial institution made during the fiscal year. All amounts in Section E must be supported and tie into the financial institution's financial information.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9210 or XXXXX at XXXXX. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dawn Weisberg
Manager
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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