Distributed investment plans should prepare to request in writing specific details from many of their investors by October 15, 2022 to limit indirect tax costs. The information sharing rules under the GST/HST and QST systems ensure that investors are required to provide these details to distributed investment plans so that these plans can update their systems, calculate their tax costs and file their GST/HST and QST returns. Certain investors should also be gearing up to provide specific information to some of their distributed investment plans even without a formal request.
Distributed investment plans that are selected listed financial institutions (SLFIs) under the GST/HST and QST rules must request in writing information from certain investors. These investors (i.e., "selected investors" and certain other investors) are required to provide information if they receive such a request, under these same rules. In addition, investors that are "qualifying investors" must provide specific information to distributed investment plans annually even if they do not receive a written request. If a securities dealer receives a written request for information from a distributed investment plan, it must provide specific details with respect to units held by its clients. Note that investors and securities dealers could face penalties if they do not provide specific details by the deadline.
Distributed investment plans include mutual fund trusts, mutual fund corporations, investment corporations, mortgage investment corporations, unit trusts, certain pension entities, segregated funds of insurers and investment limited partnerships. These distributed investment plans collect data under the GST/HST and QST rules to calculate their provincial attribution percentages which are then used to calculate tax adjustments in their GST/HST and QST returns.
Plans that do not collect the required data by December 31 and have not requested the information from their investors by October 15 must generally allocate some of their investors to the highest rate HST-participating provinces, which may translate to higher indirect tax costs depending on the actual details of those investors. For example, some investors from non-participating provinces may be reallocated to a 15% tax rate (i.e., the highest tax rate of HST) instead of a 5% tax rate.
Requesting data from investors
A distributed investment plan that is a SLFI must request data from "selected investors" and other investors under the GST/HST and QST rules. Most investors, other than individuals, are required to provide specific details if they receive a written request from distributed investment plans. Such investors may include distributed investment plans that invest in other distributed investment plans, corporations, partnerships and pension plans.
A selected investor is generally a person, other than an individual and a distributed investment plan, who is resident in Canada and who holds units of a total value of less than $10 million in the distributed investment plan. Selected investors can include corporations, partnerships, pension plans, other types of investment plans and various other entities. Note that special rules apply regarding the timing of the calculation for determining the total value of investors' holdings in the plan.
If a distributed investment plan makes a written request, a selected investor must generally provide:
- Its address, as determined under the GST/HST rules, as of September 30, 2022
- The number of units (or the number of units in each series) held by the investor on September 30, 2022.
A distributed investment plan may also make a request in writing for specific details from investors who are not selected investors or individuals. These investors may include other distributed investment plans that have invested in the particular distributed investment plan (with no total value threshold), or other investors holding units of a total value of $10 million or more in the plan (e.g., other investment plans, corporations or partnerships). If the distributed investment plan makes a written request, these investors must generally provide:
- Their "investor percentages" for each HST participating province as of September 30, 2022 (as determined under the GST/HST rules)
- The number of units (or number of units in each series) it held on September 30, 2022.
Note that these investors must carefully determine their "investor percentages" as required under the GST/HST information sharing rules, which may be a new concept, especially if these investors are not SLFIs.
Selected investors and other investors that receive written requests for specific details from distributed investment plans must provide the data by November 15, 2022 or 45 days after the day they receive the request (whichever is later).
Similar rules apply for QST purposes.
Qualifying Investors — Providing data without requests from plans
Investors that are determined to be "qualifying investors" must provide specific details to distributed investment plans annually, even if they do not receive a written request from the plans.
Under the GST/HST rules, a qualifying investor in a distributed investment plan generally includes an investment plan (e.g., pension entities of registered pension plans) that is a selected investor, and that meets one of the following criteria:
- The investment plan is not a "qualifying small investment plan" on September 30, 2022 or is not excluded from the SLFI definition based on the rule where less than 10% of its members reside in participating provinces (other conditions apply to this rule)
- The investment plan is a SLFI
- The investment plan is a member of an affiliated group and the members hold units with a total value of $10 million or more of the particular distributed investment plan, or at least one member of the affiliated group is a SLFI.
Where an investment plan is a qualifying small investment plan (i.e., a plan that has $10,000 or less of GST or the federal component of the HST paid or deemed paid in the previous year) it may not qualify as a qualifying investor. However, a qualifying small investment plan that is also a SLFI would qualify as a qualifying investor (as the plan still meets one of the above criteria).
Similar rules apply for QST purposes. However, some investors may be considered qualifying investors for GST/HST purposes but not for QST purposes, and vice versa (under certain circumstances). Investors should consider the GST/HST and QST rules carefully because they may have different obligations under both sets of rules.
Qualifying investors that hold units of a distributed investment plan must generally provide the following data to the plan by November 15, 2022 (even if not requested):
- A notice of "qualifying investor" status in the investment plan for 2022
- The number of units (or number of units in each series) held in the investment plan on September 30, 2022
- Their "investor percentage" for each HST-participating province as of September 30, 2022.
Similar rules apply for QST purposes.
Securities Dealers — Providing data under special rules
If a distributed investment plan makes a written request, a securities dealer must also provide details about the units, or units of each series, of the investment plan held by their clients. These securities dealers must generally provide the data by November 15, 2022 or 45 days after the day they receive the request (whichever is later). Similar information sharing rules apply for QST purposes.
The GST/HST and QST information sharing rules also include specific exceptions for exchange-traded funds (i.e., a distributed investment plan whose units are listed or traded on a stock exchange or other public market).
To help avoid significant penalties, investors must carefully determine whether they must provide information as a qualifying investor, and if so, the required information and the deadlines that apply to them, under the GST/HST and QST rules.
Investors that fail to meet their obligations under all the information sharing rules by the relevant deadlines may face a penalty for each failure to provide data equal to the lesser of $10,000 or 0.01% of the total value of the units held by the investor in the distributed investment plan.
We can help
KPMG can help managers of distributed investment plans determine the information that they are required to request from investors on the plan's behalf. We can also help investors determine their GST/HST and QST obligations and the specific data that they must provide to distributed investment plans.
For more information, contact your KPMG adviser or one of the following Indirect Tax professionals:
Information is current to September 5, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500