In Canada, individuals or businesses that meet the definition of a listed financial institution must file GST/HST or QST annual information returns. Filing the appropriate tax forms is essential to ensuring compliance with Canadian law, yet determining whether a person is a listed financial institution can be complex and may require extensive knowledge of the Canadian tax code. At Jeremy Scott Law, our Canadian tax lawyers can help you determine whether you are considered a financial institution and what tax implications this classification may have. Contact us today at (902) 403-7201 to learn more.
According to the Canada Revenue Agency (CRA), a financial institution is defined as someone who falls into one of two categories listed in section 149 of the Excise Tax Act: listed financial institutions described in paragraph 149(1)(a) and individuals who are classified as financial institutions based on the de minimis threshold tests found in sections 149(1)(b) and 149(1)(c). A person may be considered a listed financial institution in a specific tax year if the person falls into one of the following categories found in section 149 of the Excise Tax Act:
- 149(1)(a)(i): Banks
- 149(1)(a)(ii): Corporations licensed or authorized to offer products or services in Canada as a trustee
- 149(1)(a)(iii): Individuals who as their principal business operate as traders, dealers, brokers, or salespersons of financial instruments or money
- 149(1)(a)(iv): Credit unions
- 149(1)(a)(v): Insurers or other individuals whose principal business is providing insurance under insurance policies
- 149(1)(a)(vi): Segregated insurer funds
- 149(1)(a)(vii): the Canada Deposit Insurance Corporation
- 149(1)(a)(viii): Individuals whose principal business is lending money, buying debt securities, or a combination of the two
- 149(1)(a)(ix): Investment plans
- 149(1)(a)(x): Individuals who provide tax discounter services mentioned in section 158
- 149(1)(a)(xi): Corporations that meet the definition of a financial institution according to section 151
Many individuals and businesses meeting the definition of a listed financial institution are also considered selected listed financial institutions (SLFI) under Canadian tax law. Determining whether an entity meets the criteria of an SLFI is important because these institutions are subject to specific rules and regulations under the Excise Tax Act. Most SLFIs must employ the special attribution method (SAM) formula to calculate their liability for the provincial portion of the HST for each participating service the SLFI offers.
According to the CRA, a listed financial institution is also considered a selected listed financial institution if it is an institution described in any of the sections 149(1)(a)(i)-(x) at any time in the tax year, and is a prescribed financial institution for the full reporting period. If you have questions about selected listed financial institutions, annual information returns, or other tax matters, you can learn more by contacting Jeremy Scott Law and scheduling a consultation to review your circumstances and evaluate which filing criteria are most appropriate in your case.
A person is considered a de minimis financial institution for a particular tax year if they meet either of the Canada Revenue Agency’s two threshold tests. According to the first threshold test, a person is considered a de minimis financial institution if, in the previous tax year, their revenue from interest, dividends (with an exception for dividends in kind or patronage dividends), or financial revenue is more than 10% of the person’s total revenue and more than $10 million. The second de minimis threshold test states that a person is a de minimis financial institution if, in the previous tax year, their income from interest or separate fees or charges related to credit cards or debit cards issued by the person, or income from money lending, cash advances, or granting credit was more than $1 million.
Canada’s annual information returns are filed via Form GST111. According to the Canada Revenue Agency, listed financial institutions, select listed financial institutions, and de minimis financial institutions all may be required to submit this form each year if they meet all of the following conditions:
- They were considered financial institutions under section 149 at any point in the fiscal year.
- They were a registrant at any time in the fiscal year (required to register for the GST/HST)
- The total amount of the business or individual’s income from a business is more than the amount determined by the formula, $1 million x A/365, where A equals the number of days in the tax year.
GST/HST registrants in Canada may be required to file their GST/HST returns monthly, quarterly, or annually. Registrants who produce taxable supplies in excess of $6,000,000 must file on a monthly basis, those who produce between $1.5 million and $6 million in taxable supplies must file quarterly, and those with taxable supplies under $1.5 million are permitted to file annually. Registrants also have the option to file at more frequent intervals than are required by law––a registrant with $3 million in taxable supplies could opt to file on a monthly basis instead of the quarterly basis required by law. Registrants are not permitted to file at intervals less frequent than those specified by Canadian tax law.
Financial institutions, listed financial institutions, and selected listed financial institutions all have different filing and reporting requirements compared to other GST/HST registrants. Their returns and deadlines are also different for quarterly and monthly filers compared to annual filers.
If you offer financial services in Canada, it is essential to be aware of your Canadian tax classification as a financial institution and how annual information returns work. However, the Canadian tax code is complex, and making sure your filings are in order can be difficult. This is why many Canadian financial institutions seek legal guidance from experienced tax attorneys. At Jeremy Scott Law, a dedicated Canadian tax lawyer can provide you with legal guidance on a wide range of tax matters, including classifications and filing returns. Contact us today at (902) 403-7201 to schedule your individual consultation.