Canada's Department of Finance Has Released Financial Institution Rules for the Harmonized Sales Tax (HST)
On May 19, 2010, the federal Department of Finance released "Financial Institution Rules for the Harmonized Sales Tax (HST)", which is a rather long and complicated document. The good news is that only financial institutions (including de minimis financial institutions) must figure out how this document changes their way of doing business and imposes new obligations. The bad news is that financial institutions may charge higher service fees to cover their compliance costs / assessment risks.
The released document provides information on changes to rules for selected financial institutions (also known as SLFIs). The changes include changes to the test for determining whether an entity is an SLFI. As a result, it will be important for entities to apply the new test to see whether they are still SLFIs and whether they are now considered to be a SLFI. The release states:
British Columbia and Ontario's decision to join the HST, effective July 1, 2010, will significantly increase the number of FIs that are SLFIs. For example, a bank with branches in Ontario and Manitoba and in no other provinces would become an SLFI only as a result of Ontario harmonization.
This statement suggests that some entities (were not considered to be SLFI before and are considered to be a SLFI now) now have a lot of work to do to prepare before July 1, 2010.
The released document also provides information to financial institutions about the "special attribution method" (friendly name "SAM") that they are required to use. This complicated formula will likely appear in the coming weeks in regulations and, therefore, will not be subject to scrutiny by opposition MPs and the Canadian Senate.
The SAM attribution methods are briefly discussed for:
i. banks
ii. insurance corporations
iii. trust and loan corporations
iv. investment plans and segregated funds
v. other corporations, individuals and trusts
The publication also covers the following topics:
- information requirements
- penalties
- MTFs that are ETFs
- timing of PVAT (provincial HST component) determination under SAM
- compliance rules
- transitional rules for SLFIs re Ontario and BC
- recapture of ITC rules for SLFIs
- SLFI transition installment base
- Imported supplies - non resident trusts
- SLFI rules respecting deemed pension supplies and pension rebate
Cyndee Todgham Cherniak is the founding lawyer of LexSage, a boutique international trade law and sales tax firm in Toronto,
