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Canadian Indirect Tax News, January 2008 (08-1)

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Are you a “listed financial institution,” i.e. bank, insurer, securities dealer, private equity company, trustee, credit union, income trust, REIT or mutual fund?

Are you a “deemed FI” (by virtue of a GST-related party election)?

Are you a “de minimis FI” (e.g., with interest, dividend or other financial service revenue exceeding $10 million and 10% of total revenues annually, or income from credit/charge card or lending exceeding $1 million annually?)

If so, read on…

There are new rules affecting GST liability and compliance requirements for all financial institutions (FIs) in the following three areas:

New self-assessment rules on outlays/expenses incurred outside Canada 

The new rules will affect FIs that have any dealings with branches, a head office, other related parties or third parties located outside of Canada , or that have any Canadian employees working abroad for the benefit of the business in Canada .

These new rules will very likely increase tax costs and will certainly add to compliance costs.

 Self-assessment on outlays/expenses incurred outside Canada 

 Key dates 

 Forms

 

 GST payable 

 Due date 

 Registrant 

 Non-registrant 

 Annual filer Y/E 

Oct 31, 2006

Dec 31, 2006 1 

 

Apr 30, 2007

Jun 30, 2007

 

Jan 31, 2008

Mar 31, 2008 1 

 

Form GST 34E/494E

 

N/A

"

 Monthly or quarterly filer Y/E 

Oct 31, 2007 2 

Dec 31, 2007 3 

 

 

Apr 30, 2008

Jun 30, 2008

 

 

May 31, 2008 2 

Jul 31, 2008 3 

 

 

Form GST 34E/494E

 

 

Form GST 59E

1  New rules were in effect for 1½ months of December 31, 2005 Y/E – due March 31, 2007.

 2 New rules were in effect for most of October 31, 2006 Y/E – due May 31, 2007. 

 3 New rules were in effect for 1½ months of December 31, 2005 Y/E – due July 31, 2006. New rules were in effect for December 31, 2006 Y/E – due July 31, 2007. 

* All GST/HST forms are available at www.cra-arc.gc.ca

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New input tax credit (ITC) methodologies and reporting requirements 

All registered FIs will be required to follow the new rules on allocating their input costs between their taxable and exempt activities.

Special rules will apply to Qualifying Institutions (QIs) which are defined to be banks, insurance companies and securities dealers that have an ITC recovery rate greater than 12%, 10% or 15%, respectively, and with ITCs in excess of $500,000, in the two preceding fiscal years on certain of its input costs.

These rules will involve pre-defined/dictated methodologies, added powers and discretion of the CRA, and will require considerably more analysis.

  ITC methodologies for FIs

 Type of FI 

 Key filing milestones 

 Filing dates for Dec 31 taxation year end 

 Filing dates FPR Oct 31 taxation year end 

 All FIs 

First year of new rules applying

Jan 1, 2008 to Dec 31, 2008

Nov 1, 2007 to Oct 31, 2008

 QI 

Due date for filing 141.02(7) election to use existing methods for certain inputs in first year

Feb 29, 2008 if monthly filer

Apr 30, 2008 if quarterly filer

Mar 31, 2009 if annual filer

Dec 31, 2007 if monthly filer

Feb 29, 2008 if quarterly filer

Jan 31, 2009 if annual filer

 QI 

Application due date for pre-approval to use own method on all inputs for any year after first year

June 30 of previous year

April 30 of previous year

 Non-QI 

Due date for filing 141.02(9) election to use prescribed percentage on certain inputs

End of Feb of taxation year if monthly filer

Apr 30 of taxation year if quarterly filer

Mar 31 after taxation year if annual filer

Dec 31 of taxation year if monthly filer

End of Feb of taxation year if quarterly filer

Jan 31 after taxation year if annual filer

 Note: Forms for filing the elections under 141.02(7) using form GST 117, 141.02(9) using form GST 118, and for making an application for Pre-Approval to use one's own method (using form GST 116) have not yet been published by the CRA. 

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New GST annual information schedule 

  • All FIs that are registered for GST with annual income greater than $1 million must file this schedule.
  • This information schedule will require significantly more detail concerning GST compliance which will likely entail costly changes to existing systems processes and procedures. 
 Annual information schedule for FIs

 Taxation year end    for first information return* 

 Date return due 

December 31, 2007

June 30, 2008

October 31, 2008

April 30, 2009

 * Applies for fiscal years beginning after 2006. 

  Note: The GST Annual Information Schedule is to be filed on form GST 111E. 

If you would like to discuss t he impact of these changes on your GST compliance, please do not hesitate to contact one of our Indirect Tax specialists in your region.

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About Canadian Indirect Tax News
A monthly newsletter providing federal and provincial sales tax updates, news, court decisions, legislative announcements and other developments. 

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