CRA publishes a new GST/HST Memorandum on determining whether a financial institution is a qualifying institution for ITC purposes

CRA has published a new Memorandum on determining whether a financial institution is a qualifying institution. Financial institutions are subject by virtue of ETA s. 141.02 to more detailed and onerous rules for claiming input tax credits than “regular” registrants. Qualifying institutions are singled out for specially onerous rules in this regard.

Very generally, qualifying institution are banks, insurers or securities dealers which otherwise would be entitled in their two preceding fiscal years to ITCs for residual (i.e., non-exclusive) inputs at above specified thresholds expressed in terms of dollars and as a percentage of the total tax payable on such inputs.

In its Memorandum, CRA inter alia:

• Notes that the definition of an insurer does not extend to a person, such as a foreign bank, that is authorized to carry on an insurance business in its home jurisdiction but does not carry on an insurance business in Canada.
• Provides a mortgage broker as an example of a financial institution that is not an insurer or other prescribed-class person.
• Notes that for the residual ITC threshold computation purposes referred to above, selected listed financial institutions generally take into account only the federal tax paid by them and their federal tax ITCs, and ignore provincial HST.
• Provides an example illustrating that the election made under s. 141.02(9) - by a non-qualifying institution that is a bank, insurer or securities dealer to have its ITCs for residual inputs limited in the same manner as if it were a qualifying institution - can be revoked before the return due date for the year for which the election was made.
• Provides numerous examples of the operation of the continuity rules in ss. s. 141.02(4) and (5) for amalgamations and wind-ups.

Neal Armstrong. Summaries of GST/HST Memorandum 17-11 [17.11] Determining Whether a Financial Institution is a Qualifying Institution for Purposes of Section 141.02 23 July 2021 under s. 141.02(1) – qualifying institution, residual input tax amount, tax credit amount, s. 141.02(4), s. 141.02(9), s. 141.02(24), Input Tax Credit Allocation Methods (GST/HST) Regulations, s. 1 – bank, insurer.