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If you are a financial institution transacting with Canadians, take a closer look at the proposed HST rules


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Canadian Indirect Tax News, Special edition, May 21, 2010

On May 19, 2010, the Department of Finance released a summary of extensive proposals affecting the Harmonized Sales Tax (HST) liability for financial institutions with operations/clients/investors in HST provinces. In essence, to preclude selective purchasing in lower tax provinces, the HST paid by financial institutions on their invoices will not determine their ultimate HST cost; instead, their HST liability will be calculated based on where financial institutions generate revenue from their inputs. The introduction of the HST in Ontario and British Columbia as of July 1, 2010, will bring far more complex compliance obligations for most financial institutions as compared to those introduced in 1997 when the HST was implemented in three Atlantic Provinces. The HST attribution formula in place today is limited to a small group of financial institutions and it is based on a combined attribution ratio for the three current HST provinces. In addition to the calculation being amended effective July 1, 2010 for all financial institutions subject to this HST attribution formula, a far greater number of financial institutions (including investment plans) will find themselves subject to this formula and reporting obligation. Of note, this additional compliance and complexity will apply to mutual fund trusts and corporations, segregated funds, pension entities, mortgage investment corporations, trusts governed by deferred profit sharing plans, employee profit sharing plans, retirement compensation arrangements, employee trusts, employee benefit plans, health and welfare trusts and registered supplementary unemployment benefit plans.

In order to better serve clients in the financial sector, Deloitte is currently preparing an overview of these extensive proposals.

In the meantime, the proposed amendments are accessible on the Department of Finance website.

The Department of Finance is seeking comments from interested parties by June 9, 2010; these can be sent to ConsultationsFI-IF@fin.gc.ca, or to:

Tax Policy Branch
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5