Canadian Tax Adviser, June 05, 2015. Many credit unions across Canada, and some of their related entities, that have a December 31 year-end must file up to two GST/HST and QST returns by June 30, 2015―an annual information return and/or a specific final return. Each credit union must determine its filing obligations based on its own facts and circumstances.
Depending on its GST/HST and QST registration status and total revenue, a credit union may be required to file the annual information return, form GST111, "Financial Institution GST/HST Annual Information Return", or form RC7291, "GST/HST and QST Annual Information Returns for Selected Listed Financial Institutions". In addition, credit unions that qualify as selected listed financial institutions (SLFIs) for GST/HST and/or QST purposes must file the final return regardless of whether the entity is registered for those taxes, form GST494, "Goods and services Tax/Harmonized Sales Tax (GST/HST) Final Return for Selected Listed Financial Institutions" or form RC7294, "Goods and Services Tax/Harmonized Sales Tax (GST/HST) and Quebec Sales Tax (QST) Final Return for Selected Listed Financial Institutions".
In general, a credit union, or a related entity that has a closely related group section 150 election with the credit union, that is registered for GST/HST and has annual income exceeding $1 million is considered a "reporting institution". A reporting institution must file an Annual Information Return, form GST111 or form RC7291, no later than six months after its year-end. For credit unions with a December 31 year-end, the deadline is June 30, 2015 for the 2014 fiscal year. Similar rules apply for QST.
Reporting institutions required to file the annual information returns could face severe penalties if they do not file the returns correctly and on time, even though these returns are not related to any GST/HST and QST payments.
These annual information returns must be carefully completed. Although reporting institutions may be eligible to estimate certain amounts where actual amounts are not reasonably ascertainable, the CRA previously noted that an estimate must not be a "guess" and that reporting institutions must provide the most accurate information possible. The CRA can assess a penalty of up to $1,000 per each qualifying box on the form for failure to file or for misreporting amounts on the return, which could add up to more than $100,000 in penalties. Similar rules apply for QST purposes.
Reporting institutions should also ensure that the information included in their annual information returns corresponds with their GST/HST and QST returns and income tax information where applicable. The CRA will likely cross-check this data and may use any discrepancies in audits.
Credit unions that qualify as SLFIs and that have a December 31 year-end must file an annual final return no later than June 30, 2015―either form GST494 or form RC7294. SLFIs are required to use a complicated formula known as the special attribution method (SAM) to complete these annual returns. This method essentially includes various complicated GST/HST and QST adjustments to a SLFI's net tax. In general, SLFIs must use the SAM formula to calculate their liability for the provincial component of the HST in each HST province or for QST in Quebec. The SAM formula also helps ensure that suppliers in non-HST provinces do not have a competitive sales tax advantage over those in HST and QST provinces. Many errors can arise when making these calculations, including potential liabilities and missed opportunities.
A credit union may be considered to be a SLFI if it has a permanent establishment in an HST province and a permanent establishment in another province. The SAM formula has different rules for various types of financial institutions. The rules that may apply to most credit unions may deem these entities to have permanent establishments in a province based on their loan portfolio or based on the Income Tax Regulations. Similar rules are expected to apply for QST purposes.
Credit unions that are SLFIs should also take this filing opportunity to claim any missed credits and deductions to help reduce their GST/HST and QST costs.
Your KPMG adviser can help you determine whether your credit union and related entities are required to file the GST/HST and QST annual information return and/or the SLFI annual final return.
We can assist you with your indirect tax compliance obligations. We can also help you determine if you have missed eligible ITCs, ITRs, and other credits and adjustments and also help you identify areas where certain tax costs may be managed.
KPMG's Financial Institutions Indirect Tax Compliance Centre has a team of multi-disciplinary professionals who specialize in indirect tax compliance requirements for the financial services sector. These professionals use sophisticated proprietary compliance software developed specifically for financial institutions with partly exempt businesses to help you extract the required data from your systems, fulfill your filing requirements and perform checks to help manage compliance indirect tax risks.
For more information, contact your KPMG adviser.
Information is current to June 05 2015. 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