Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations

Section 3

Paragraph 3(c)new item

See Also

Farm Credit Canada v. Canada, 2017 FCA 244

loan corporation meant a corportion that makes loans

Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money. Near JA, in rejecting this submission, found (at para. 26) that the words “loan corporation” simply mean “a corporation that makes loans.” He also found that this accorded with the rule’s likely policy, which would have contemplated a level playing field between privately-funded loan corporations and those funded with deposits from the public.

Articles

Allan Gelkopf, Zvi Halpern-Shavim, "Five Arbitrary Differences between Corporations and Partnerships for GST/HST Purposes", Sales and Use Tax, Federated Press, Volume XIII, No. 2, 2015, p. 674.

No SLFI permanent establishment for partnerships (p. 676)

. . . [F]or some reason, only loan corporations are deemed to have permanent establishments under paragraph 3(c) of the SLFI Regulations. A loan partnership, while still a listed financial institution, would only have permanent establishments in provinces where it has a physical presence. This means that a corporation might be a SLFI, whereas a partnership with the same operations would not be a SLFI.

Paragraph 3(e)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

1(1)(c) and (d) of PE definition inapplicable to investment plan (p. 17)

The term permanent establishment is defined in subsection 1(1) of the SLFI Regulations for purposes of these regulations. Currently paragraphs (c) and (d) of that definition relate to partnerships. The effect of the proposed amendment to this definition would ensure that this definition would only apply to a partnership if it is not an investment plan such as an ILP. As previously discussed in the section “Determination of SLFI status” in this notice, an ILP will use the deeming rules in paragraph 3(e) of the SLFI Regulations to determine whether it has a permanent establishment in a particular province.

Section 5

Administrative Policy

21 September 2011 Interpretation Case No. 125434

As part of a response to an inquiry as to the application of HST to services made by the manager (MangeCo) of an exchange-traded mutual fund trust (TrustCo), CRA stated:

The additional information requirements referred to in section 55 of the draft SLFI Regulations do not apply to an exchange-traded fund. Therefore, an exchange-traded fund calculates its provincial attribution percentage for a participating province based on the province of residency of its unitholders determined in accordance with section 6 of the draft SLFI Regulations (e.g., an individual is resident in the province in which the individual's principal mailing address in Canada is located). An exchange-traded fund is not required to obtain additional information based on the type of unitholder.

Draft section 11

Administrative Policy

19 October 2011 Interpretation Case No. 133414

General discussion of the circumstances in which a pension plan will be subject to the SLFI rules.

Section 23

Subsection 23(2)

Cases

Farm Credit Canada v. Canada, 2017 FCA 244

lender was loan corporation even though not publicly funded

Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” because the quoted phrase above had a well understood meaning given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money. It preferred the s. 23 rule that would have given weight to much of its payroll being in low-rate provinces.

Near JA, in rejecting this submission, found that the words “loan corporation” simply mean “a corporation that makes loans.” He also found that this accorded with the rule’s likely policy, which would have contemplated a level playing field between privately-funded loan corporations and those funded with deposits from the public.

Subsection 26(1)

Cases

Farm Credit Canada v. Canada, 2017 FCA 244

loan corporation means a corporation making loans irrespective of its source of financing

The appellant was a federal Crown corporation which lent money under the supervision of the federal Minister of Agricultures and for the Canadian Wheat Board to farmers across Canada and businesses serving them. It was not registered or licensed to carry on business as a loan corporation under the relevant provincial trust and loan corporation legislation. It clearly was a selected listed financial institution (“SLFI”) given, inter alia, that its principal business was acknowledged to be lending money. However, for its reporting period in question, the Selected Listed Financial Institution Attribution Method (GST/HST) Regulations (“SLFI Regs.”) would have produced a more favourable result if it were considered to not be a “loan corporation” under s. 11 (now s. 26) rather than under the general rule in s. 23 thereof.

In confirming the finding below that the appellant was a loan corporation, notwithstanding that it did not accept deposits from the public (as contemplated in for example, the use of that term under the Loan and Trust Corporations Act (Ontario)), Near JA stated (at paras 26, 27, 35):

I agree … that the words loan corporation mean “a corporation that makes loans” (TCC Decision at para. 120). … There are no references in the text to regulated entities or to deposits.

…The fact that the term loan corporation is defined a certain way in a particular series of legislation does not mean that the term has an accepted legal meaning.

…Parliament could have defined loan corporation with a restriction limiting its meaning, and indeed has done so in the Excise Tax Act itself and in related legislation. In this case, it chose not to.

Near JA further found (at para 41):

Interpreting the term loan corporation as requiring deposits from the public would create a situation where some lenders, including the appellant, would have an advantage over those that do take deposits. The respondent notes, and I agree, that the appellant competes with private financial institutions that are subject to the attribution percentage for loan corporations. In my view, Parliament did not intend to give the appellant this benefit.

See Also

Farm Credit Canada v. The Queen, 2017 TCC 29

“loan corporation” is broader than its provincial regulatory meaning

The appellant was a federal Crown corporation which lent money under the supervision of the federal Minister of Agricultures and for the Canadian Wheat Board to farmers across Canada and businesses serving them. It was not registered or licensed to carry on business as a loan corporation under the relevant provincial trust and loan corporation legislation. It clearly was a selected listed financial institution (“SLFI”) given, inter alia, that its principal business was acknowledged to be lending money. However, for its reporting period in question, the Selected Listed Financial Institution Attribution Method (GST/HST) Regulations would have produced a more favourable result if it were considered to not be a “loan corporation.”

In finding that the appellant was a “loan corporation,” D'Arcy J stated (at paras. 117, 120-1, 135):

The Appellant places significant weight on the fact that the provincial legislation that regulates trust and loan corporations defines a “loan corporation” as being a corporation that is incorporated for the purpose of borrowing money from the public and then lending or investing such money.

A literal interpretation of the words loan corporation is that they mean a corporation that makes loans. …

[A] contextual and purposive analysis…leads to the conclusion that the words “loan corporation” as used in the Attribution Regulations…mean a corporation whose principal business is the making of loans….

There are no provisions in the GST Act that state that a listed financial institution whose principal business is the lending of money is only a “loan corporation” for the purposes of the Attribution Regulations if it accepts deposits from the public. In my view, if Parliament had intended such a result it would have added that specific condition to the legislation. …

Words and Phrases
loan corporation

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 19

purchasing debt securities not lending/meaning of trust or loan corporation
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

Would a person whose sole business activity is to purchase conditional sales contracts or mortgages be considered to be a trust and loan corporation? CRA responded:

A corporation would be considered to be a trust and loan corporation or a loan corporation for GST/HST purposes if it is considered as such a corporation under the federal Trust and Loan Companies Act or an equivalent provincial statute…[and] also [may] be [so] considered… if it is treated as such under other federal statutes.

…In addition…a corporation whose principal business is the lending of money or the making of loans is a loan corporation.

… Where a third party purchases or receives an assignment of a conditional sales contract, the third party would generally not be considered to be lending money or making a loan to the assignor of the conditional sales contract.

In addition, where a person that is a mortgagee assigns a loan to a third party that the mortgagee has made to a mortgagor, the third party would not be considered to be making a loan to the mortgagor.

Section 32

Subsection 32(1)

Commentary

Example:

An MFT (which was not registered for HST or QST purposes) had approximately $100M in assets and a single class of outstanding units. Its units (which were registered in the name of their owners) were held as follows on September 30, 2015 (the “attribution point” for determining its provincial attribution percentages for 2016 – see SLFI Regs. 48(3) and 16(1) – attribution point – (b)(i)):

  • individuals who are resident in Ontario on the basis of their recorded addresses (see SLFI Reg. 5(a)) – 60%;
  • various Canadian-controlled private corporations, each holding units with a value under $10M, whose principal place of business as recorded in the MFT’s records is in Ontario (see SLFI Reg. 5(b))- 20%;
  • another CCPC (related to the MFT manager), which is not a listed financial institution (e.g., it was not a trader or dealer in securities and its principal business is not money lending) and was known to have, as its only permanent establishment for purposes of Part IV of the Income Tax Regulations, an office in Ontario, holding units with a value over $10M – 15% (see SLFI Reg. 28(e)); and
  • individuals who were resident in Quebec on the basis of their recorded addresses– 5%.

The only expenses of the MFT for 2016 were management fees of $1.9M and professional fees of $0.1M. It paid HST of 13% on these fees and was not entitled to any input tax credit (or input tax refund in Quebec).

The MFT’s provincial attribution percentages were: 95% - Ontario; and 5% - Quebec. Accordingly, one would expect the MFT to be subject to a blended rate of tax of 13.09875% (=13%*0.95 + 14.975%*0.05). Accordingly, the general effect of the federal and Quebec SAM formulas is that the MFT would have a net payment obligation under the SLFI rules of 0.09875% of $2M, or $1,975.

In fact, the annual RC7294 return would first compute (consistently with SLFI Reg. 32(1) – B) a negative amount on the federal portion of the return of $8,000, calculated as the difference between the actual Ontario HST paid of $160,000 (8%/5%*$100,000) and the federal SAM amount of $152,000 (95% of $160,000), and then compute a positive $9,975 QST amount on the Quebec portion of the return, calculated as 9.975%/5% of the federal GST of $100,000 multiplied by the Quebec provincial attribution percentage of 5%.

On the above simple facts, no additional tax would be payable with the annual (RC7294) return given that the same amounts would already have been required (under ETA s. 238(2.1) and SLFI Reg. 48(10)) to be computed and remitted on a monthly basis (again using the same provincial attribution percentages as at September 30 of the preceding year), and reported (in an abbreviated manner) on the monthly RC7262 returns.

Section 34

Subsection 34(1)

Commentary

Set out below is an extended example illustrating the application of s. 34 of the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations the "SLFI Regs") to an exchange-traded mutual fund trust with only one class of units ("MFT").

MFT will be a selected listed financial institution ("SLFI") by virtue of being a mutual fund trust with units held by residents both of HST provinces ("participating provinces") and of non-HST ("non-participating provinces"): ETA s. 225.5(1) and ss. 9(a), 3(e), 1(10 – "distributed investment plan," and 4 of the "SLFI Regs. Corporations, partnerships, or trusts carrying on a business, which are resident in Canada are deemed (by s. 5 of the SLFI Regs) to be resident where their principal business in Canada is located, and most other Canadian residents including individuals and RRSP are deemed to be resident where their principal mailing address in Canada (or that of their annuitant) is located.

By virtue of having only a single class of units which is publicly listed, MFT will be subject to the SLFI rules applicable to exchange-traded "non-stratified investment plans" which are "exchange-traded funds."

Under these rules, MFT will use the specified attribution method ("SAM") formula (set out in ETA s. 225.2(2)) to calculate its liability for provincial HST for each participating province, and will be entitled to a refund (or reduction in its remittance obligations), to the extent that these SAM amounts are less than the provincial HST that was charged to it by its suppliers (generally at a rate of 8% given its Ontario main office) – and conversely if they are higher.

Ignoring various adjustments of a more technical nature, the SAM formula (in ETA s. 225.2(2) and s. 48 of the SLFI Regs) for computing the adjustment to provincial HST for each participating province is

(A-B) * C * (D/E) - F

where

A is the (federal) GST payable by MFT in the reporting period (assumed to be a year),

B is its ITCs for the year,

C is the provincial attribution percentage for that province (and assuming that MFT made a reconciliation election on RC4609 "Election or Revocation of Election To Use the Real-Time Calculation Method or the Reconciliation Method" it would use the provincial attribution percentages for its current taxation year),

D is the provincial HST rate for that province,

E is the GST rate of 5%, and

F is the provincial part of the HST that is payable for that year by MFT,

so that a negative amount under this formula would represent a refund entitlement.

Accordingly, the principal driver for the SAM formula is the provincial attribution percentage (determined in the case of a non-stratified exchange-traded fund under s. 34 of the SLFI Regs) for each participating province:

To the extent that MFT "knows" that it has unitholders resident in non-participating provinces, its computed liability will be lowered based on the relative value of the units held by those unitholders. The relative value of units is measured at different "attribution points" in the year, i.e., in the case of an exchange-traded fund, September 30 and one or more (as determined by the fund) of March 31, June 30 and December 31, with the relative share values on each attribution point then being given equal weight.

Unless it elects otherwise (under ETA s. 225.4(7)), it can treat the unitholders whom it knows to be non-resident as if they were resident in a non-participating province, thereby further lowering the effective rate. To the extent that MFT incurs expenses outside Canada (as determined in accordance with detailed rules in ETA s. 217) "in respect of" the units of the non-residents then (by virtue of a deeming rule in ETA s. 225.4(c)), it could be required under s. 218.01 to self-assess GST of 5% on the amount of such expenses. Such GST would be included in "A" of the SAM formula.

However, to the extent that the residence status of its unitholders is not known, a substantial portion of them effectively are deemed to be resident in the participating province with the highest provincial HST rate (i.e., Nova Scotia with a rate of 10%) – or if the number of "known" unitholders is below 50%, all of the "unknown" unitholders effectively are deemed to be resident in Nova Scotia.

The provisions of s. 52 of the SLFI Regs requiring most unitholders who are "investment plans" (such a s mutual fund trusts, mutual fund corporations mortgage investment corporations and pooled fund trusts) to provide their investors percentages by participating province to the SLFI in which they are invested do not apply where that SLFI is an exchange-traded fund. Conversely, it appears that there is nothing requiring that MFT "look through" SLFIs which hold its units, so that if such a SLFI is resident in a particular province under the rules in s. 5 of the SLFI Regs, that residence will govern rather than the residence of its beneficiaries or investors.

If MFT cannot determine the relevant addresses of a satisfactorily large number of its unitholders, it potentially can obtain advance approval from CRA for using a third-party report to estimate the provincial residence of its unitholders: s. 16(1) – "attribution point" - (b)(ii) of the SLFI Regs. This assumes that MFT does not make an attribution point election under s. 18(1) to determine attribution points on another basis.

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

"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... ."

Numerical example of application of SAM formula

Assumptions

In 2015 MFT incurs third-party expenses of $1 million, which are subject to federal GST of $50,000 and Ontario HST of $80,000, as all such supplies are considered to be made in Ontario. It is not entitled to ITCs for any of the GST of $50,000. It is an "annual filer," so that it annually files the SLFI return (GST494 "Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions") and does not file "regular" (GST34) interim returns in addition. In addition to its assigned "attribution point" of September 30, MFT has selected a second attribution point of March 31.

In Scenarios 1, MFT knows on December 31, 2015 the residence of all of its unitholders on the two attribution points. In Scenarios 2 and 3 it has knowledge of the residence on those dates of unitholders holding 50% (in scenario 2) or 49.99% (in Scenario 3) of its units. The respective values of the total shareholdings held by the different categories of unitholders are shown in the Table below. For arithmetical convenience, MFT is treated as if it had a market cap of only $100. In addition it is assumed that the relative allocation of shareholdings was the same on the two attribution points. If they differed, the computations summarized below to determining the applicable percentage for the applicable participating province would be performed on each of the two dates, with those two results then averaged to determine the percentage for 2015:

Scenario 1 Scenarios 2/3
Ontario $40 $20
Alberta $20 $10
Non-resident $40 $20
Unknown nil $50
Total $100 $100

We assume no other relevant elements in the SAM formula. We also assume that MFT has not elected (under ETA s. 225.4(7)) to exclude non-residents from the calculation of its provincial attribution percentages. Accordingly, the units known to be held by non-residents are effectively deemed to be known to be held by residents of a non-participating province (such as Alberta).

Scenario 1

The participating percentage for Ontario is determined in accordance with the formula:

(A1/A2) + [A3 ×(A1/A4)]

where

A1 is the value of the units in the particular participating province (Ontario) ($40)

A2 is the value of all the units other than those known to be non-resident units ($100 – given no s. 225.4(7) election)

A3 is the lesser of 0.10 and the ratio of the unknown units (0) to A2 (0)

A4 is to total value of the known units for Canadian residents with a known provincial residence ($100)

Accordingly, the Ontario participating percentage is

(40/100) + [0 ×(40/100)], or 40%.

The participating percentage formula for Nova Scotia (i.e., the province with the highest HST rate) is (with applying A1 to Nova Scotia rather than Ontario):

(A1/A2) + [A3 × (A1/A4)] + [(1 – A3) – (A4/A2)], namely,

As the value of the Nova Scotia units is nil, this amount is:

(0/100) + [0 × (0/100)] + [(1 – 0) – (100/100, namely, 0.

Accordingly, the Ontario HST payable by MFT for 2015 is determined by applying its Ontario participating percentage of 40% to the federal GST (net of any ITCs) of $50,000 as grossed-up for the higher Ontario provincial HST rate of 8%:

40%*8%/5%*$50,000, or $32,000

Accordingly, MFT is entitled to an HST refund of $80,000-$32,000, or $48,000.

Scenario 2

The same Ontario participating percentage formula applies:

(A1/A2) + [A3 ×(A1/A4)]

where

A1 is the value of the units in the particular participating province (Ontario) ($20)

A2 is the value of all the units other than those known to be non-resident units ($100 – given no s. 225.4(7) election)

A3 is the lesser of 0.10 and the ratio of the unknown units (50) to A2 (i.e., A3 is the lesser of .10 and 50/100)

A4 is to total value of the known units for Canadian residents with a known provincial residence ($50)

Accordingly, the Ontario participating percentage is

(20/100) + [.10 ×(20/50)], or 24%.

The participating percentage formula for Nova Scotia is:

(A1/A2) + [A3 × (A1/A4)] + [(1 – A3) – (A4/A2)]

As the value of the Nova Scotia units is nil, this amount is:

(0/100) + [.10 × (0/50)] + [(1 –.10) – (50/100)], namely, 40%.

Accordingly, the Ontario HST payable by MFT for 2015 is as follows:

24%*8%/5%*$50,000, or $19,200

And the Nova Scotia HST is:

40%*10%/5%*$50,000, or $40,000

Accordingly, MFT is entitled to an HST refund of $80,000-$19,200-$40,000, or $20,800.

Scenario 3

In this scenario, the units whose holders' residence in fact is not known are deemed to be known to be held by Nova Scotia residents.

The same Ontario participating percentage formula applies:

(A1/A2) + [A3 ×(A1/A4)]

where

A1 is the value of the units in the particular participating province (Ontario) ($20)

A2 is the value of all the units other than those known to be non-resident units ($100)

A3 is the lesser of 0.10 and the ratio of the unknown units (0) to A2 (0)

A4 is to total value of the known units of Canadian residents (in contrast to Scenario 2 including unknown unitholders who are deemed to be known Nova Scotian unitholders) ($100)

Accordingly, the Ontario participating percentage is

(20/100) + [0 ×(20/100)], or 20%.

The participating percentage formula for Nova Scotia is:

(A1/A2) + [A3 × (A1/A4)] + [(1 – A3) – (A4/A2)]

As the value of the Nova Scotia units is approximately $50, this amount is:

(50/100) + [0 × (50/100)] + [(1 –0) – (100/100)], namely, 50%.

Accordingly, the Ontario HST payable by MFT for 2015 is as follows:

20%*8%/5%*$50,000, or $16,000

And the Nova Scotia HST is:

50%*9%/5%*$50,000, or $45,000

Accordingly, MFT is entitled to a refund of $80,000-$16,000-$50,000, or $14,000.

Administrative Policy

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.

Section 46

Paragraph 46(a)

Element G

Subparagraph (iii)

Administrative Policy

19 January 2019 Interpretation 165888

refund of tax paid in error not included in refunded tax referred to in G

CRA allowed a rebate claim of ACo (a SLFI) for amounts of federal tax paid in error. No provincial HST was refunded based on the understanding that the s. 263.01 restriction applied. Should the entire rebate amount be included in s. (iii) of G2 of s. 46(a) of the Selected Listed Financial Institution Attribution Method (GST/HST) Regulations (SLFI Regulations) in determining Element G of ACo’s special attribution method (SAM) formula calculation under s. 225(2)?

In responding “no,” CRA first noted that the s. 123(1) definition of tax “is interpreted by the CRA to include only amounts of tax that are actually payable under Part IX, such as tax under subsections 165(1) and (2),” so that “an amount paid in error as or on account of tax is not tax for GST/HST purposes.” CRA then stated:

Given the use of the phrase “amount is in respect of tax” in subparagraph (iii) of G2 of paragraph 46(a) of the SLFI Regulations, the amount rebated to [ACo] in [yyyy] for amounts paid in error as or on account of tax was not an amount in respect of tax under subsection 165(1) or sections 212, 218 or 218.01 and therefore the amount of the rebate cannot be included in subparagraph (iii) of G2 of paragraph 46(a) of the SLFI Regulations in determining Element G of [ACo]’s SAM formula calculation for its [yyyy] fiscal year, or any other fiscal year.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 263.01 - Subsection 263.01(1) tax paid in error was not tax that was subject to the s. 263.01 restriction 203
Tax Topics - Excise Tax Act - Section 225.2 - Subsection 225.2(2) tax paid in error not included in A and F of formula 257
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Tax tax does not include tax paid in error 102

Section 48

Subsection 48(1)

Paragraph 48(1)A(b)

Commentary

Example

A resident investment limited partnership (“ILP”) has a resident general partner with a modest percentage interest in the ILP (treated for simplicity of numerical illustration as nil) and three limited partners:

  • an Ontario-resident defined benefit pension plan, holding 50% of the LP units whose actuarial liabilities are allocated under SLFI Regs. s. 36 to employees or former employees resident in Ontario; and as to the other 50% to employees or former employees resident in Alberta;
  • a Canadian-controlled private corporation (“CCPC”) holding 40% of the LP units (valued at over $10 million) which allocates its taxable income 100% to Quebec; and
  • an individual holding 10% of the LP units whose address appearing on the records of the ILP is in New Brunswick.

Given the broad definition in SLFI Regs. s. 1(1) of “units” and “series,” it is assumed that ILP is a “stratified investment plan.” However, it is assumed that (under SLFI Regs. s. 51) 100% of the services acquired by ILP relate to the LP units rather than the GP interest in ILP.

The only relevant acquisitions by ILP in its 2019 year are its receipt of professional services invoiced at $10,000 plus QST thereon of $997.50 (rounded up for simplicity of illustration to $1,000) and GST of $500. It had no entitlement to input tax credits (or input tax refunds in Quebec) for this tax.

ILP has made a “reconciliation election” for its 2019 year (pursuant to SLFI Regs. s. 50) and also registered for GST and QST purpose on Form RC7301. As it has not been making any taxable supplies (or rebate applications) and is a SLFI, it was able to register effective January 1, 2019 during the course of 2019; and it was assigned an annual reporting period (thereby avoiding interim return-filing requirrements). By virtue of the reconciliation election, it makes its “special attribution method” (“SAM”) calculations under the SLFI rules using an “attribution point” of September 30, 2019 (pursuant to SLFI Regs. s. 48(1)(b)A6(i)) rather than September 30, 2018 (pursuant to SLFI Regs. s. 48(1)(b)A6(ii).) In the case of the pension fund and the CCPC, ILP obtains their investor percentages on September 30, 2019 by December 31, 2019 (pursuant to the information sharing provisions of SLFI Regs. s. 52.)

For simplicity of exposition , the example below deals with provincial HST and QST in an integrated manner, although in fact they are handled in separate columns on the annual RC7294 return. We also do not note all of the equivalent QSTA provisions to those under the SLFI Regs. This example assumes that the relevant provincial HST or QST rates are Ontario – 8%; Alberta – nil; Quebec- approximately 10% (in fact, 9.975%); and New Brunswick – 10%.

SLFI Regs. s. 48(1)(b)A6 (and s. 433.16.2 of the Quebec Sales Tax Act (“QSTA”)) requires the determination of ILP’s percentage for each province.

Pursuant to SLFI Regs. s. 30(1), these are:

Ontario – 50%*50% = 25%;

Alberta - 50%*50% = 25%;

Quebec – 40%; and

New Brunswick – 10%.

The total net tax for ILP under SLFI Regs. s. 48(1)(b)A6 is calculated by first applying the computation on a province-by-province basis:

Ontario: $500 * 25% * 8%/5% = $200

Alberta: nil

Quebec: $500 * 40% * 10%/5% = $400

New Brunswick: $500 * 10% * 10%/5% = $100

Total: $700

SLFI Regs. s. 48(1)A(b)A6 (and QSTA s. 433.16.2) then requires a comparison between the total provincial tax of $700 computed on the basis of the above province-by-province calculations and the actual provincial tax paid of $1,000, so that on filing the annual RC7294 return, there would be a net refund of $300 claimed. In fact, since the QST calculation is performed separately from that for the other provinces, the RC7294 return would show a refund from Quebec of $600 and $300 of net tax payable on the “federal” (i.e., provincial HST) part of the return.

Element 48(1)A(b)A6

Subparagraph 48(1)A(b)A6(ii)

Articles

PWC, "GST/HST and QST alert: Investment plans are required to obtain investor percentages – action required by October 15, 2019", PwC Tax Insights, September 03, 2019, Issue 2019-31

desirability of making reconciliation election

Current year election

Generally, DIPs determine their provincial attribution percentage based on the default attribution point (i.e. September 30, 2018 for the 2019 year) and they must know where their unitholders resided or their “investor percentages” by December 31 of the particular year. To the extent that a DIP did not know, by December 31, 2018, where its unitholders resided or its “investor percentages” at the default attribution point (i.e. September 30, 2018), we suggest that the DIP makes an election for 2019 that allows it to use September 30, 2019 as its attribution point for 2019 so that it can obtain the required information before December 31, 2019.

Section 50

Subsection 50(1)

Forms

RC4609 "Election or Revocation of Election To Use the Real-Time Calculation Method or the Reconciliation Method"

Generally, a reconciliation method election allows an investment plan to elect to use its current year provincial attribution percentage for the purposes of the SAM formula.

Subsection 50(2)

Forms

Form RC4609E – Election or Revocation of Election to Use the Real-Time Calculation Method or the Reconciliation Method

Effect of election to use the reconciliation method

Generally, a reconciliation method election allows an investment plan to elect to use its current year provincial attribution percentage for the purposes of the SAM formula.

Note
Where a reconciliation method election is in effect, to calculate its instalments (annual filers) or interim returns (Monthly or quarterly filers) using the SAM formula, an SLFI investment plan would use its percentage for a participating province based on the preceding tax year.

When does the election to use the reconciliation method cease to have effect?

A reconciliation method election for the plan ceases to have effect on the earliest of:

  • the first day of the fiscal year of the person in which the person ceases to be investment plan or an SLFI; and
  • the day on which a revocation of the election becomes effective

How are the elections made?

To make the reconciliation method election, complete parts A, E, and G of this form.

Keep a completed copy of this election in your books and records during the entire period it is in effect and for six years after the election ceases to have effect.

How are the elections revoked?

An election can only be revoked on the first day of a fiscal year that begins at least three years after the election became effective.

Section 52

Subsection 52(1)

Qualifying Investor

Articles

PWC, "GST/HST and QST alert: Investment plans are required to obtain investor percentages – action required by October 15, 2019", PwC Tax Insights, September 03, 2019, Issue 2019-31

overview

Qualifying investors

A qualifying investor is generally an investor that is an investment plan (but not a DIP) that holds less than $10,000,000 in units in the DIP (or, if the plan is a stratified investment plan, holds less than $10,000,000 in units in a series of the plan) and is:

  • a person that is not a qualifying small investment plan (QSIP) or a pension plan whose members reside almost exclusively in non-HST provinces for GST/HST purposes (or exclusively outside Quebec for QST purposes) or a private investment plan
  • a SLFI, or
  • a member of an affiliated group, the members of which together hold units with a total value of at least $10,000,000 or which includes a member that is a SLFI

Subsection 52(10)

Articles

PWC, "GST/HST and QST alert: Investment plans are required to obtain investor percentages – action required by October 15, 2019", PwC Tax Insights, September 03, 2019, Issue 2019-31

overview/qualified investors should be contacted

Qualifying investors

A qualifying investor is generally an investor that is an investment plan (but not a DIP) that holds less than $10,000,000 in units in the DIP (or, if the plan is a stratified investment plan, holds less than $10,000,000 in units in a series of the plan) and is:

  • a person that is not a qualifying small investment plan (QSIP) or a pension plan whose members reside almost exclusively in non-HST provinces for GST/HST purposes (or exclusively outside Quebec for QST purposes) or a private investment plan
  • a SLFI, or
  • a member of an affiliated group, the members of which together hold units with a total value of at least $10,000,000 or which includes a member that is a SLFI

Written requests are not required to be sent to qualifying investors. Rather, qualifying investors must voluntarily provide DIPs the required information by November 15, 2019. However, we recommend that qualifying investors be sent the requisite request to ensure full compliance.

Subsection 52(4)

Articles

PWC, "GST/HST and QST alert: Investment plans are required to obtain investor percentages – action required by October 15, 2019", PwC Tax Insights, September 03, 2019, Issue 2019-31

October 15 deadline under e.g. s. 30(1)(b)A4 -C(ii)

Timing

DIPs must know where their unitholders resided or their “investor percentages” by December 31 of the particular year; however, as there are relieving rules that can apply if the information request is sent by October 15, 2019, it is strongly recommended that the information request be sent by this date. The person receiving this request has 45 days to respond to it.

Section 54

Subsection 54(1)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Does not permit consolidated rebate claims (p. 14)

Pursuant to subsection 54(2) of the SLFI Regulations, a manager that currently has a consolidated filing election in effect with two or more investment plans can jointly elect with another investment plan that is an SLFI to include the other investment plan in the same consolidated filing election using Form RC4604-1, Election for a Selected Listed Financial Institution to Join a GST/HST Consolidated Filing Election. In order to make this election, the other investment plan and its manager must have a reporting entity election in effect.

It is important to note that the consolidated filing election only allows for filing GST/HST returns such as Form GST34 and GST494 on a consolidated basis. For example, GST/HST rebates cannot be filed on a consolidated basis.

Requirements for late-filed consolidation (or reporting entity) election (pp. 5-16)

An ILP that makes the ILP election could request that the CRA accept a reporting entity election or a consolidated filing election effective on a date before the particular election is filed (often referred to as a late-filed election). As the Minister has the authority to accept these elections late, each request will be considered on a case-by-case basis. This type of request must be made in writing and sent to the CRA’s Prince Edward Island Tax Centre. A request will generally be accepted by the CRA where the following conditions are met:

  • the request includes a written explanation as to why the election(s) was filed after the requested effective date of the election and is signed by an authorized person of one of the parties to the election(s);
  • the request includes the completed election form(s) unless the form(s) was previously received by the CRA;
  • all of the conditions to make the election(s) must be met on the requested effective date of the election (for example, for a consolidated filing election, the end of the reporting periods of all the investment plans making the election must be the same; this would also be the case where an election to join a consolidated filing election is made);
  • for a consolidated filing election, if the investment plan does not have a reporting entity election already in effect, it must also include that election form with the same effective date as the consolidated filing election (this includes an election to join a consolidated filing election);
  • if the investment plan is registered for GST/HST purposes as of the first day of a reporting period, the request to file the election(s) late should be received on or before the due date of the return(s) under Division V of Part IX for the reporting period of the investment plan that includes the effective date of the election(s) provided that the return has not been filed before that date (evidence of the registration number must be provided);
  • if the investment plan is not registered for GST/HST purposes, the request to file the election(s) late must be received on or before the end of the reporting period in which the investment plan becomes a registrant and the election(s) takes effect, an application for registration is made with the request, and the effective date of the registration is the same as the effective date of the election (unless the investment plan is required to be registered prior to the effective date of the election under another provision of the Act, such as if it made taxable supplies and was not a small supplier);
  • as of the effective date of the election(s), (including the election to join a consolidated filing election) there are no outstanding GST/HST returns for the investment plan for which there would be amounts owing that must be remitted;
  • the investment plan did not file any GST/HST rebates for the particular reporting period that includes the effective date of the election(s); and
  • the parties to the election(s) must not have been negligent or careless in complying with the legislation related to the particular election(s).

Section 55

Subsection 55(2)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Effect of tax adjustment transfer election (p. 15)

The effects of the tax adjustment transfer election between an investment plan and its manager depend on whether or not the investment plan and its manager also have a reporting entity election in effect at the same time. If both a tax adjustment transfer election and a reporting entity election are in effect between an investment plan and its manager and if there is a positive net tax adjustment (for example, an amount owed by the plan) calculated using the SAM formula, the manager is required to remit the amount equal to the liability of the investment plan in respect of the provincial part of the HST upon filing its GST/HST return. The investment plan then has no liability to remit this amount to the CRA. If there is a negative net tax adjustment (for example, the investment plan would be eligible for a refund or credit) calculated using the SAM formula, the manager may deduct the amount of the negative net tax adjustment in calculating its own net tax provided the manager has paid or credited this amount to the investment plan. The investment plan is not entitled to deduct this amount from its net tax.

If a tax adjustment transfer election, but not a reporting entity election, is in effect between an investment plan and its manager, the amount of the provincial part of the HST that can be credited/refunded or assumed as liability would be limited to amounts related to supplies made by the manager.

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

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.

Subsection 55(4)

Paragraph 55(4)(c)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Late election generally not available (p. 16)

A tax adjustment transfer election should be filed before the first day on which the election is to be in effect. As the Minister has the authority to accept a late-filed election, each request will be considered on a case-by-case basis. Generally, the CRA would not accept a late-filed tax adjustment transfer election as the election affects the net tax calculation of both the investment plan and its manager.

Draft section 58

Administrative Policy

21 September 2011 Interpretation Case No. 125434

As part of a response to an inquiry as to the application of HST to services made by the manager (MangeCo) of an exchange-traded mutual fund trust (TrustCo), CRA stated:

The amounts that can be transferred where a tax adjustment transfer election is in effect between an investment plan and manager vary depending on whether or not a reporting entity election under section 56 of the draft SLFI Regulations is also in effect. Where a tax adjustment transfer election under section 58 and a reporting entity election under section 56 of the draft SLFI Regulations are both in effect for a reporting period, the tax adjustment transfer amount would be the positive or negative net tax adjustment amount determined by the application of the SAM formula in subsection 225.2(2). Where only the tax adjustment transfer election under section 58 of the draft SLFI Regulations is in effect for a reporting period without a reporting entity election under section 56 of the draft SLFI Regulations, the tax adjustment transfer amount allowed to be transferred to the investment plan manager would generally be limited to the provincial part of the HST with respect to supplies made by the manager to the SLFI investment plan in applying the SAM formula in subsection 225.2(2). If there is a positive net tax adjustment (i.e., an amount owed by the investment plan) this liability with respect to the provincial part of the HST of the investment plan would be an adjustment to be added when determining the net tax of the investment plan manager. If there is a negative net tax adjustment (i.e., the investment plan would be eligible for a credit), where the investment plan manager has credited that amount of the provincial part of the HST to the investment plan, this credit would be an adjustment to be deducted when determining the net tax of the investment plan manager.

Section 73

Subsection 73(1)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Example of application to ILP invested in a non-stratified investment plan (pp. 10-11)

Example 6

ABC is an ILP that has not made an ILP election to have proposed paragraph 149(5)(f.1) apply for its taxation year that begins on January 1, 2018. ABC will be an SLFI in its annual January 1 to December 31, 2019 reporting period, but would not be an SLFI in its preceding 2018 reporting period since it did not make the ILP election. ABC does not issue its units in two or more series. ABC ILP holds units of XYZ, which is a non-stratified investment plan. XYZ’s taxation year is the calendar year. XYZ determines its net tax for its annual reporting period using the preceding year method such that XYZ uses its provincial attribution percentages for the preceding taxation year.

In calculating XYZ’s provincial attribution percentages under section 32 of the SLFI Regulations for its 2018 taxation year, for use in determining its net tax for its reporting period in 2019, ABC ILP would be deemed to be a distributed investment plan under proposed subsection 73(1) of the SLFI Regulations for the purpose of providing information to XYZ under section 52 of the SLFI Regulations. As a distributed investment plan, ABC ILP would not be a specified investor as that term is defined in subsection 16(1) of the SLFI Regulations. As a result, if ABC ILP receives a written request during 2018 from XYZ, ABC ILP would be required to provide: (i) its investor percentage for each participating province as of September 30, 2018, and (ii) the number of units ABC ILP held in XYZ on that date. This information would need to be provided before the particular day that is the later of November 15, 2018, and the day that is 45 days after ABC ILP received the request from XYZ. As a result of the deeming provisions under proposed paragraph 73(2)(a) of the SLFI Regulations, ABC would determine its investor percentage for each participating province as of September 30, 2018, under paragraph 28(a) of the SLFI Regulations as an SLFI that is a non-stratified investment plan.