In July of 2016, while many of us were at the cottage enjoying the beautiful weather, the Department of Finance announced a series of technical amendments to the GST/HST legislation. Included in the amendments were some significant changes that were directed at credit unions. This article will highlight how many of the changes will impact credit unions and the potential new filing requirements that credit unions may face.
Selected Listed Financial Institution—Credit Unions
In very general terms a selected listed financial institution (SLFI) is a financial institution that has a presence or permanent establishment (PE) in an HST province and another province. Under the new rules, a credit union would be deemed to have a PE in each province where:
- land, that acts as security for loans issued by the credit union, is situated;
- the recipient of a loan resides (other than a loan secured by land) issued by the credit union; or
- account holder of a deposit account or similar account of the credit union, resides.
While many credit unions were not considered SLFIs under the old rules, it is expected that under the new legislation more credit unions will be considered SLFIs and as a result will be required to file information returns.
Take note that credit unions that are registered for GST/HST and/or QST and qualify as SLFIs and have a December 31 year-end, must file an annual final return for GST/HST and QST, no later than June 30th of the following year. In this case, either GST494 Goods and Services Tax/Harmonized Sales Tax (GST/HST) Final Return for Selected Listed Financial Institutions or RC7294 GST/HST and QST Final Return for Selected Financial Institution must be filed. Keep in mind that because SLFIs are required to use a complicated formula known as the special attribution method to complete these annual returns, the process can be quite onerous. Even credit unions that are not currently registered for GST/HST and QST purposes can be effected by these new rules.
Remember that the objective of filing these returns is to calculate the provincial portion of the HST and QST to the extent that the credit union does business in a particular province. Therefore, the HST/QST that was charged to the SLFI by their suppliers does not represent the ultimate obligation for HST and/or QST.
Determining whether or not your credit union is a SLFI is certainly not straightforward. For instance a credit union located in Manitoba, with deposit holders (or perhaps a mortgage holder) resident across the border in Ontario may now be considered a SLFI under the new rules because it has a PE in one province and a deemed PE in Ontario (which is an HST province). As well, a credit union which provides banking services through its internet website that has a PE in Ontario and deposit holders who reside in Ontario, Quebec and New Brunswick will now be considered a SLFI under the new rules.
GST/HST and QST Information return(s)
Depending on a number of factors including the GST/HST and QST registration status and total revenue, credit unions may also be required to file the annual information return, GST111 Financial Institution GST/HST Annual Information Return or form RC7291 GST/HST and QST Annual Information Returns for Selected Listed Financial Institutions. (Take note that in cases where a credit union is considered SLFI for both GST/HST and QST purposes, it will be form RC7291 that must be filed.)
A “reporting institution”, must file an Annual Information Return, no later than six months after its year-end. In this regard, in general, a credit union that is registered for GST/HST and that has annual income exceeding $1 million is considered a “reporting institution”. As well, a related entity that has filed an election to not have to charge each other GST/HST and QST (referred to as a section 150 closely related election for financial institutions) with the credit union may also qualify as a “reporting institution”.
Now, more than ever, it is important for you to consider if your credit union is caught by the new rules. Please contact your BDO advisor for additional help in determining if these rules apply to your credit union.
The information in this publication is current as of February 2, 2017.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it