B-107 "Investment Plans (Including Segregated Funds of an Insurer) and the HST" April 2013

19.1.1 Provincial attribution percentage – selected province..

As with other non-stratified investment plans, the last part of the formula (in the last set of square brackets of the formula) used by exchange-traded funds to calculate element A accounts for amounts that are unallocated to a particular participating province (the province of residence is unknown to the non-stratified investment plan on December 31). In general, as a result of the application of the last set of square brackets of the formula used to calculate element A, where the value of units, when information is missing, represents more than 10% of the value of units of the exchange-traded fund, the part of the formula used to calculate element A in the last set of square brackets is applied to allocate the value of these units to the selected province.

9. Specified attribution method formula

An SLFI [selected listed financial institution] uses the SAM [specified attribution method] formula to calculate its liability for the provincial part of the HST for a participating province. If the amount calculated using the SAM formula for the provincial part of the HST for a participating province for a reporting period of an SLFI is less than the provincial part of the HST for the province that is actually paid or payable by the SLFI in the period (as a result of the application of the general place of supply rules to supplies made to the SLFI), the SLFI will make an adjustment when calculating its net tax that will either reduce its net tax or result in a refund. Conversely, if the amount determined under the SAM formula is more than the actual provincial part of the HST for the province that is paid or payable by the SLFI in the period, the SLFI will have an additional liability for the provincial part of the HST and make an adjustment when calculating its net tax that will increase its net tax.

Provincial ITCs

As SLFIs use the SAM formula to calculate their liability for the provincial part of the HST for a participating province, they are generally not required to track and allocate the extent of consumption or use of each property or service acquired in the participating provinces in order to claim input tax credits (ITCs) related to the applicable provincial part of the HST (either 7%, 8%, or 10% depending on the participating province), nor are they required to self-assess and account for tax on inputs acquired in a non-participating province for consumption, use or supply in a participating province.

Specifically, subsection 169(3) of the Act restricts an SLFI's ability to claim an ITC in respect of the provincial part of the HST... .

Modified SAM for stratified/real time investment plans

An SLFI investment plan uses the SAM formula in subsection 225.2(2) to calculate its liability for the provincial part of the HST. However, where the investment plan

• is a non-stratified investment plan with a real-time calculation method election in effect for a reporting period in a fiscal year, or
• is a stratified investment plan,

these investment plans would use an adapted SAM formula provided by section 51 [now s. 48] of the draft SLFI Regulations

For example, if a non-stratified exchange-traded fund has a large group of objecting beneficial owners and it is unable to obtain residency information required to determine the province of residency...for these unit holders from a third party service provider, the non-stratified exchange-traded fund may apply to the Minister for authorization to use an alternative method to determine its provincial attribution percentage for a participating province. A geographical analysis report from a third party indicating the province of residence of the unit holder that does not meet the specific information requirements in section 6 of the draft SLFI Regulations [now, s. 5] could be included to support the application to use an alternative method under section 225.3... .

Deemed residence of non-residents in non-participating province unless s. 225 election (Part 13)

As described in section 225.4 of the Act, unless an SLFI investment plan elects to exclude non-resident unit holders from the calculation of its provincial attribution percentage for a participating province, the following rules apply:

When an SLFI investment plan calculates its provincial attribution percentage for a participating province and it knows that certain units are held by non-residents of Canada, these units are deemed to be held by unit holders resident in Canada but not resident in a participating province (as described in paragraph 225.4(3)(a) for a stratified investment plan, paragraph 225.4(4)(a) for a non-stratified investment plan, paragraph 225.4(5)(a) for a private investment plan or a pension entity of a pension plan).

Deemed Canadian activities re units held by non-residents that are deemed under s. 225.4 to be held by Cdn residents (Part 13)

In general, if the investment plan qualifies as a qualifying taxpayer under section 217.1 of the Act, any outlay made, or expense incurred, in respect of the units of the investment plan that are held by non-residents and that are deemed to be held by Canadian residents under section 225.4, will be in respect of Canadian activities of the investment plan. As a result, any outlay made, or expense incurred, by the investment plan in respect of these units will relate to the investment plan's Canadian activity for the purposes of calculating the amount of an external charge or qualifying consideration as defined in section 217 of the Act (under paragraphs 225.4(3)(c) for stratified investment plan, 225.4(4)(c) for non-stratified investment plans and 225.4(5)(c) for a private investment plan or pension entity of a pension plan). Therefore, in accordance with section 218.01 of the Act, the investment plan will be required to self-assess the GST or the federal part of the HST under Division IV of the Act for taxable amounts that are imports (i.e., the amount of an external charge or qualifying consideration) that relate to the units deemed to be held by residents of Canada (but not resident in any participating province) under section 225.4

Reporting of tax adjustment by investmetn plan and manager (26(c))

Under paragraph 58(2)(b), where the manager is an SLFI, the positive or negative amount transferred from the SLFI investment plan to the manager is included on the SLFI manager's GST/HST return as a positive or negative prescribed amount under element G of the SAM formula in subsection 225.2(2) of the Act.

The SLFI investment plan is only required to report the tax adjustment transfer amounts on line 039 of its GST494 return.

Where the SLFI investment plan is required to file a GST34 or GST62 return, it would not include any amount on line 104 or line 107 that has been transferred to its manager.

For more information on reporting tax adjustment transfer amount on the GST494 return, refer to Guide RC4050, GST/HST Information for Selected Listed Financial Institutions.

No zero-rating for supplies to NR unitholders if do not make election

For example, where a mutual fund trust, that has not entered into an election to exclude non-residents from the calculation of its provincial attribution percentage, makes a supply of a financial service that would otherwise be described in section 1 of Part IX of Schedule VI to the Act to a unit holder of a series of a stratified investment plan of the mutual fund that is a non-resident, it is not allowed to claim ITCs on inputs that relate to this supply (i.e., the zero-rating provisions referred to in Part IX of Schedule VI of the Act would not apply because the deeming provision would result in the supply being made to a resident and, as a result, the supply would be exempt).

Example of deemed PE where qualified to distribute units through a dealer in a province

Permanent establishment in a province – draft SLFI Regulations …

Example

A mutual fund corporation (MFC) that is a non-stratified investment plan has an office in Ontario, and it is qualified under provincial securities law to distribute units through independent mutual fund dealers in Manitoba. In addition to the permanent establishment in Ontario, the MFC is deemed to have a permanent establishment in Manitoba.