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Goods and services tax (GST)

How the proposed GST changes announced on January 26, 2007, will affect you

Canadian Indirect Tax News, Special edition, March 2007

Is your business a financial institution? Does your Canadian business transact with a non-resident branch? Does your business have an employee pension plan? If any one of these applies to you, then read on to understand how the proposed GST changes will significantly impact your GST reporting obligations and your GST cost of doing business.

Imported taxable suppliesThe upper cut
Practically all financial institutions will find themselves dealing with these proposed rules that affect their inbound dealings with offshore branches/head offices, related parties and third parties. There is particular emphasis on the requirement to self-assess GST on the “importation” of employee costs, including, in some cases, with respect to Canadian employees working abroad for the benefit of the affected Canadian entity. There will no doubt be an increase in the GST cost for those affected entities, along with added GST compliance.

Read “  Self-assessment of GST – Imported outlays and expenses by financial institutions

Non-financial institutions are also affected by the proposals that specifically deal with the interaction between Canadian and non-resident branches. These proposals also affect both financial institutions and non-financial institutions retroactive to the beginnings of GST.

Read “  Self-assessment of GST – Cross-border inbound branch-to-branch

Input tax credit methodologies – The knockout punch
For all financial institutions, the entitlement to recover GST on input costs will require considerably more analysis, precision in reporting and scrutiny from the Canada Revenue Agency (CRA), which will expectedly and adversely impact on how much GST is ultimately recovered. The input tax credit calculations will change through a new defined process, along with dictated methodologies, no longer left purely to fitting within the current requirements of being fair and reasonable. A key point to note within this new process is the added powers and discretion of the CRA to direct methods through administrative bulletins.

Read “  Proposed ITC allocation methods for financial institutions

New reporting requirements for financial institutions – Setting up for the next bout?
Most financial institutions will be required to provide significantly more detail concerning their compliance with the GST on an annual basis. The question is how much of this information is readily available? What added efforts and costs and changes to process and procedures will be required to meet these proposed new reporting requirements? The one-page summary of tax collected, input tax credits claimed and related adjustments will no longer be sufficient. The proposals, if enacted, result in those affected financial institutions providing information that is a big step in the process of an audit of their GST compliance – a helping hand to the CRA.

Read “  Proposed GST/HST annual information schedule for financial institutions

Recovering GST on costs related to employee pension plans – Is it a fair fight?
Partly dealing with a challenge currently with the Tax Court of Canada, proposals are being made to limit the recovery of GST paid on certain costs relating to employee pension plans. These proposals have particular impact on non-financial institutions and especially those entities predominantly engaged in commercial activities. The proposals provide for a clear intention to curtail the amount of recoverable GST payable by employers in respect of their responsibilities associated with their employees’ pension plans.

Read “  Proposed GST rebate for pension plan trusts

Will you be ready?
Be prepared for these changes because they are happening sooner than you might expect.  In fact, some of them are having an impact on businesses now! Talk to your Deloitte representative about getting prepared.

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A monthly newsletter providing federal and provincial sales tax updates, news, court decisions, legislative announcements and other developments.

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