Many financial institutions and other businesses deemed to be financial institutions must file one or two annual GST/HST and QST returns by June 30, 2023. This upcoming deadline for the annual GST/HST and QST information returns applies to selected listed financial institutions (SLFIs), other types of financial institutions and entities deemed to be financial institutions under the GST/HST and QST rules where they have a December 31 year-end. In addition, some financial institutions may also have to file another annual return. Specifically, financial institutions that qualify as SLFIs and have a December 31 year-end are also required to file the annual GST/HST and QST final return for SLFIs by June 30, 2023.
Various types of entities may have to file one or both of these GST/HST, and QST (if applicable) annual returns, including:
Financial institutions, such as:
- Insurers
- A person whose principal business is a trader, dealer, broker or salesperson of financial instruments or money (e.g., insurance agents or brokers)
- Credit unions
- Investment plans (e.g., mutual fund trusts and mutual fund corporations)
- Pension plans and master trusts
- Investment limited partnerships (ILPs) (e.g., ILPs that invest in real estate)
- Entities that are not typical FIs (e.g., construction or retail businesses) and that meet certain financial services revenue thresholds.
The CRA continues to closely review these returns, including the self-assessment obligations. Financial institutions may want to cross-reference details from their GST/HST (and QST) returns with other reports submitted to the tax authorities, such as transfer pricing and other income tax filings, to assess the accuracy of their data and document the reasons for any discrepancy. For the annual GST/HST information return, the CRA can assess a penalty of up to $1,000 for each qualifying line on the form for failure to file or for misreporting amounts. Similar rules apply for QST.
In addition, certain financial institutions face another upcoming filing deadline. Affected entities have until July 5, 2023 to elect to renew or change their 2024 input tax credit (ITC) allocation method.
Annual GST/HST and QST information return
Affected entities must file the annual GST/HST information return no later than six months after their year-end. An affected financial institution with a December 31 year-end must file the annual information return by June 30, 2023 for its 2022 fiscal year. In general, affected entities include entities that meet all the following conditions:
The entity is:
- A financial institution as defined under the GST/HST rules, or
- A business that is deemed to be a financial institution for GST/HST purposes (e.g., a business that elected to deem certain supplies to be GST/HST-exempt financial supplies, or a business that qualifies as a “de minimis financial institution” because they meet certain financial revenue thresholds)
Are registered for GST/HST, and:
- Have annual income of more than $1 million in the last taxation year.
Similar rules apply for QST. Note that certain investment plans, such as pension entities, that qualify as SLFIs are exempt from filing the annual information returns.
KPMG observation — Finance proposed to increase the annual income threshold to $2 million (from $1 million) in the draft legislation released on August 9, 2022.
Businesses deemed financial institutions
Certain entities (e.g., corporations and partnerships) that may not be typical financial institutions also have this filing obligation if they qualify as "de minimis financial institutions". Such businesses are deemed financial institutions under the GST/HST and QST rules if they have revenues related to qualifying financial services, including interest earned from receivables and certain guaranteed investment certificates (GICs) that meet certain thresholds. Specifically, these businesses may have to file information returns where they have, for their taxation year prior to the particular year:
- "Financial revenue" that is greater than 10% of their total revenues and is more than $10 million, or
- More than $1 million of income from lending money.
The CRA generally considers interest from GICs and deposits to be interest from lending money that may cause an entity to qualify as a "financial institution" under these de minimis rules. However, interest for demand deposits, term deposits and GICs with an original due date to maturity not exceeding 364 days, are excluded from calculations of the threshold of $1 million of income from lending money (but not the 10% or $10 million threshold). For example, a construction company that has significant deposits invested in GICs for more than 364 days may qualify as a "de minimis financial institution" depending on the amount of interest generated from these deposits and any other financial revenue.
Updated returns
Affected entities must file either a GST111, "Financial Institution GST/HST Annual Information Return", or the combined RC7291, "GST/HST and QST Annual Information Return for Selected Listed Financial Institutions". Entities that are required to file the return with Revenu Quebec must file FP-2111, "Financial GST/HST and QST Annual Information Return".
While these annual information returns are not related to any GST/HST and QST payments, reporting institutions could face significant penalties if they do not file this return correctly and on time.
KPMG observation — The CRA has recently updated the GST111 and RC7291 returns, which apply for fiscal years ending after December 31, 2021. Businesses should ensure they file the appropriate return.
SLFIs — Annual GST/HST and QST final returns
Financial institutions that qualify as SLFIs must file the annual GST/HST and QST final return for SLFIs no later than six months after their year-end. SLFIs that have a December 31 year-end must file the annual GST/HST and QST final return by June 30, 2023 for their 2022 fiscal year. In general, a financial institution qualifies as a SLFI if it has a permanent establishment in an HST province and in another province for GST/HST purposes, or in Quebec and in another province for QST purposes. SLFIs must determine which GST/HST rules apply to their specific facts and circumstances to determine whether they have a permanent establishment in a particular province.
KPMG observation — Finance released proposals to amend certain SLFI rules that could affect the SLFI status of certain investment plans, such as master pension entities and qualifying small investment plans. Financial institutions should determine if their filing obligations are affected by the draft GST/HST legislation released August 9, 2022.
SLFIs must consider various factors when calculating their tax adjustments that must be included for these returns, such as their specific type of entity and activities. As they prepare their GST/HST and QST filings, SLFIs should review transactions and items that may affect their returns, including:
- New operations or service lines that may affect their ITC allocation methods
- Significant business acquisitions over the past year
- New actual or deemed permanent establishments in any provinces over the past year
- Changes to their GST/HST self-assessment obligations
- Changes to transactions with their related entities
- Missed eligible ITCs for years 2020, 2021 and 2022.
Affected entities must file the combined RC7294, "GST/HST and QST Final Return for Selected Listed Financial Institutions", or the GST494, "GST/HST Final Return for Selected Listed Financial Institutions".
KPMG observation — SLFIs should carefully review all their allocation methods under the special attribution method (SAM). In some cases, an error in the allocation methods may translate into a tax recovery or an additional amount of tax to pay for current and prior reporting periods.
Don't miss July 5, 2023 deadline for ITC allocation approval
Financial institutions that qualify as "qualifying financial institutions" (QFIs) also have until July 5, 2023, to elect to renew or change their ITC allocation method for 2024, which may help reduce unrecoverable GST/HST and QST costs. This deadline applies to QFIs with a December 31 year-end.
For more information, please contact your KPMG adviser or one of the following Indirect Tax professionals:
Walter Sisti,
National Leader - Indirect Tax Services
T: 416-777-3920
E: wsisti@kpmg.ca
Nancy Bouchard
T: 514-461-6577
E: nancybouchard@kpmg.ca
Simon Proulx
T: 647-777-5318
E: sproulx@kpmg.ca
Christian Thibault
T: 416-777-3927
E: cthibault@kpmg.ca
Yakoob Vayani
T: 416-777-3933
E: yvayani@kpmg.ca
Jennifer Muirhead
T: 403-691-8291
E: jennifermuirhead@kpmg.ca
Katherine Xilinas
T: 604-646-6406
E: kxilinas@kpmg.ca
Information is current to May 15, 2023. 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
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