No room for excuses on new GST/HST tax filings

• Notice 265 GST/HST Registration for Listed Financial Institutions (Including Selected Listed Financial Institutions)
• GST/HST Information for Selected Listed Financial Institutions – Guide RC4050-11

Good news, I say! Having dedicated my professional life to this area over the past 10 months the lack of official guidance and information has made things very challenging, to say the least. Unfortunately, this is not to say that assembling the puzzle is now vastly simplified. To the contrary, I expect that those who have not spent months wrestling with interpreting and understanding these new tax rules will find the forms, guides and other information now available very difficult to understand and navigate.

Do I really have to worry about this?
If your plan is considered to be a Selected Listed Financial Institution (SLFI), you will have to deal with the new rules. I have devised four simple test questions to help you figure this out in reference to any employee benefit arrangement (including registered pension plans, health and welfare plans and most other plans, except group RRSPs).

Test 1 – Is there a trust governed by the plan? If no, the plan is not an SLFI. If yes, go to test 2. (Note: A trust agreement is evidence of a trust—insurance contracts do not constitute a trust, although they may be held under a trust).

Test 2 – Are there members in more than one province, where at least one of the provinces is an HST province? If no, the plan is not an SLFI. If yes, go to test 3.

Test 3 – Do more than 10% of the members reside in HST provinces (in aggregate)? If no, the plan is not an SLFI. If yes, go to test 4.

Test 4 – Is net unrecoverable GST for the previous fiscal year less than $10,000? If no, the plan is an SLFI. If yes, the plan is a Qualified Small Investment Plan (QSIP) and is not required to file an SLFI return, unless it elects to do so.

If the plan under consideration is a registered pension plan and there is a trust governed by the plan, the plan is also eligible to receive a 33% rebate of GST/HST paid. However, on the flip side, a plan sponsor as well as other participating employers in such plans must also deal with the new pension plan “deemed supply” GST/HST rules.

If by applying the above tests you determine that your plan is a SLFI, qualified professional advice will be very helpful towards complying with these new tax rules. For many pension plans, such advice might initially be cost neutral in that the new pension plan rebate might offset most, if not all advisory costs. There are also some tax planning strategies that can be applied to some plans that can reduce net taxes and minimize the administrative burden.

Non-compliance may also be costly. The RC4050 Guide outlines non-compliance penalties, including between 1.25% and 4% of any taxes owing for failure to file (depending on number of months up to 12 by which a filing is late), $250 per failure to comply with a demand to file a return and interest on overdue amounts (taxes and penalties) based on the 90-day T-bill rate rounded up to the next 1% plus and additional 4% per annum.

I also strongly recommend that an SLFI plan be registered for GST/HST, as non-registrants must make monthly filings instead of the annual filing frequency applicable to registrant plans.

For virtually all affected employee benefits plans, the first filing must be made by June 30, 2011. No need to panic yet about late filing penalties, as the regulations governing SLFIs still remain to be finalized. However, once they are finalized, there will be no excuses left for non-compliance with this new tax regime.