Section 225.2

CRA indicated that the s. 123(1) definition of tax “is interpreted by it 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.” Thus, in its view, such tax paid in error does not go into elements A and F of the formula, nor is a refund of the tax paid in error deducted under G of the formula as a refund of “tax under” e.g. ETA s. 165(1). For example, respecting element A:

As an amount paid in error as or on account of tax is not tax, the amount should not be included in Element A of the SAM formula which includes all tax … that became payable under any of subsection 165(1) and sections 212, 218 and 218.01 by the financial institution during the particular reporting period or that was paid by the financial institution during the particular reporting period without having become payable. …

CRA concluded:

Consequently, if an SLFI has included an amount in Element A and Element F of the SAM formula in a particular reporting period and subsequently it is determined that the amount was paid in error by the SLFI as or on account of tax, as the amount is not tax payable under subsections 165(1), 165(2) or sections 212, 212.1, 218 or 218.01, the SLFI’s SAM formula calculation should be corrected to remove the amount from Element A and Element F for the reporting period in which that amount was included.

A Canadian financial institution makes a taxable supply of services (Services) to an unrelated Canadian selected listed financial institution (SLFI), for cash consideration but erroneously fails to invoice and collect any GST/HST in respect thereof. The SLFI is required to make the computation of net tax under the “SAM” formula in s. 225.2(2) based on the tax payable by it. S. 228(2.3) requires the remittance of that net tax. In contrast, s. 278(2) provides an exception from a remittance obligation where “the amount is required under section 221 to be collected by another person.”

Do these provisions require the SLFI to include the tax payable respecting the Services when calculating its net tax under the SAM formula for its final return, notwithstanding that the tax was not invoiced by, or paid to, the supplier? CRA stated:

[T]he SLFI would generally be required to include the tax payable in respect of the Services in its net tax calculation and interim net tax calculation, where applicable, for the particular reporting period during which the tax became payable. Specifically … the amount of tax payable in respect of the Services by the SLFI in that reporting period would be included in its SAM formula calculation which is used to determine the SLFI’s tax liability for the provincial part of the HST for the participating provinces and which is an adjustment to the SLFI’s net tax calculation and interim net tax calculation where applicable.

The questioner suggested that, in light of s. 278(2), the SLFI was not required to remit the related component of its s. 225.2(2) tax (based on the tax payable to the supplier) because of the obligation of its supplier to have collected and remitted that tax. CRA, considered this suggestion to be quite at odds with the scheme of the SAM formula rules, which required the SLFI to compute and remit an amount which was quite distinct from the tax paid to its suppliers. Essentially, the SAM formula computes a normative amount of provincial HST based on the deemed residence of its stakeholders, and compares this with the actual provincial HST paid to its suppliers – and then requires that the difference be reported and claimed as refunds or remitted as tax in interim and final returns. Thus, the SAM tax is essentially by definition distinct from the tax that was remittable by the SLFI supplier.

Overview of formula (pp. 3-4)

Under the SLFI rules, an SLFI determines its liability in respect of the provincial part of the HST for net tax calculation purposes for a reporting period based on where it provides financial services using a formula called the special attribution method (the SAM formula). The calculation using the SAM formula involves allocating the amount of an SLFI’s unrecoverable GST and the federal part of the HST to each participating province according to its provincial attribution percentage for the province. The provincial attribution percentage is a proxy of the extent to which the SLFI provides financial services in a particular participating province. Under the SLFI rules, an investment plan’s provincial attribution percentage for a participating province is generally based on the extent to which its units are held by persons residing in the province. The unrecoverable amount of GST and federal part of the HST allocated to the province is then grossed up by a factor to reflect the rate of the provincial part of the HST for the province. Other adjustments may also apply.

If the amount determined as the liability in respect of the provincial part of the HST for a reporting period of an SLFI under the SAM formula is less than the provincial part of the HST that is paid or payable by the SLFI in the reporting period, the SLFI would be entitled to deduct the amount in determining its net tax for the reporting period. Conversely, if the amount determined as the liability in respect of the provincial part of the HST for a reporting period of an SLFI under the SAM formula is more than the provincial part of the HST that is paid or payable by the SLFI in the reporting period, the SLFI would be required to add the amount in determining its net tax for the reporting period.

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