News and Insights

Department of Finance News Release 2011-009

Tax Development Jan 31, 2011

The Department of Finance has released proposed changes to the rules relating to the methods that financial institutions follow to calculate the provincial component of the HST (PVAT), in response to comments received through consultation that followed proposed changes previously announced on May 19, 2010 and June 30, 2010.  

The modifications to the previously announced changes are reflected in a backgrounder, draft legislation and draft regulations.

In summary, the proposed changes are as follows:  

  1. Plans with $10 million or more invested in another investment plan will be required to “self-police” in terms of sending attribution percentages to the plans they have invested in; percentages must be supplied by November 15th of each year to the investee plan.  
  2. Non-resident members of pension plans that are SLFIs will be deemed resident in non-HST provinces for purposes of the attribution percentage, unless the plan elects out of this rule.  
  3. An investment plan could elect to use a ‘real-time method’ to calculate its attribution percentages based on the location of unit holders determined on either a daily basis or on the first day of each month.  The real-time method has been made more flexible, by allowing attribution percentages to be determined on a weekly or quarterly basis or to request authorization from CRA for an alternate date.  
  4. It is confirmed that the tax on the deemed supply to the pension plan by the employer under section 172.1 will be included for the purposes of determining if the pension plan meets the small plan test of less than $10,000 in GST paid in the prior year; however, this change will not apply until the first fiscal year of a pension plan entity beginning after January 28, 2011.  More plans will be exempted from the SLFI rules for 2010 (and potentially 2011) as a result of this change than formerly considered.  
  5. Many plans have requested that where substantially all the members are resident in one province, they be excluded from the new SLFI rules.  Finance has responded, but not in the way that was hoped.  Plans will only be excluded from the SLFI rules where:  a)  at every point in the year, 10% or less of the total members of the plan reside in HST provinces; and b) the value of the assets or actuarial liabilities related to such members was less than $100 million in the plan’s preceding fiscal year. Therefore, plans with, say, 99 members in Ontario, and 1 member in Florida, will still be caught by the SLFI rules; however, a defined contribution plan with 95% of their members in Quebec, and 5% of the members in Nova Scotia, with associated plan assets of $50 million would not be considered an SLFI. 
  6. The trust rebate of 33% of GST remitted by the employer on the deemed supply to the pension plan trust will be deducted from the ‘GST paid’ amount that drives the Special Attribution Method (SAM) allocation; previously, only the rebate on the tax paid directly by the trust to third party suppliers reduced the GST used as the starting point in the SAM formula.  
  7. For investment plans that are SLFIs, and have been divided into provincial series where none of the units in the series qualified for sale outside a particular province, the SAM formula would not apply.  The proposed changes will provide a similar treatment to investment plans that are not divided into series, where all the units are available only to investors of a single province.  The general self-assessment and rebate rules would apply instead.  
  8. A non-SLFI investment plan may claim a rebate of PVAT payable by the investment plan where the plan has beneficiaries resident outside the participating provinces.  Currently the rebate of the PVAT is limited to specified services, which includes any management or administrative services provided to an investment plan.  Changes are proposed to allow a rebate of the PVAT payable on all goods and services acquired, imported or brought into a participating province.  
  9. Changes are to be made to allow particular investment plans to transfer between consolidated filing groups.  Listed financial institutions (LFIs) will be allowed to revoke previous monthly or quarterly filing elections for years beginning after December 31, 2010.  
  10. Investment plans, including pension plans, that are SLFIs and register for GST/HST purposes and are therefore required to file the SAM return (GST494), will not be required to file the GST Annual Information Return (GST 111).  
  11. Where a merger of two or more distributed investment plans or two or more series occurs, the attribution percentage for a particular province calculated as of the date of the merger would apply to the new plan/series for the remainder of the fiscal year in which the merger has occurred.   
  12. Where a new fund or series within a fund has been created otherwise than by a merger, a new “reconciliation” method would be used by new plans/series to calculate their provincial attribution percentages for the transitional period.  
  13. Consultations will be held as to whether to include in the SLFI family investment entities that are not currently caught by the rules, but that are similar to those that are presently part of the SLFI family.  These include master trusts; de minimis financial institutions; group RRSPs, RRIFs and RESPs;  and costs incurred by third parties, such as employers, in relation to retirement compensation arrangements (RCAs).

News Release 2011-009
Proposed Amendments to the GST/HST Legislation
Draft Regulations Amending Various GST/HST Regulations