My pension fund clients that have members residing in Quebec have been sending me a form letter they have received from the Canada Revenue Agency (CRA) suggesting that they must file a new return for 2013, an RC7294, Goods and Services Tax/Harmonized Sales Tax (GST/HST) and Quebec Sales Tax (QST) Final Return for Selected Listed Financial Institutions. The RC7294 replaces the GST494 for selected listed financial institutions (SLFIs) that have a “permanent establishment” in Quebec. To help readers determine whether they have a permanent establishment in Quebec, the CRA letter, sent in November 2013, also refers readers to Guide RC7250, GST/HST and QST Information for Selected Listed Financial Institutions. (Form RC7294 makes the same reference.)
Astonishingly, as of this writing, the CRA still has not published Guide 7250. This is astonishing, as this guide presumably will contain information fundamentally important to all managers of SLFI investment plans (which, in addition to pension funds, includes mutual funds, segregated funds, pooled funds and funds that are trusts governed by various other kinds of employee benefit plans). The fundamentally important information is that the definition of “permanent establishment” for QST purposes is quite different than the definition of the same term for GST/HST purposes. In the absence of this information, there is a strong possibility that investment plan managers will mistakenly believe that they have to remit QST in respect of the portion of their fund subscribed to or maintained in respect of individuals resident in Quebec.
The aforementioned CRA form letter contributes to the misunderstanding, as it (in effect) misinforms the plan manager that “We have identified your business as a listed financial institution, as defined in Subsection 149(1) of the Excise Tax Act as well as having a permanent establishment in Quebec, by omitting the important qualifying statement, “for GST/HST purposes.” As a result, we might expect that most readers of the letter will conclude that they must file the RC7294 in place of the GST494 and remit an amount of QST in addition to GST/HST.
Under the Excise Tax Act, a permanent establishment of an SLFI investment plan for GST/HST purposes is deemed to be in every province where there are beneficiaries, unitholders or subscribers resident in such province. Under An Act Respecting Québec Sales Tax (QST Act), a permanent establishment of an SLFI (whether or not it is an investment plan) is deemed to be in every province where the SLFI earns income from a business (by a reference to the federal Income Tax Act). Investment income is differentiated from income from a business—as most investment plans earn investment income and not business income the QST Act deeming rule does not usually apply, and thus few investment plans will have any QST to pay unless they are actually based (e.g., resident) in Quebec.
What should plan managers do? Normally, I would simply say seek out good qualified advice from a practitioner who has many years of experience in dealing with the SLFI rules applicable to investment plans. Bad news—there are no such people! SLFI rules didn’t even capture investment plans until the fundamental changes to the place of supply rules of the Excise Tax Act occurred in 2010 consequent to the introduction of the HST in Ontario and British Columbia. In this case, the best form of compliance is to look to the interests of the beneficiaries or investors of your plan, and at least defer remittance of QST (unless you are sure it applies to your plan) until the CRA has published adequate information for an informed assessment of how the rules apply to your plan.