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NOVA SCOTIA TAX RATE TO REMAIN UNCHANGED

NOVA SCOTIA TAX RATE TO REMAIN UNCHANGED

Nova Scotia Finance Minister Diana Whalen delivered the 2014 – 2015 Budget and indicated that the newly elected government’s first budget will contain a deficit.

Therefore, it comes as no surprise that it was also announced that Nova Scotia will maintain the Harmonized Sales Tax Rate at 15% during the 2014-2015 fiscal year.

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Manitoba Budget Bill 20 not enacted yet – How does this impact the 1% RST increase?

On April 16, 2013, the Manitoba (MB) NDP government proposed in its 2013 Budget some taxation changes, one of which would increase the MB retail sales tax (RST) from 7% to 8%, effective July 1, 2013.

MB introduced legislation (Bill 20) to increase the RST without first holding a referendum.  The Balanced Budget, Fiscal Management and Taxpayer Accountability Act requires that any RST increase must first be presented to Manitoba voters in a referendum, and must result in agreement by a majority of the persons who vote in the referendum, before the government would be authorized to proceed with legislation to increase the RST rate. However, the government took an aggressive approach in Bill 20 to simultaneously include a clause to eliminate the referendum requirement and to increase the RST rate.

Initially, the government opposition, some businesses and taxpayer organizations were calling for the withdrawal of Bill 20, stating the proposed RST 1% increase will have a negative impact on MB residents and businesses.  Late last week, the NDP and opposition parties struck a deal to allow the eventual passage of the RST increase without a referendum, albeit with extensive public hearings strategically scheduled to delay the enactment of the bill until after the effective date of July 1, 2013.

If Bill 20 is not enacted as of July 1, 2013, are businesses still required to charge the new 8% RST rate starting on July 1, 2013?  Yes, even though Bill 20 will not be enacted until later in July, MB has clearly confirmed in recent Budget notices that the rate change will be retroactive to July 1, 2013, regardless of enactment date, and vendors are expected to collect MB RST based on the new 8% rate as of July 1, 2013.  Therefore, it is imperative for your business to be ready on July 1, 2013 to implement the new RST rate of 8%, to avoid any future interest and penalties that would be assessed as a consequence of a MB audit.

For additional guidance from MB Finance, please refer to MB Information Notice RST 13-08 and RST 13-05  (click on links below).

RST 13-08, 2013 Budget – Retail Sales Tax Changes

RST 13-05, Retail Sale Tax Rate Change – Transitional Rules

For additional information, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

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2013 Manitoba Budget – Retail Sales Tax Rate Changes

On April 16, 2013, Stan Struthers, Manitoba Finance Minister, introduced his 2013 Budget where he announced changes to the Manitoba (MB) retail sales tax (RST) in addition to other taxation changes outside of sales tax.

Retail Sales Tax

Rate Changes

Effective July 1, 2013, the following RST rates will change for a ten-year period ending June 30, 2023:

  • General sales tax rate will increase from 7% to 8%,
  • Sales tax rate on mobile, modular and ready-to-move homes will increase from 4% to 4.5%,
  • The reduced sales tax rate for electricity used by qualifying manufacturers, mining companies and oil well operations will increase from 1.4% to 1.6%, and
  • Prorate vehicle tax (PVT) rates will increase for registration periods that commence after June 30, 2013 and before July 1, 2023.  Please see MB Notice for the specific rates. RST 13-04, Prorate Vehicle Tax Rates

Manitoba has confirmed that the already reduced sales tax rate of 1.4% will remain in place for home heating, heating and cooling farm buildings, and operating farm grain dryers.

RST Exemptions

The following RST exemptions will be also be effective as of July 1, 2013:

  • Baby supplies, e.g., diapers, strollers, items for nursing and feeding,
  • Child safety restraints systems used in vehicles, e.g., car and booster seats,
  • Bicycle helmets for all ages,
  • Sand & salt mixtures (containing at least 80% sand) currently exempt for municipalities for flood-related activities will be expanded to include any municipal works.
  • The MB government has also announced changes to the corporation capital tax, fuel taxes, and tobacco taxes and in addition to introducing other tax measures.   These taxation changes, along with the RST changes described above, can be found in the MB Information Bulletin No 113, Taxation Changes – 2013 Budget

Transitional Rules

MB Finance has issued formal guidance on the RST transitional rules for the July 1, 2013 RST rate changes.  We have summarized the more relevant rules as follows.

Taxable goods

The 7% RST rate will apply to goods purchased before July 1, 2013.  This applies where goods are purchased on credit or by deferred payment arrangements where payment is made after June 30, 2013 or where goods are fully paid for prior to July 1, 2013 but delivered on or after that date. The 8% RST rate will apply to goods purchased on or after July 1, 2013, including situations where a deposit is paid prior to July 1, 2013.  The same transitional rules will apply to the mobile, modular and ready to move homes at their respective rates of tax.

Taxable services (other than telecommunication)

The 7% RST rate will apply to services completed prior to July 1, 2013 and the 8% RST rate will apply on contracts for services that commence after June 30, 2013.

The transitional rule for prepaid service arrangements bought and paid for prior to April 17, 2013 are subject to the 7% RST rate, regardless of when the service is performed.  However, the RST rate on prepaid services bought and paid for after April 16, 2013, will generally be based on when the service is performed.  For example, if a periodic maintenance agreement is purchased after April 16, 2013, and the service period starts prior to July 1, 2013, the service will be subject to 7% RST rate.  The 8% RST rate would apply if the service period starts after June 30, 2013.

The transitional rules for prepaid service packages bought and paid for prior to July 1, 2013, and redeemed prior to July 1, 2013, are subject to the 7% RST rate.  Prepaid packages that can only be redeemed after June 30, 2013 are subject to the 8% RST.

The transitional rules for services to be provided over a period that straddles July 1, 2013, will be based on when the service is performed.  Specifically, the 7% RST rate will apply to the service performed prior to July 1, 2013 and the 8% RST rate will apply to service performed on or after July 1, 2013. This is not the case where the contract is executed and fully paid for prior to July 1, 2013 – the full charge is taxable at 7%.  Similar transitional rules apply to services billable by the hour, day or other periodic measure.

Insurance

The transitional rule for definite term insurance contracts is based on the effective date of the contract.  The 7% RST rate will apply to contracts effective before July 1, 2013.  Contracts effective after June 30, 2013 are taxable at 8% RST rate.  The 7% RST is grandfathered for multi-year contracts, with an effective date prior to July 1, 2013, where instalments  are paid and the RST is collected annually.

The transitional rule for indefinite term and group contracts is based on the date of the premium paid, regardless of the coverage period.  The 7% RST rate will apply to premiums paid prior to July 1, 2013.  The 8% RST rate will apply to premiums paid after June 30, 2013.

The transitional rules described above and other transitional rules on utilities (including telecommunication services), leased goods, real property contracts, refunds and credit, can be found in the MB Information Notice RST 13-05, Retail Sale Tax Rate Change – Transitional Rules

For additional information, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

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2013 Federal Budget – Highlights

2013 Federal Budget – Highlights

On March 21, 2013, Jim Flaherty, Federal Minister of Finance, introduced his 2013-2014 Budget in the House of Commons.  The Minister’s focus in this year’s budget is to continue on the Government’s Economic Action Plans (since 2006) to create jobs and promote economic growth and long term prosperity.  Although the budget forecasted a deficit of $18.7 billion, it calls for a balanced budget by fiscal 2015-16.  Accordingly, the federal debt is projected to decline to about 28% of gross domestic product by 2017-18.

There are no proposed changes to GST/HST rates in the budget, however, there are a number of proposed measures of interest that were announced which have been summarized below.

GST/HST and Health Care Services

The following measures apply to supplies made after March 21, 2013.

  • Currently, certain publicly funded or subsidized home care services such as cleaning, laundering, meal preparation and child care that are rendered to an individual in his/her residence, who is either elderly, infirmed or disabled are exempt of the GST/HST.  The “home care services” definition will be expanded to include services such as bathing, feeding, and assistance with dressing and medication that are publicly funded or subsidized.  Therefore, these services will be considered exempt for GST/HST purposes.
  • The budget also proposes to clarify the application of the GST/HST to reports, and examinations that are not performed specifically for the purpose of the protection, maintenance or restoration of a person’s health or for palliative care.  Reports or examinations that are performed solely for the purpose of determining liability in a court proceeding or under an insurance policy will be taxable for GST/HST purposes.  Property or services incidental to the above services will also be considered taxable, e.g., X-ray or lab test.
  • Note that any reports or examinations that are currently covered under a provincial or territorial health insurance plan will continue to be exempt.

GST/HST Pension Plan Rules Simplification

The budget proposes to simplify employer compliance for many employers with the following proposed measures with respect to qualifying pension plans.

Election to not account for GST/HST on actual taxable supplies

The budget proposes a joint election between the employer and pension entity to treat actual taxable supplies by the employer to the pension entity to be made for no consideration where the employer has accounted for and remitted the tax on the deemed taxable supply under the provisions in section 172.1 of the Excise Tax Act.  Once the joint election is made, it will remain in effect until it is jointly revoked by the employer and the pension entity, effective from the beginning of a fiscal year of the employer or cancelled by the Minister of National Revenue if the employer fails to remit the deemed tax required on the supply.

This measure applies to supplies made after March 21, 2013.

Threshold – Relief from accounting for tax on deemed taxable supplies

As some employers’ involvement in their pension plans is minimal, the budget has proposed to relieve the employer from accounting for and remitting the GST/HST on deemed taxable supplies if in the preceding fiscal year of the employer, the amount of the GST on the deemed taxable supplies is both less than $5,000 and less than 10% of the total net GST (and the federal component of the HST) paid by all pension entities of the pension plan.  This relief is not available if the joint election above is made.

Where employers do not satisfy the above threshold, some relief is available on the deemed tax where it will not apply to internal pension-related activities which do not involve an actual supply to the pension entity by the employer.  Specifically, an employer is not required to apply the deemed taxable supply rules on internal pension activities if the amount is less than the thresholds identified above.

Specific rules will apply with respect to the application of these threshold rules involving related employers participating in the pension plans, and mergers, amalgamations or wind-ups of participating employers.

These measures will apply to supplies made in fiscal years that begin after March 21, 2013.

GST/HST on Paid Parking

The supply of paid commercial parking is always considered to be a commercial activity, whether it is supplied by a private commercial entity or by a public sector body (PSB).  These supplies are therefore subject to the GST/HST.  A PSB is defined to mean a government, a non-profit organization, a municipality, a school authority, a hospital authority, public college or university and a charity.  However, there are general exemption provisions under the Excise Tax Act for supplies made by PSBs and charities.  The budget proposes two measures to clarify the application of these exemption provisions for the supply of paid parking by PSBs and charities.

An existing provision exempts the GST/HST on a supply of property or service if 90% or more of the supply is made for free on any supply provided by a PSB.  The budget proposes that this exemption will not apply to the supply of paid parking made by way of lease, licence or similar arrangement in the course of a business carried on by a PSB.  As a result, GST/HST will apply to commercial paid parking facilities operated by a PSB.

This measure is effective retroactively to January 1, 1991.

There is also an exemption from GST/HST on parking provided by charities that are not a municipality, university, public college, school or hospital.  This exemption is intended to reduce the GST/HST collection and accounting obligation of charities, many of which are small and staffed mostly by volunteers.  The budget proposes that this exemption would not apply to paid parking supplied by these charities.  Therefore, the supply of paid parking by these charities is taxable for GST/HST purposes.

This measure will apply to supplies made after March 21, 2013.

GST/HST Business Information Requirement

The budget proposes that the Minister of National Revenue be given authority to withhold GST/HST refunds until all prescribed business identification information is provided by the registrant.  The Canada Revenue Agency uses this information to manage business accounts and to improve compliance, including detecting fraud.  Currently, the penalty provided under the Excise Tax Act for failure to provide this information is only $100.

This measure will apply on Royal Assent to enacting legislation.

GST/HST Treatment of the Governor General

Currently, no GST/HST is payable on purchases by the Governor General’s office for use by the Governor General.  To simplify compliance for vendors and following consultations with the Governor General, this GST/HST exemption will end and the Governor General and his office will be able to recover the GST/HST paid on purchases for official use under the GST Federal Government Department Remission Order, the same way as other federal departments.

This measure will apply to supplies made after June 30, 2013.

Other Measures

Electronic Suppression of Sales Software Sanctions

Taxpayers are required to maintain adequate books and records (including electronic data files) for determining their GST/HST and income tax liabilities and obligations, and the amount of any benefits (e.g., refunds) to which they may be entitled.  The budget proposes to introduce new administrative monetary penalties and criminal offences if electronic suppression of sales (ESS) or “zapper” software is used by businesses to modify or delete transaction records with the intention to evade GST/HST or income tax obligations.

These measures will apply on the later of January 1, 2014 and Royal Assent.

Previously Announced Measures

The budget confirms the implementation of the following previously announced tax and related measures, as modified to take into account consultation and deliberations since their release.

  • Proposed changes to GST/HST for investment plans and pensions released on January 28, 2011;
  • Automobile expense amounts for 2012 announced on December 29, 2011 and for 2013 announced on December 28, 2012;
  • Legislative proposals implementing the proposed changes to life insurance policyholder exemption test announced in the March 29, 2012 budget;
  • Legislative proposals released on June 8, 2012 relating to improving the caseload management of the Tax Court of Canada;
  • Legislative proposals released on July 25, 2012 relating to specified investment flow-through entities, real estate investment trusts and publicly-traded corporations;
  • Legislative proposals released on November 27, 2012 relating to income tax rules applicable to Canadian banks with foreign affiliates; and
  • Legislative proposals released on December 21, 2012 relating to income tax technical amendments.

Custom Tariff Measures

The budget also proposes to permanently eliminate all tariffs on baby clothes and sports and athletic equipment (excluding bicycles) to support Canadian families and to promote physical activities and healthy living by lowering the costs of importing these goods.  The tariff reduction will apply to goods imported into Canada on or after April 1, 2013.

The budget also proposes changes to Canada’s General Preferential Tariff (GPT) under the Customs Tariff.  These changes will align Canada’s GPT system with other major tariff-preference granting countries, and target the benefits to countries most in need.  The changes to the GPT will apply to goods imported into Canada on or after January 1, 2015 and will be extended for ten years, until December 31, 2024.

If you have any questions on the material covered in this article, please feel free to email our Client Support team at clientsupport@definitiveconsultingservices.com.

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New BC PST Regulations and PEI Harmonization

April 1, 2013 is fast approaching for BC’s transition back to the Provincial Sales Tax (PST) and PEI’s transition to HST harmonization. Both BC and PEI have recently released further information regarding these major tax changes.

British Columbia

On February 28, 2013, BC issued two regulations with respect to the new Provincial Sales Tax (PST) Act, namely, the Provincial Sales Tax Regulation and the Provincial Sales Tax Exemptions and Refunds Regulation.  BC has divided the former Social Services Tax (SST) Regulations into two separate regulations, with one regulation addressing exemptions and refunds and the other regulation addressing more administrative rules.

The PST Exemption and Refund Regulation brings back into effect all the permanent PST exemptions that were in place under the SST.  However, the exemptions are now more structured and organized than under the SST Regulations.  Some of the PST exemptions that have been introduced in the PST Exemption and Refund Regulation are noted below, followed with a brief overview of some of the more significant exemptions and refunds provided in the Regulation.

  • Production machinery and equipment;
  • Tangible personal property (TPP) purchased for resale or lease;
  • Custom software or custom-modified software;
  • Services to TPP;
  • Related party asset transfers;
  • Children’s clothing and footwear;
  • School supplies;
  • Magazines, newspapers and books;
  • Fuel, energy and energy conservation; and
  • Gifts, prizes, draws and awards;

Production machinery and equipment (PME)

Purchases of PME are generally exempt if they are acquired by a qualifying person (includes a manufacturer, a software developer, an oil and gas producer, or a mine operator under certain conditions) and used primarily (more than 50%) and directly in the “qualifying part” of a manufacturing site.  The qualifying part of a manufacturing site will generally include the point the raw material is received to the point at which the finished product is first stored or transported from the site.

Certain PME, such as pollution control and waste management equipment must meet a higher percentage of use to be PST exempt, by being used substantially (defined in the Regulation as meaning more than 90%) and directly by the qualifying person in a prescribed activity.

TPP purchased for resale or lease

If TPP is purchased for the purpose of resale or lease, there is a requirement for the vendor to show the purchaser’s PST registration number on the purchase document, e.g., invoice (pursuant to section 86 of the PST Regulation). However, if the purchaser is not registered for the BC PST, the purchaser must provide and the vendor must retain a declaration in a form that is acceptable to the Ministry.

Custom software or custom modified software

Most software, such as packaged or prewritten software programs, or the right to use such programs, is taxable.  As BC PST is applied on the use of taxable software in BC, there is the potential for double taxation where there is proportional use of software in BC, as was the case under the SST regime.

The exemption for custom and custom modified software is generally the same as in the former SST.  To qualify as exempt custom modified software, the cost of modifications must be at least double the price of the software in unmodified form and modifications must involve changes to source code.  This requirement for exempt custom modified software has not changed under the new PST.

Services to TPP

“Related services” are defined in the PST Act, and are generally considered to be taxable services in respect of TPP, such as repair, adjustment, restoration, reconditioning, refinishing and maintenance services, and services provided to install goods. However, related services do not include services to install TPP that becomes an improvement to real property, employee services and most manufacturing services.

The Regulation provides several PST exemptions in respect of related services. Examples include services in respect of TPP purchased for resale or lease, motor vehicle modifications for individuals with disabilities, certain software services, services in relation to certain farming and fishing equipment purchased by qualifying purchasers, and many more.

Related Party Asset Transfers

These particular provisions generally refer to related parties as a corporation and its wholly owned subsidiaries (95% or more ownership).  TPP, including software, may be transferred PST-free between related corporations, provided that either the PST or SST was previously paid on the TPP.  The rules apply to both purchases and leases of TPP.  In addition, there is a new exemption that would allow TPP to be transferred to a new corporation in exchange for shares, regardless of whether the new corporation is wholly owned.

Gifts, prizes, draws and awards

This is a new area of exemption as the new legislation includes specific provisions for the imposition and exemption of PST on gifts. In general, gifts between family members and gifts to charities are exempt, as long as non-recoverable PST has been paid, unless a specific exemption applies.

Refund provisions

In addition to exemptions, the Regulation includes several refund provisions.  There is a PST refund for charity-funded purchases of medical equipment by a health facility, e.g., a hospital.  The refund provisions also include a refund or deduction for PST on bad debts and a refund of PST for a change of use where vehicles cease to be multijurisdictional vehicles.

The separate PST Regulation includes provisions that are more administrative in nature and include the following:

  • Details on the determination of purchase price, particularly when property is bundled or brought into BC;
  • Prescribed dates and manner for payment of the PST (which is generally the last day of the following month), the requirement for registrants with annual revenue exceeding $1.5 million to file their PST returns electronically, and vendor compensation for collecting the PST to a maximum of $198 per month;
  • Tax collection, remittance, filing and documentation requirements, including the requirement for the purchaser’s PST registration number to be shown on the receipt, bill, invoice or written agreement (as previously noted);
  • Records, including the types of records that must be retained and the retention period for these records; and
  • Penalties and interest that can be levied for providing incorrect information or failure to remit or pay the PST.

Link to the BC PST Act and Regulations (scroll down to bottom of web page), as well as recently released forms, bulletins and notices:

BC PST Act, Regulations, Forms, Bulletins and Notices

PEI Harmonization

Effective April 1, 2013, PEI will be a harmonized province with an HST rate of 14%. The PEI HST will have a common tax base with the current GST/HST, except for items eligible for point of sale rebates, and will include the recaptured input tax credit requirement on certain specified property and services.  The following covers some transitional issues to assist you with winding down the PEI PST and implementing the PEI HST:

Winding down the PEI Revenue Tax (PST)

  • Final PST return due on or before April 20, 2013.
  • Refunds and rebates of PST will continue to be available until the existing legislated time limits for claiming them have expired or March 31, 2017, whichever is earlier.
  • Assessment, objection, appeal and enforcement provisions will apply to transactions where the applicable limitation periods have not expired.  Businesses will continue to be subject to PST audits for a period of 60 months after March 31, 2013.
  • Vendors must obtain written permission from the Provincial Tax Commissioner before any records can be destroyed.
  • All current PST vendor accounts will be closed on March 31, 2013 by the Taxation and Property Record Division.  Vendors should not destroy their vendor registration certificates.

Returns and exchanges of goods

Where goods that were acquired prior to April 1, 2013, on which the PEI PST was paid, are returned after March 31, 2013 for goods of the same value, no adjustment to the tax is required.

  • Where goods that were acquired prior to April 1, 2013, on which PEI PST was paid, are returned after March 31, 2013 for goods of a lesser value, the customer is entitled to a refund of the related PST.
  • However, if the recipient exchanges the returned item for an item with a higher value after March 31, 2013, HST at 14% will apply to the additional consideration paid.

General Information

  • All PEI government departments, agencies, boards, commissions and Crown Corporations will pay HST on their purchases of taxable property and services as of April 1, 2013.
  • PEI has introduced a public services body rebate for the provincial component of the PEI HST.  However, in general, only charities and qualifying non-profit organizations resident in PEI will be entitled to claim the 35% rebate on the PEI provincial component of the HST.
  • A rebate is available for PST paid on construction materials that are held in inventory immediately prior to April 1, 2013 and, under a contract to repair or make an improvement to a residential complex on or after April 1, 2013.

Links to PEI harmonization information:

PEI Harmonization Information

GST/HST Notice 278: HST for PEI – General Transitional Rules for Personal Property and Services

GST/HST Notice 279: HST for PEI – Transitional Rules for Housing and Other Real Property

Effectively managing the change

The best way to effectively manage sales tax implementation changes is with a strong and well-executed plan, which includes thorough systems and transactions testing prior to and after the sales tax implementation change date.  As part of the BC and PEI tax change process, organizations will need to consider the following issues:

  • Registration with BC Ministry of Finance to collect the PST;
  • Impact on sales and purchasing systems to incorporate sales tax rate changes taking into account the respective provincial transitional rules (and related issuance of credit notes), and changes to the tax status of supplies;
  • Changes required to employee expense reporting systems to accommodate rate changes, reimbursements straddling the transitional period and changes to input tax credit calculations;
  • IT and other internal resource requirements to make system changes on a timely basis, including training and communication to internal and external customers; and
  • Review of document and contract wording and tax disclosure to incorporate the changes, including:
    • Sales invoices, purchase orders, expense reports, purchase invoices, etc.
    • Review new and existing contracts that straddle the implementation dates.

Effectively managing the BC and PEI tax changes on April 1, 2013, will help organizations ensure ongoing sales tax compliance and minimize potential exposures on audit.

For additional information, please contact our client support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

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Amended QST – Not True Harmonization!

Amended QST – Not True Harmonization!

Many taxpayers still do not understand the true nature of the imminent measures to further harmonize the QST system with the federal GST/HST.

Effective January 1, 2013, the current QST will become the “Amended QST”, to further harmonize certain QST provisions to fall in line with the GST/HST legislation.  However, as is implied with the term “Amended”, the QST will still be a separate provincial sales tax (PST) administered by Revenu Québec, and Québec will continue to have the authority to decrease or increase its QST rate.  This is very different from the full harmonization that both British Columbia and Ontario implemented as of July 1, 2010, where these two provinces effectively relinquished their respective PST systems to fully adopt the HST.

For most taxpayers outside the financial services sector, the Amended QST will look much like the current QST.  The QST rate will no longer be levied on a GST-included amount (9.5% stated rate with an effective rate of 9.975%), but the actual stated rate for the Amended QST will become the current effective rate of 9.975%, to ensure no revenue loss to the province.  In addition, the ITR restrictions for large businesses will remain in place; however, following an initial period of not more than five years from January 1, 2013, Québec has committed to a three-year phase-out period ending in 2020.

The Comprehensive Integrated Tax Coordination Agreement Between the Government of Canada and the Government of Québec (Canada – Québec CITCA), signed in March 2012, is a detailed agreement that governs the rights and obligations of both Quebec and the federal government with respect to the Amended QST.  By signing the CITCA, the Québec government has agreed to ensure that the Amended QST tax base, as well as the administrative, structural and definitional parameters produce results identical to those produced under the federal GST/HST system.  Although not full harmonization, the Canada- Québec CITCA does contain some significant changes to further harmonize the QST with the GST/HST.  Two critical areas of dispute between the Federal and Québec governments that previously prevented progress towards further harmonization have been resolved in the CITCA.

The first main change is that the QST will no longer be levied on a GST-included amount (described above).  The second and more significant change is that the Amended QST will mirror the GST/HST legislation with respect to the treatment of financial services and financial institutions.  This will result in generally treating the supply of financial services as exempt instead of zero-rated.  Effective January 1, 2013, financial institutions supplying financial services under the Amended QST will no longer be entitled to claim an input tax refund (ITR) for the QST paid or payable on purchases made to support their exempt supplies of financial services.  As a partial offset, the compensatory tax on financial institutions will be partially eliminated effective January 1, 2013 and fully eliminated by April 1, 2014.  Effective January 1, 2013, the compensatory tax on financial institutions will no longer apply to paid-up capital, and the tax rate applied to other parts of the tax base will be reduced to:

  • for amounts paid as wages, 1.9% for banks, trusts, loan corporations or securities traders, 1.3% for savings and credit unions, and 0.5% for any other financial institutions (excluding insurance corporations and certain insurance funds); and
  • 0.2% for insurance premiums and amounts related to insurance funds.

As financial institutions will be restricted from recovering most of the QST paid, there are a number of other implications that arise as a consequence, including ITR allocation rules, self-assessment on imported taxable supplies, and the special attribution method (SAM) for newly minted “Quebec Selected Listed Financial Institutions” (SLFIs).  The change to the tax status of financial services will have far-reaching effects on not-only “traditional” financial institutions such as banks and insurance companies, but also investment plans, such as certain registered pension plans (RPPs) that have plan members in Québec.  Specifically, these RPPs will bear additional costs as the QST pension entity rebate will be reduced from 100% to 33% of eligible amounts, for claim periods starting January 1, 2013.  As an additional consequence, we expect to see an increase in the number of SLFI RPPs that have plan members mainly in Québec.  An RPP with plan members that reside in both a participating province and any other province would generally be considered a SLFI and subject to the SAM formula to compute the provincial portion of HST payable.  The Amended QST should give Quebec similar status to the participating provinces, for purposes of the SLFI RPP rules.

There are a number of transitional rules that will be of particular interest to financial institutions.  Click on the link below for the May 31, 2012 Québec Ministry of Finance Information Bulletin.

For additional information or support on this or any other sales tax issue, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

Quebec Finance May 2012 Information Bulletin

This information is produced with the understanding that the author is not responsible for any errors or omissions or actions taken based on this information.  Readers are advised to obtain further information by contacting their professional advisors.

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