GST/HST and Investment Limited Partnerships

GST/HST Notices - Notice 308
July 2018

On February 27, 2018, the Minister of Finance released a Notice of Ways and Means Motion to Amend the Excise Tax Act and Draft Amendments to Various GST/HST Regulations in Budget 2018, which included proposed amendments in respect of investment limited partnerships (ILPs). Certain proposed amendments relating to ILPs were previously announced by the Department of Finance Canada on September 8, 2017.

This GST/HST Notice explains these proposed amendments and provides a general overview of the GST/HST rules that would apply to ILPs including the rules that would apply where ILPs would be selected listed financial institutions (SLFIs) and distributed investment plans.

All legislative references in this publication are to the Excise Tax Act unless otherwise specified. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or call GST/HST Rulings at 1-800-959-8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1-855-666-5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, see GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province.

Overview

The proposed amendments related to investment limited partnerships:

  • define the term investment limited partnership (ILP);
  • add an ILP to the definition of investment plan;
  • extend the GST/HST rules for selected listed financial institutions (SLFIs) to ILPs by including them in the definition of distributed investment plan;
  • provide GST/HST relief to some ILPs with non‑resident investors where certain conditions are met; and
  • clarify the application of the GST/HST to management or administrative services provided to an ILP by its general partner.

Background

Under the Excise Tax Act (the Act), financial service providers such as banks, insurers and investment plans are generally not eligible to claim input tax credits (ITCs) for GST/HST paid or payable on property and services acquired for consumption, use or supply in the course of providing financial services as supplies of financial services are generally exempt. The GST/HST is not charged on supplies of exempt financial services.

Like other businesses, financial service providers generally pay GST/HST on their taxable inputs at a rate that is determined based on the GST/HST place of supply rules. If, under the place of supply rules, a taxable supply of property or a service is made in a participating province to a provider of financial services, the financial service provider is required to pay the HST at the applicable rate for the province, made up of the federal part of the HST and the provincial part of the HST at the applicable rate, in respect of the supply. If the supply is made in a non-participating province, the financial service provider is required to pay 5% GST.

Since financial service providers generally cannot claim ITCs to recover the GST/HST paid or payable on their inputs, absent special rules, they would have an incentive to acquire property and services from outside the participating provinces and only pay the GST in respect of these supplies, or in a participating province with a lower HST rate. To avoid this outcome, special rules (referred to as the “SLFI rules”) apply for net tax calculation purposes to certain financial service providers that are considered to be SLFIs. Generally, a listed financial institution is an SLFI throughout a reporting period in a fiscal year that ends in a taxation year of the financial institution if it has a permanent establishment in a participating province at any time in the taxation year and a permanent establishment in any other province at any time in the taxation year. Refer to GST/HST Memorandum 17-6-1, Definition of “Selected Listed Financial Institution” for more information on how to determine whether or not a person is an SLFI.

The term taxation year of a person is defined in subsection 123(1) to mean:

  • where the person is a taxpayer, within the meaning of that term in the Income Tax Act (ITA) (other than an unincorporated person exempt because of subsection 149(1) of the ITA from tax under Part I of the ITA on all or part of the person’s taxable income), the taxation year of the person for purposes of the ITA;
  • where the person is a partnership described in subparagraph 249.1(1)(b)(ii) of the ITA, the fiscal period of the person’s business determined under subsection 249.1(1) of the ITA; and
  • in any other case, the period that would be the taxation year of the person for the purposes of the ITA if the person were a corporation other than a professional corporation (within the meaning assigned by subsection 248(1) of the ITA).

In 2010, SLFI rules were introduced for certain entities that are defined as investment plans under the Act, as well as segregated funds of an insurer. Investment plans include such entities as unit trusts, mutual fund trusts and corporations, and registered pension plan trusts and corporations.

Under the SLFI rules, an SLFI determines its liability in respect of the provincial part of the HST for net tax calculation purposes for a reporting period based on where it provides financial services using a formula called the special attribution method (the SAM formula). The calculation using the SAM formula involves allocating the amount of an SLFI’s unrecoverable GST and the federal part of the HST to each participating province according to its provincial attribution percentage for the province. The provincial attribution percentage is a proxy of the extent to which the SLFI provides financial services in a particular participating province. Under the SLFI rules, an investment plan’s provincial attribution percentage for a participating province is generally based on the extent to which its units are held by persons residing in the province. The unrecoverable amount of GST and federal part of the HST allocated to the province is then grossed up by a factor to reflect the rate of the provincial part of the HST for the province. Other adjustments may also apply.

If the amount determined as the liability in respect of the provincial part of the HST for a reporting period of an SLFI under the SAM formula is less than the provincial part of the HST that is paid or payable by the SLFI in the reporting period, the SLFI would be entitled to deduct the amount in determining its net tax for the reporting period. Conversely, if the amount determined as the liability in respect of the provincial part of the HST for a reporting period of an SLFI under the SAM formula is more than the provincial part of the HST that is paid or payable by the SLFI in the reporting period, the SLFI would be required to add the amount in determining its net tax for the reporting period.

In general terms, the SAM formula in subsection 225.2(2) is as follows:

[(A − B) × C × (D/E)] − F + G

where

(A − B) reflects the unrecoverable amount of GST and federal part of the HST for the reporting period. In general terms, A is the GST and federal part of the HST paid or payable by the SLFI in that period and B is the total ITCs claimed in that period by the SLFI in respect of the GST and federal part of the HST paid or that was payable by the SLFI;

C is the provincial attribution percentage determined in respect of the participating province. The rules for determining this percentage are based on the specific type of SLFI;

(D/E) is the ratio of the tax rate for the participating province to the federal rate (for example, 8/5 for Ontario). D is the tax rate for the participating province, and E is the federal rate;

F is the provincial part of the HST for the participating province paid or payable by the SLFI in the reporting period; and

G is the total of prescribed amounts that provide for adjustments specific to certain situations.

SLFIs are generally not entitled to claim ITCs or rebates in respect of the provincial part of the HST as the SAM formula takes into account these amounts.

Proposed expansion of SLFI rules to include ILPs

Under existing legislation, limited partnerships that are investment entities are not investment plans based on the definition of that term in subsection 149(5). As such, the SLFI rules do not generally apply to these entities despite the fact that their principal activity (for example, the investing of funds on behalf of a group of investors) may be similar to other entities that are defined as investment plans for GST/HST purposes.

The proposed amendments are intended to provide comparable treatment for investment entities structured as limited partnerships and entities that are currently defined as investment plans.  

Definition of investment limited partnership

It is proposed that investment limited partnership would be defined in subsection 123(1) as a limited partnership whose primary purpose is to invest funds in property consisting primarily of financial instruments where the criteria set out in either paragraph (a) or (b) of the definition would be met. Under paragraph (a) the limited partnership is, or forms part of an arrangement or structure that is, represented or promoted as a hedge fund, investment limited partnership, mutual fund, private equity fund, venture capital fund or other similar collective investment vehicle. Under paragraph (b) the total value of all interests in the limited partnership held by listed financial institutions is 50% or more of the total value of all interests in the limited partnership.

The definition of investment limited partnership would be deemed to come into force on September 8, 2017.

Example 1 – ILP under paragraph (a)

A limited partnership (LP) is established to offer investment opportunities to investors on a pooled basis. Under a prospectus, LP’s limited partnership units are offered for sale to potential investors at a certain price on a per unit basis. Investors acquiring units are entitled to receive allocations of income or loss resulting from LP’s investments in proportion to their respective units.

LP uses all of the capital that it has raised through its offering of units to acquire interests in other limited partnerships which invest in commercial and residential real property. The other limited partnerships make supplies of the real property.

The interests that LP holds in the other limited partnerships are financial instruments for GST/HST purposes. As the capital that was contributed by the investors was used to acquire interests in other limited partnerships, the funds raised by LP are invested in property consisting primarily of financial instruments. In this tiered partnership structure, LP would be an ILP under paragraph (a) of the definition of investment limited partnership since LP is represented or promoted as a collective investment vehicle, whose primary purpose is to invest funds in property consisting primarily of financial instruments (that is, interests in the other limited partnerships).

Example 2 – ILP under paragraph (b)

A limited partnership (LP Fund) is established as an investment vehicle to offer investment opportunities to ABC Credit Union and its Employee Pension Plan (listed financial institutions). LP Fund is not promoted or represented as a collective investment vehicle. In the LP Fund Agreement, LP Fund’s two investors have conferred to the general partner the decision‑making responsibilities to invest all of its capital in financial instruments such as mutual funds or shares in companies.

In this structure, LP Fund would be an ILP under paragraph (b) of that definition of investment limited partnership since it is a limited partnership, 100 % of whose interests are held by listed financial institutions and its primary purpose is to invest funds in property consisting primarily of financial instruments.

Example 3 – not an ILP

A limited partnership (LP) is established to provide specialized services and wishes to expand its business. Under an offering document LP’s limited partnership units are offered for sale to potential investors at a certain price on a per unit basis. Investors acquiring units are entitled to receive allocations of income or loss resulting from LP’s business in proportion to their respective units. None of LP’s interests are held by listed financial institutions.

LP uses all of the capital that it has raised through its offering of units to acquire property (for example, office furniture and equipment) and services, as well as hiring additional specially trained individuals needed to sell and provide services in an expanded market.

The capital that was contributed by the investors was not used to acquire financial instruments; the funds raised by LP are invested in property and services used in the business of LP. In this structure, LP would not be an ILP since LP’s primary purpose is to provide specialized services rather than to invest funds in property consisting primarily of financial instruments.

ILP is an investment plan

It is proposed that new paragraph 149(5)(f.1) would add an ILP to the definition of investment plan in subsection 149(5). As an investment plan under proposed paragraph 149(5)(f.1), an ILP would be a listed financial institution under subparagraph 149(1)(a)(ix) and subject to the rules for financial institutions and listed financial institutions. For example, an ILP that is not an SLFI could be a reporting institution and required to file an annual information return for financial institutions, such as, Form GST111, Financial Institution GST/HST Annual Information Return.

This proposed amendment would apply to any taxation year of an ILP that begins after 2018. The coming into force provision for proposed paragraph 149(5)(f.1) also provides that an ILP could elect to have proposed paragraph 149(5)(f.1) apply to its taxation year(s) that begins in 2018 (ILP election) and takes into account the possibility that an ILP may have more than one taxation year that begins in 2018.

ILP election

Where an ILP makes an ILP election, proposed paragraph 149(5)(f.1) would apply to any taxation year of the ILP that begins in 2018. This election would be made in prescribed form, containing prescribed information and be filed with the Minister of National Revenue in prescribed manner on or before the day that is 60 days after the day the legislation enacting this provision receives royal assent or any later day the Minister may allow.

A person that wants to make an ILP election would send a letter to the following address:

Canada Revenue Agency
Prince Edward Island Tax Centre
Business Number Services
275 Pope Road
Summerside, PE C1N 6A2

The letter must indicate in the subject line “Investment limited partnership election” and include the following information:

  • the name and contact information (telephone number and mailing address) of the ILP;
  • the business number and the GST/HST program account of the ILP, if applicable;
  • the taxation year(s) of the ILP that begins in 2018;
  • a statement that the ILP elects to have proposed paragraph 149(5)(f.1) apply to its taxation year(s) that begins in 2018;
  • the first day of the taxation year with respect to which the election is being made;
  • an indication of whether the ILP making the election would be an SLFI for GST/HST or QST purposes or both as a result of making the ILP election; and
  • the signature of an authorized person of the ILP.

To facilitate compliance with the proposed amendments, the CRA will process an ILP election upon receipt of the letter. An ILP that makes the election and that wants to register and make other elections should attach the registration application and other elections to the letter. Further information on registration and reporting elections is provided later in this notice.

ILP is a distributed investment plan

It is proposed that the definition of distributed investment plan in subsection 1(1) of the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (SLFI Regulations) be amended by adding new paragraph (i) to include an ILP in that definition. The proposed amendment to the definition of distributed investment plan would apply in respect of: any reporting period of a person that begins after 2018; and any reporting period of a person that begins in 2018 if the person is a listed financial institution throughout the reporting period of the person that includes January 1, 2018, because of making the ILP election.

Example 4 – no ILP election made

An ILP did not make an ILP election. The ILP registers for GST/HST purposes on January 1, 2019, and has a quarterly reporting period. The ILP’s fiscal year is January 1 to December 31 and its taxation year is the same as its fiscal year.

The ILP would be a distributed investment plan for its January 1 to March 31, 2019 quarterly reporting period and any subsequent reporting period.

Example 5 – ILP election made

An ILP makes an ILP election to have proposed paragraph 149(5)(f.1) apply to its taxation year that begins in 2018. The ILP registers for GST/HST purposes on January 1, 2018, and has an annual reporting period. The ILP’s fiscal year is January 1 to December 31 and its taxation year is the same as its fiscal year.

The ILP would be a distributed investment plan for its January 1 to December 31, 2018 annual reporting period and any subsequent reporting period.

Determination of SLFI status

Under the current SLFI rules, a person that is an investment plan would generally be considered to be an SLFI throughout a reporting period in a fiscal year that ends in a taxation year if it has, at any time in the taxation year, a permanent establishment in a participating province and, at any time in the taxation year, a permanent establishment in any other province.

An investment plan determines whether it has a permanent establishment in a province based on the deeming provisions in section 3 of the SLFI Regulations. Different provisions apply depending on the type of investment plan.

As a distributed investment plan, the ILP would be deemed under paragraph 3(e) of the SLFI Regulations to have a permanent establishment in a province throughout its taxation year if, at any time in the taxation year:

  • the ILP is qualified, under the laws of Canada or a province, to sell or distribute units of the ILP in the province; or
  • a person resident in the province holds one or more units of the ILP.

The term unit is defined in subsection 1(1) of the SLFI Regulations and is proposed to be amended by adding the new paragraphs (d.1) and (d.2) to define a unit in respect of a partnership, to be an interest of a person in the partnership, and in respect of a series of a partnership, a unit of the partnership of that series. It is also proposed to define, in subsection 1(1) of the SLFI Regulations, the term series in respect of a partnership, to be a class of units of the partnership. The proposed amendments to the terms unit and series would be deemed to come into force on September 8, 2017.

In certain situations, where a distributed investment plan has a permanent establishment in a participating province and another province, it is not an SLFI because of the application of section 11 or section 12 of the SLFI Regulations. Section 11 of the SLFI Regulations generally applies to a non-stratified investment plan (that is, a distributed investment plan whose units are not issued in two or more series) where all the units of the investment plan can only be sold or distributed in a single province. Section 12 of the SLFI Regulations generally applies to a stratified investment plan (that is, a distributed investment plan whose units are issued in two or more series) where each series is a provincial series, which in general terms is a series that can only be sold or distributed in a single province. For more information on sections 11 and 12 of the SLFI Regulations, refer to GST/HST Memorandum 17-6-1. Amendments are proposed to paragraph (b) of the definition of the term provincial series in subsection 1(1) and paragraph 11(b) of the SLFI Regulations to include a reference to a partnership agreement to clarify that sections 11 and 12 of the SLFI Regulations could also apply to ILPs. The proposed amendments would be deemed to come into force on September 8, 2017.

If an ILP is not an SLFI, the ILP would be subject to the general rules in the Act to determine its liability in respect of the provincial part of the HST instead of using the SAM formula.

If an ILP is an SLFI, the current rules for distributed investment plans in the SLFI Regulations would apply to the ILP as a result of the proposed amendment to include an ILP in the definition of distributed investment plan.

Transitional rules for ILPs

Proposed new section 73 of the SLFI Regulations contains transitional rules that would apply in respect of ILPs and would be deemed to come into force on September 8, 2017.

Generally, proposed section 73 of the SLFI Regulations provides transitional rules that would assist an SLFI (including an ILP) in determining its 2019 net tax adjustments calculated using the SAM formula and related amounts when it has an ILP investor that is not an investment plan in 2018 because the ILP investor has not made an ILP election.

Specifically, under proposed subsection 73(1) of the SLFI Regulations, an SLFI would be required to treat its investors that are ILPs but that are not yet investment plans under proposed paragraph 149(5)(f.1), as distributed investment plans for the following purposes as set out in paragraphs (a) to (c):

  • the purposes of determining under any of sections 30 and 32 to 34 of the SLFI Regulations the provincial attribution percentage for a participating province and for a particular period (as defined in subsection 16(1) of the SLFI Regulations) of an SLFI or of another ILP described in proposed subsection 73(2) of the SLFI Regulations, but only if the percentage would be used in the determination of:
    • the positive amount that the SLFI or other ILP would be required to add, or the negative amount that the SLFI or other ILP would be able to deduct, in determining its net tax under subsection 225.2(2), having regard to any applicable adaptations made under the SLFI Regulations to subsection 225.2(2), for a reporting period in a fiscal year of the SLFI or other ILP that begins in 2019,
    • the instalment base under subsection 237(2), having regard to any applicable adaptations made under the SLFI Regulations to subsection 237(2), of the SLFI or other ILP for a reporting period in a fiscal year of the SLFI or other ILP that begins in 2019,
    • the interim net tax under subsection 228(2.1), having regard to any applicable adaptations made under the SFLI Regulations to subsection 228(2.1), for a reporting period in a fiscal year of the SLFI or other ILP that begins in 2019, or
    • if a joint tax adjustment transfer election made under section 55 of the SLFI Regulations by the SLFI or other ILP and the manager of the SLFI or other ILP would be in effect at any time in a fiscal year of the manager that begins in 2019,
      • if the manager would be an SLFI, an amount that, under paragraph 55(2)(c) of the SLFI Regulations would be a prescribed amount for the purposes of Element G in subsection 225.2(2) for a reporting period in the fiscal year, or
      • if the manager is not an SLFI, the positive amount that the manager is required to add, or the negative amount that the manager is able to deduct, in determining its net tax under subsection 225.2(2) having regard to the adaptations made under paragraph  55(2)(d) of the SLFI Regulations to subsection 225.2(2), for a reporting period in the fiscal year;
  • the purposes of determining under section 28 of the SLFI Regulations an investor percentage of the particular ILP as of a day in 2018; and
  • the purposes of information sharing under section 52 of the SLFI Regulations for the particular ILP in respect of any information that would be requested by an SLFI or by another ILP described in proposed subsection 73(2) of the SLFI Regulations, but only if the information would be required for:
    • the determination of a percentage referred to in proposed paragraph 73(1)(a) of the SLFI Regulations of the SLFI or other ILP that would be used in the determination of an amount described in any of proposed subparagraphs 73(1)(a)(i) to (iv) of the SLFI Regulations, or
    • the determination under section 28 of the SLFI Regulations of an investor percentage of the SLFI or other ILP as of a day in 2018.

Under proposed subsection 73(2) of the SLFI Regulations, if an ILP would be an SLFI throughout its reporting period that includes January 1, 2019, and not an SLFI throughout its preceding reporting period,

  • for the purposes of determining under section 28 of the SLFI Regulations an investor percentage of the ILP as of a day in 2018, the ILP would be deemed to be an SLFI; and
  • for the purposes of information sharing under section 52 of the SLFI Regulations, the ILP would be deemed to be:
    • if the units of the ILP are issued in two or more series, a selected stratified investment plan throughout 2018, or
    • in any other case, a selected non-stratified investment plan throughout 2018.

Example 6

ABC is an ILP that has not made an ILP election to have proposed paragraph 149(5)(f.1) apply for its taxation year that begins on January 1, 2018. ABC will be an SLFI in its annual January 1 to December 31, 2019 reporting period, but would not be an SLFI in its preceding 2018 reporting period since it did not make the ILP election. ABC does not issue its units in two or more series. ABC ILP holds units of XYZ, which is a non-stratified investment plan. XYZ’s taxation year is the calendar year. XYZ determines its net tax for its annual reporting period using the preceding year method such that XYZ uses its provincial attribution percentages for the preceding taxation year.

In calculating XYZ’s provincial attribution percentages under section 32 of the SLFI Regulations for its 2018 taxation year, for use in determining its net tax for its reporting period in 2019, ABC ILP would be deemed to be a distributed investment plan under proposed subsection 73(1) of the SLFI Regulations for the purpose of providing information to XYZ under section 52 of the SLFI Regulations. As a distributed investment plan, ABC ILP would not be a specified investor as that term is defined in subsection 16(1) of the SLFI Regulations. As a result, if ABC ILP receives a written request during 2018 from XYZ, ABC ILP would be required to provide: (i) its investor percentage for each participating province as of September 30, 2018, and (ii) the number of units ABC ILP held in XYZ on that date. This information would need to be provided before the particular day that is the later of November 15, 2018, and the day that is 45 days after ABC ILP received the request from XYZ. As a result of the deeming provisions under proposed paragraph 73(2)(a) of the SLFI Regulations, ABC would determine its investor percentage for each participating province as of September 30, 2018, under paragraph 28(a) of the SLFI Regulations as an SLFI that is a non-stratified investment plan.

Fiscal year of an ILP

The term fiscal year of a person is defined in subsection 123(1) to mean:

  • if section 244.1 applies to the person, the period determined under that section;
  • if section 244.1 does not apply to the person and the person has made an election under section 244 that is in effect, the period that the person elected to be the fiscal year of the person; and
  • in all other cases, the taxation year of the person.

Under subsection 244(1), an ILP that is not an SLFI can elect to have fiscal years that are calendar years if the person’s taxation year is not a calendar year.

Under subsection 244(2), where the taxation year of an individual or a trust is not a period that is for the purposes of the ITA, the fiscal period of a business carried on by the individual or trust, or by a partnership of which the individual or trust is a member, the individual or trust may elect to have the fiscal year of the individual or trust be that fiscal period effective on the first day of one of those fiscal periods.

Generally, an ILP that would be an SLFI would have a fiscal year that is a calendar year.

Subsection 244.1(1) provides that if, throughout a particular reporting period in a particular fiscal year that begins in a particular calendar year, an investment plan or a segregated fund of an insurer is an SLFI and the investment plan or segregated fund of an insurer was not an SLFI throughout the reporting period immediately before the particular reporting period, the following rules apply:

  • the particular fiscal year ends on the last day of the particular calendar year; and
  • as of the beginning of the first day of the calendar year that is immediately after the particular calendar year, the fiscal years of the investment plan or segregated fund of an insurer are calendar years and any election made under section 244 ceases to have effect.

In addition, under proposed new subsection 244.1(4), when a particular fiscal year of an ILP begins in 2018 and includes January 1, 2019 and the ILP would be an SLFI throughout a reporting period in the particular fiscal year if the particular fiscal year began on January 1, 2019 and ended on December 31, 2019, the following rules apply:

  • the particular fiscal year would end on December 31, 2018;
  • subject to subsection 244.1(2), which applies when a plan merger occurs, the fiscal years of the ILP would be calendar years as of January 1, 2019;
  • any election made by the ILP under section 244 would cease to have effect as of January 1, 2019; and
  • if the first taxation year of the ILP that begins after 2018 does not begin on January 1, 2019, the ILP would be deemed to be a listed financial institution that is an investment plan for the period beginning on January 1, 2019 and ending on the day preceding the first day of that taxation year.

Proposed subsection 244.1(4) would be deemed to come into force on September 8, 2017.

It is further proposed that if an ILP makes an ILP election to have new paragraph 149(5)(f.1) apply in respect of its taxation year(s) that begins in 2018, the references in new subsection 244.1(4) to “2018” and “2019” would be read as “2017” and “2018”, respectively, in applying subsection 244.1(4) in respect of the ILP.

Registration and reporting requirements of an ILP

Voluntary registration

An ILP may be able to voluntarily register for GST/HST purposes under subsection 240(3). For example, as a listed financial institution under the proposed amendments, an ILP could voluntarily register if it is resident in Canada even if it is not engaged in a commercial activity in Canada. For voluntary registration, the effective date of registration is usually the date the person's application is considered to be received by the CRA (for example, when an application is mailed, the post-marked date). However, the CRA will accept an earlier effective date, provided that the date is within 30 days of the date when the registration application was received, regardless of the method of registration (online, telephone, or paper).

In recognition of the reduced administrative requirements for a registrant SLFI compared to a non-registrant SLFI, in certain circumstances, the CRA will register an SLFI that is registering voluntarily effective the first day of the reporting period in which the registration application is received, if that effective date is requested by the SLFI on its registration application. The registration application must be made using Form RC1, Request for a business number and certain program accounts or Form RC7301, Request for a business number and certain program accounts for certain selected listed financial institutions, as applicable. In addition, a letter from the SLFI should be attached to the registration application including confirmation in writing that in the particular reporting period: (i) it is an SLFI; (ii) it did not make any taxable supplies; and (iii) it did not file any rebate applications. These documents should be sent to the CRA’s Prince Edward Island Tax Centre.

If an ILP wants to register when it makes the ILP election, it should include the registration application and any other related documentation with the letter to make that election.

Reporting Requirements

The GST/HST reporting period of an ILP that is a registrant and a listed financial institution or an SLFI under the proposed amendments would be its fiscal year provided the ILP has not made an election for monthly or quarterly reporting periods under section 246 or 247 respectively. Under subparagraph 238(1)(a)(i), an ILP with an annual reporting period is required to file its GST/HST return (Form GST34, Goods and Services Tax/Harmonized Sales Tax Return for Registrants, 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) within six months after the end of its fiscal year. It may also have to make quarterly instalments.

If an ILP that is a registrant and a listed financial institution and not an SLFI under the proposed amendments makes an election to have monthly or quarterly reporting periods, it would be required to file a GST/HST return (Form GST34 or Form RC7200, Goods and Services Tax/ Harmonized Sales Tax (GST/HST) and Quebec Sales Tax (QST) Return for Selected Listed Financial Institutions) and remit any net tax owing for each reporting period within one month after the end of the reporting period under paragraph 238(1)(b).

If an ILP that is a registrant and an SLFI under the proposed amendments makes an election to have monthly or quarterly reporting periods, it would be required to file an interim GST/HST return (Form GST34 or Form RC7200) for each reporting period, and make an interim net tax payment or claim an interim net tax refund for each period. Under paragraph 238(2.1)(a), the interim GST/HST return would need to be filed within one month after the end of the reporting period along with an interim net tax payment, where required. To reconcile the interim net tax with the actual net tax, the SLFI ILP would also be required to complete and file a final return for each reporting period using Form GST494 or Form RC7294, and either remit any additional amount owing or claim a refund of any excess amount previously remitted. Under paragraph 238(2.1)(b), a final return would need to be filed within six months after the end of the ILP’s fiscal year.

If an ILP is a non-registrant and is not an SLFI, pursuant to subsection 238(2) it is only required to file a GST/HST return (Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non-personalized) or Form RC7262, Goods and Services Tax/Harmonized Sales Tax (GST/HST) and Quebec Sales Tax (QST) Return (non-personalized)) for each calendar month for which it has net tax remittable. This return must be filed within one month of the end of the particular calendar month. If an ILP is a non-registrant and an SLFI under the proposed amendments, it would be required to file an interim GST/HST return (Form GST62 or Form RC7262) for each calendar month, and make an interim net tax payment or claim an interim net tax refund for each period. The interim GST/HST return would need to  be filed within one month after the end of the month along with an interim net tax payment, where required. To reconcile the interim net tax with the actual net tax, the ILP would complete and file a final return for each reporting period using Form GST494 or Form RC7294, and either remit any additional amount owing or claim a refund of any excess amount previously paid. A final return would need to be filed within six months after the end of the ILP’s fiscal year.

Reporting elections for ILPs that are SLFIs

Certain reporting elections are available to reduce the compliance burden of the SLFI rules on investment plans and segregated funds of an insurer. As an investment plan under the proposed amendments, an ILP would be able to make these elections jointly with the manager of the ILP, with both parties being jointly and severally liable for any tax amounts assessed in connection with the election and any related obligations.

The term manager of an investment plan is defined in subsection 1(1) of the SLFI Regulations. With respect to an ILP, the term would refer to the person that has ultimate responsibility for the management and administration of the assets and liabilities of the ILP (for example, the general partner of an ILP).

If an ILP wants to make any of these elections when it makes the ILP election and registers for GST/HST purposes, it should include the elections with the appropriate registration application and the letter to make the ILP election.

Reporting entity election

The reporting entity election under section 53 of the SLFI Regulations is a joint election between an investment plan that is an SLFI and its manager that allows the manager to file the investment plan’s SLFI return on its behalf. This election is made using Form RC4601,GST/HST Reporting Entity Election for a Selected Listed Financial Institution and Notice of Revocation. Both the manager and the investment plan that have made a reporting entity election are required to maintain records of the investment plan’s net tax in their books and records.

Consolidated filing election

A manager and two or more investment plans that are SLFIs that have made a reporting entity election with their manager may jointly make a consolidated filing election under section 54 of the SLFI Regulations using Form RC4604, GST/HST Consolidated Filing Election for a Selected Listed Financial Institution and Notice of Revocation. The consolidated filing election allows the manager to file a single consolidated return for GST/HST purposes in respect of those investment plans.

Pursuant to subsection 54(2) of the SLFI Regulations, a manager that currently has a consolidated filing election in effect with two or more investment plans can jointly elect with another investment plan that is an SLFI to include the other investment plan in the same consolidated filing election using Form RC4604-1, Election for a Selected Listed Financial Institution to Join a GST/HST Consolidated Filing Election. In order to make this election, the other investment plan and its manager must have a reporting entity election in effect.

It is important to note that the consolidated filing election only allows for filing GST/HST returns such as Form GST34 and GST494 on a consolidated basis. For example, GST/HST rebates cannot be filed on a consolidated basis.

The manager is required to maintain records of the net tax, including SAM formula calculations, for all investment plans in a group filing on a consolidated basis in its books and records. As well, each investment plan in the group is required to maintain records of their net tax, including their SAM formula calculations, in their books and records.

Tax adjustment transfer election

The tax adjustment transfer election under section 55 of the SLFI Regulations is a joint election between an investment plan that is an SLFI and its manager that allows the investment plan to transfer all or some of its net tax adjustment amount calculated using the SAM formula. The tax adjustment transfer election is made using Form RC4603, GST/HST Tax Adjustment Transfer Election for a Selected Listed Financial Institution and Notice of Revocation.

The effects of the tax adjustment transfer election between an investment plan and its manager depend on whether or not the investment plan and its manager also have a reporting entity election in effect at the same time. If both a tax adjustment transfer election and a reporting entity election are in effect between an investment plan and its manager and if there is a positive net tax adjustment (for example, an amount owed by the plan) calculated using the SAM formula, the manager is required to remit the amount equal to the liability of the investment plan in respect of the provincial part of the HST upon filing its GST/HST return. The investment plan then has no liability to remit this amount to the CRA. If there is a negative net tax adjustment (for example, the investment plan would be eligible for a refund or credit) calculated using the SAM formula, the manager may deduct the amount of the negative net tax adjustment in calculating its own net tax provided the manager has paid or credited this amount to the investment plan. The investment plan is not entitled to deduct this amount from its net tax.

If a tax adjustment transfer election, but not a reporting entity election, is in effect between an investment plan and its manager, the amount of the provincial part of the HST that can be credited/refunded or assumed as liability would be limited to amounts related to supplies made by the manager.

Registration required

When an ILP that would be an SLFI makes any of the three reporting elections, the ILP would have to register for GST/HST purposes. If an ILP is not making a consolidated filing election, it would register using either Form RC1 or RC7301. If an ILP makes a consolidated filing election with other investment plans and their manager, the ILP would register for a group GST/HST registration number and would not be able to register independently. In this case, the ILP would use either Form RC4602, Request for a Group GST/HST Registration Number for Selected Listed Financial Institutions with Consolidated Filing or Form RC4602-1, Request to be Added to a Group GST/HST Registration for Selected Listed Financial Institutions with Consolidated Filing.

Late-filed reporting elections and required registration

An ILP that makes the ILP election could request that the CRA accept a reporting entity election or a consolidated filing election effective on a date before the particular election is filed (often referred to as a late-filed election). As the Minister has the authority to accept these elections late, each request will be considered on a case-by-case basis. This type of request must be made in writing and sent to the CRA’s Prince Edward Island Tax Centre. A request will generally be accepted by the CRA where the following conditions are met:

  • the request includes a written explanation as to why the election(s) was filed after the requested effective date of the election and is signed by an authorized person of one of the parties to the election(s);
  • the request includes the completed election form(s) unless the form(s) was previously received by the CRA;
  • all of the conditions to make the election(s) must be met on the requested effective date of the election (for example, for a consolidated filing election, the end of the reporting periods of all the investment plans making the election must be the same; this would also be the case where an election to join a consolidated filing election is made);
  • for a consolidated filing election, if the investment plan does not have a reporting entity election already in effect, it must also include that election form with the same effective date as the consolidated filing election (this includes an election to join a consolidated filing election);
  • if the investment plan is registered for GST/HST purposes as of the first day of a reporting period, the request to file the election(s) late should be received on or before the due date of the return(s) under Division V of Part IX for the reporting period of the investment plan that includes the effective date of the election(s) provided that the return has not been filed before that date (evidence of the registration number must be provided);
  • if the investment plan is not registered for GST/HST purposes, the request to file the election(s) late must be received on or before the end of the reporting period in which the investment plan becomes a registrant and the election(s) takes effect, an application for registration is made with the request, and the effective date of the registration is the same as the effective date of the election (unless the investment plan is required to be registered prior to the effective date of the election under another provision of the Act, such as if it made taxable supplies and was not a small supplier);
  • as of the effective date of the election(s), (including the election to join a consolidated filing election) there are no outstanding GST/HST returns for the investment plan for which there would be amounts owing that must be remitted;
  • the investment plan did not file any GST/HST rebates for the particular reporting period that includes the effective date of the election(s); and
  • the parties to the election(s) must not have been negligent or careless in complying with the legislation related to the particular election(s).

Where the CRA accepts a request to file a reporting entity election or a consolidated filing election after the requested effective date of the election, the effective date of registration should be the effective date of the election where immediately before that date the investment plan was a non-registrant.

Where the CRA accepts a request to file a consolidated filing election after the requested effective date of the election and the investment plan is already registered, the date the investment plan becomes part of the relevant group GST/HST registration should be the effective date of the election. This would also be the case where an election to join a consolidated filing election is made.

A tax adjustment transfer election should be filed before the first day on which the election is to be in effect. As the Minister has the authority to accept a late-filed election, each request will be considered on a case-by-case basis. Generally, the CRA would not accept a late-filed tax adjustment transfer election as the election affects the net tax calculation of both the investment plan and its manager.

Other proposed amendment to the SLFI Regulations related to ILPs

Plan merger

The definition of plan merger in subsection 16(1) of the SLFI Regulations is proposed to be amended to include references to a partnership as a consequence of the proposed amendment to add an ILP to the definition of a distributed investment plan. As a result, an ILP could be party to a plan merger as a predecessor and also as a continuing plan. It is proposed that the amendments to the definition of plan merger would be deemed to come into force on September 8, 2017. There are special provisions that apply to an SLFI where a plan merger occurs.

Qualifying partnership

Under the current rules, a partnership, including an ILP, which is a listed financial institution under any of subparagraphs 149(1)(a)(i) to (x) would be an SLFI if it is a qualifying partnership. Under section 2 of the SLFI Regulations, a partnership is a qualifying partnership during a taxation year of the partnership if, at any time in the taxation year, the partnership has:

  • a member that has, at any time in the taxation year of the member in which the taxation year of the partnership ends, a permanent establishment in a particular participating province through which a business of the partnership is carried on or that is deemed to be a permanent establishment of the member under section 3 of the SLFI Regulations; and
  • a member (including a member referred to above) that has, at any time in the taxation year of the member in which the taxation year of the partnership ends, a permanent establishment in a province other than the particular participating province through which a business of the partnership is carried on or that is deemed to be a permanent establishment of the member under section 3 of the SLFI Regulations.

It is proposed that section 2 of the SLFI Regulations be amended to exclude a partnership that is an investment plan (that is, an ILP) under subsection 149(5) from being a qualifying partnership. It is proposed that this amendment to section 2 of the SLFI Regulations would be deemed to come into force on September 8, 2017.

Permanent establishment

The term permanent establishment is defined in subsection 1(1) of the SLFI Regulations for purposes of these regulations. Currently paragraphs (c) and (d) of that definition relate to partnerships. The effect of the proposed amendment to this definition would ensure that this definition would only apply to a partnership if it is not an investment plan such as an ILP. As previously discussed in the section “Determination of SLFI status” in this notice, an ILP will use the deeming rules in paragraph 3(e) of the SLFI Regulations to determine whether it has a permanent establishment in a particular province. For more information on qualifying partnerships and determining where a qualifying partnership has a permanent establishment, refer to GST/HST Memorandum 17-6-1.

Non-resident ILPs

The legislative proposals would provide GST/HST relief to some ILPs with non-resident investors where certain conditions are met.

A partnership, including a limited partnership, is deemed to be resident in Canada at any time under paragraph 132(1)(b) if the member, or a majority of the members, having management and control of the partnership is or are resident in Canada at that time.

Under proposed subsection 132(6), an ILP would generally be deemed to not be resident in Canada at any time if, at that time, the total value of all interests in the ILP held by non-resident members of the ILP (other than prescribed members) is 95% or more of the total value of interests in the ILP. A non-resident ILP could benefit from the zero-rating rules in Part V of Schedule VI to the Act (for example, supplies made to a non-resident ILP may be zero‑rated).

Certain members of an ILP would be prescribed under proposed section 4.1 of the Financial Services and Financial Institutions (GST/HST) Regulations (FS&FI Regulations). Any non‑resident member of an ILP that would be a prescribed member of the ILP as set out in the FS&FI Regulations would not be treated as a non‑resident member for purposes of determining whether the ILP would be deemed to not be resident in Canada.

The following members of an ILP are proposed to be prescribed members under section 4.1 of the FS&FI Regulations:

  • a member that is a non-resident trust if the total value of the assets of the member in which one or more persons resident in Canada have a beneficial interest is more than 5% of the total value of the assets of the member; and
  • a member that is a non-resident limited partnership if the total value of all interests in the member held by persons resident in Canada is more than 5% of the total value of all interests in the member.

However, an ILP that would be deemed to not be resident in Canada under proposed subsection 132(6) may, nevertheless, be deemed to be resident in Canada under subsection 132(2) in respect of, but only in respect of, its activities carried on through a permanent establishment it has in Canada. For example, if an ILP that would be deemed under proposed subsection 132(6) to not be resident in Canada has a permanent establishment in Canada through which it makes supplies (for example, renting office space in real property situated in Canada), the ILP would be deemed to be resident in Canada in respect of such supplies under subsection 132(2).

Proposed subsection 132(6) and the draft amendments to the FS&FI Regulations would be deemed to come into force on September 8, 2017.

Management or administrative services provided to an ILP

Background

Subsection 272.1(1) provides that anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership’s activities and not to have been done by the person. Subsection 272.1(3) outlines deeming rules that apply when a member of a partnership makes a supply of property or a service to the partnership otherwise than in the course of the partnership's activities (for example, in the course of its own commercial activity). Where the partnership does not acquire the property or service for consumption, use or supply exclusively in the course of commercial activities of the partnership, paragraph 272.1(3)(b) provides that the supply is deemed to be made for consideration equal to the fair market value (FMV) Footnote 1 of the property or service at the time the supply is made.

It is the CRA’s position that where a general partner of a limited partnership provides a management or administrative service to the limited partnership, the general partner may be providing this service to the limited partnership otherwise than in the course of the limited partnership’s activities. As such, existing subsection 272.1(3) may have application. In such cases where existing paragraph 272.1(3)(b) applies, the general partner is required to account for GST/HST calculated on the FMV of the management or administrative service provided to the limited partnership at the time the supply is made (that is, when the agreement to provide the service was entered into, unless subsection 136.1(2) applies). The proposed amendments clarify this position with respect to ILPs.

A management or administrative service is defined in subsection 123(1) to include an asset management service, which is also defined in subsection 123(1).

New subsection 272.1(8) and proposed amendments to subsection 272.1(3)

Proposed subsection 272.1(8) would clarify that subsection 272.1(3), rather than subsection 272.1(1), applies in respect of a supply of a management or administrative service rendered by a general partner of an ILP to the ILP. Under proposed subsection 272.1(8), the rendering of a management or administrative service would be deemed not to be done by the general partner as a member of the ILP and the supply by the general partner to the ILP that includes the service would be deemed to have been made otherwise than in the course of the ILP’s activities. These proposed deeming rules would apply even if the general partner provides the management or administrative service pursuant to its obligation as a member of the ILP.

In conjunction with the deeming rules in proposed subsection 272.1(8) relating to management or administrative services provided by a general partner to an ILP, paragraph 272.1(3)(b) is proposed to be amended as follows where those services are rendered under an agreement for the particular supply of those services:

  • If subsection 136.1(2) applies in respect of the particular supply, for each separate supply of those services that is deemed under paragraph 136.1(2)(a) to be made by the general partner for a billing period (as defined in that subsection), the separate supply would be deemed, despite paragraph 136.1(2)(c), to be made for consideration that becomes due on the last day of the billing period equal to the FMV of the services rendered during the billing period.
  • If subsection 136.1(2) does not apply in respect of the particular supply, the general partner would be deemed to have made, and the ILP would be deemed to have received, a separate supply of those services for each reporting period of the general partner during which the services are, or are to be, rendered under the agreement. In addition, each separate supply of those services would be deemed to be made on the first day of the reporting period of the general partner for consideration that becomes due on the last day of the reporting period equal to the FMV of the services rendered under the agreement during the reporting period.

In either case, the FMV of the management or administrative services would be determined as if the general partner were not a member of the ILP and were dealing at arm’s length with the ILP.

Coming into Force

General Application

The proposed amendment to paragraph 272.1(3)(b) would apply in respect of management or administrative services that are supplied by a general partner to an ILP after September 7, 2017. Proposed subsection 272.1(8) would generally be deemed to come into force on September 8, 2017, but it would also apply in respect of management or administrative services rendered under an agreement entered into before that day if an amount was, before that day, charged, collected or remitted as or on account of tax in respect of those services or any supply made under the agreement. Where an amount was not charged, collected or remitted as or on account of tax in respect of services rendered before September 8, 2017, existing paragraph 272.1(3)(b) may apply.

Agreement entered into before September 8, 2017 and services rendered before that day where GST/HST was charged, collected or remitted

Where proposed subsection 272.1(8) would apply to management or administrative services rendered by the general partner to the ILP before September 8, 2017, under an agreement that was entered into before that day (that is, because an amount was, before that day, charged, collected or remitted as or on account of tax in respect of those services), the following rules would apply:

  • paragraph 272.1(3)(b) would not apply to those services;
  • any amount that the ILP pays or credits to the general partner after September 7, 2017, that is reasonably attributable to those services would be deemed to be consideration for the supply of those services that becomes due at the time the amount is paid or credited; and
  • if an amount was charged, collected or remitted as or on account of tax in respect of a particular amount that was paid or credited to the general partner by the ILP before September 8, 2017, and that is reasonably attributable to those services, that particular amount would be deemed to be consideration for a taxable supply of those services that becomes due at the time it is paid or credited.

That is, where GST/HST was charged, collected or remitted in respect of management or administrative services rendered before September 8, 2017 under an agreement entered into before that day, the following rules would apply:

  • firstly, there would be no requirement to account for GST/HST on the FMV of these services;
  • secondly, in the case of an amount paid or credited to the general partner after September 7, 2017 that is reasonably attributable to these services, the amount would be deemed to be consideration due at the time it is paid or credited; and
  • finally, any amount paid or credited to the general partner before September 8, 2017 that is reasonably attributable to these services and on which GST/HST was charged, collected or remitted, would be deemed to be consideration for a taxable supply due at the time the amount was paid or credited.

Agreements entered into before September 8, 2017, where services are rendered on or after that day

If management or administrative services are rendered by a general partner of an ILP to the ILP under a particular agreement entered into before September 8, 2017, and some or all of the services are rendered on or after that day, a special transitional rule splits the services into separate supplies of:

  • subsequent services – services rendered on or after September 8, 2017; and
  • prior services – services rendered before September 8, 2017.

The subsequent and prior services are deemed to be separate supplies rendered under separate agreements and not the particular agreement.

For subsequent services:

  • a particular supply of those services would be deemed to have been made by the general partner on September 8, 2017, and the ILP would be deemed to have received a supply of those services;
  • the subsequent services would be deemed to have been rendered under an agreement for the particular supply and not under the particular agreement and the agreement for the particular supply would be deemed to have been entered into on September 8, 2017;
  • any amount charged, collected or remitted at any time as or on account of GST/HST in respect of an amount of consideration that is reasonably attributable to the rendering of the subsequent services would be deemed to be an amount of tax collected at that time in respect of the supply; and
  • to the extent that the total amount of GST/HST that is payable under Part IX of the Act before February 27, 2018, in respect of the particular supply exceeds the total amount deemed to have been collected before that day (described in the preceding bullet), the excess amount, despite proposed paragraph 272.1(3)(b), would be deemed to have become payable (by the ILP) on February 27, 2018, and the general partner would be deemed to have collected that excess on that day.

For prior services:

  • a supply of the prior services (earlier supply) would be deemed to have been made by the general partner on the day on which the particular agreement was entered into before September 8, 2017, and the ILP would be deemed to have received a supply of those services;
  • the prior services would be deemed to have been rendered under an agreement for the earlier supply and not under the particular agreement and the agreement for the earlier supply would be deemed to have been entered into on the day on which the particular agreement is entered into; and
  • any amount that is charged, collected or remitted at any time as or on account of  GST/HST in respect of consideration that is reasonably attributable to the rendering of the prior services under the particular agreement would be deemed to be an amount of tax collected at that time in respect of the earlier supply.

That is, where management or administrative services are rendered on or after September 8, 2017, under an agreement entered into before that date, services rendered (i) on or after that day; and (ii) prior to that day, are each treated as separate supplies. An amount charged, collected or remitted as or on account of GST/HST that is reasonably attributable to each separate supply would be deemed to be tax collected in respect of each supply, even if the tax was not paid by the ILP.

In the case of subsequent services, that is, services rendered on or after September 8, 2017, where the GST/HST payable before February 27, 2018, on the FMV of those services exceeds the GST/HST previously accounted for before that day (that is, any amount charged, collected or remitted as or on account of tax that would be deemed to be tax collected), the general partner must report the additional amount of GST/HST (that is, the excess) in its return for its reporting period that includes February 27, 2018.

In the case of prior services, any amount charged, collected or remitted as or on account of tax in respect of an amount that is reasonably attributable to the prior services, would be deemed to be tax collected at the time it was charged, collected or remitted.

Example 7

Aco and Bco, Ontario resident corporations, enter into a limited partnership agreement (LP Agreement) on December 1, 2014, to form a limited partnership (LP Fund) pursuant to Ontario’s Limited Partnerships Act. Aco is the general partner and Bco is the initial limited partner. The primary purpose of the LP Fund is the investing of funds in property consisting primarily of financial instruments (for example, shares, interests in partnerships or trust units, other types of equities and debt instruments). Pursuant to an offering document, the LP Fund is promoted to investors as an investment limited partnership for investing in residential and commercial real estate projects. Investors provide financing for the real estate projects by acquiring limited partnership units in LP Fund and becoming limited partners in LP Fund. The limited partners are entitled to profits or income in proportion to their respective partnership units.

Pursuant to the LP Agreement, Aco performs administrative functions on behalf of LP Fund, including maintaining records and books of account, entering into contracts and agreements with third party providers in respect of the investment activities of LP Fund, and paying the expenses of LP Fund. In addition, Aco’s responsibilities include implementing LP Fund’s investment strategies and managing LP Fund’s investments including providing advice and reports, determining which investments are to be acquired or disposed of, and acting to realize performance targets and other objectives in respect of the investments.

Each year Aco is entitled to receive compensation from LP Fund that has two components. The first component is a percentage of the value of the LP Fund assets managed by Aco, of which an amount is paid monthly on the first day of each month for services rendered during that month. The first monthly payment is made on January 1, 2016. The second component is an annual amount based on the performance of the LP Fund. This latter amount is paid to Aco by LP Fund within 30 days of the end of the calendar year.

The following scenarios illustrate the application of the proposed amendments to section 272.1 where:

  1. Aco charged, collected and remitted GST/HST on the monthly payments beginning on January 1, 2016;
  2. On October 1, 2017, Aco started to charge, collect and remit GST/HST on an amount it determined to be the FMV of the management and administrative services rendered to LP Fund during each month in accordance with subsection 272.1(3); and
  3. Aco did not charge, collect or remit tax before February 27, 2018.

Scenario 1: Aco charged, collected and remitted GST/HST on the monthly payments beginning on January 1, 2016

Services provided by Aco before September 8, 2017 (the prior services)Footnote 2

Proposed subsection 272.1(8) would apply as an amount was charged by Aco as or on account of tax in respect of the management and administrative services rendered by Aco to LP Fund under an agreement entered into before September 8, 2017.Footnote 3

Any amount charged, collected or remitted as or on account of tax by Aco in respect of consideration paid or credited to Aco by LP Fund that is reasonably attributable to the prior services would be deemed to be an amount of GST/HST collected in respect of the prior services at the time the amount was charged, collected or remitted. That is, the GST/HST charged on the monthly payments made from January 1, 2016 to August 1, 2017 would be deemed to be GST/HST collected at the time the amounts were charged. The monthly payments on which GST/HST was charged are deemed to be consideration for a taxable supply of the prior services. There is no requirement to account for GST/HST on the FMV of these prior services.

With respect to the September 1, 2017 monthly payment, because the amount relates to both prior and subsequent services, a portion of the amount must be attributed to the prior services on a reasonable basis. The GST/HST that was charged in respect of the portion of the payment that is reasonably attributable to the prior services would be deemed to be an amount of GST/HST collected at the time the GST/HST was charged. The portion of the September 1, 2017 payment attributable to the prior services on which GST/HST was charged is deemed to be consideration for a taxable supply of those services.

Services provided by Aco on or after September 8, 2017 (the subsequent services)Footnote 4

Proposed subsection 272.1(8) and the proposed amendments to paragraph 272.1(3)(b) would apply to the subsequent services.

Any amount charged, collected or remitted as or on account of tax by Aco in respect of consideration that is reasonably attributable to the subsequent services would be deemed to be an amount of GST/HST collected in respect of the subsequent services at the time the amount was charged, collected or remitted. That is, the GST/HST charged on the monthly payments made on and after October 1, 2017 would be deemed to be GST/HST collected at the time the amounts were charged.

With respect to the September 1, 2017 monthly payment, because the amount relates to both prior and subsequent services, a portion of the amount must be attributed to the subsequent services on a reasonable basis. The GST/HST that was charged on the portion of the payment that is reasonably attributable to the subsequent services would be deemed to be an amount of GST/HST collected at the time the GST/HST was charged.

Where Aco accounted for the GST/HST charged on the monthly payments with respect to the subsequent services in determining its net tax, Aco may be required to make an adjustment to its net taxFootnote 5. Where Aco did not calculate the GST/HST on the FMV of the services rendered during a billing period, Aco would need to make a determination, on the last day of each billing period, of the FMV of the management and administrative services rendered to LP Fund during each billing periodFootnote 6 determined as if Aco were not a member of LP Fund and were dealing at arm’s length with LP Fund.

To the extent that the total GST/HST on the FMV of the supplies made on or after September 8, 2017 and before February 27, 2018, exceeds the total GST/HST deemed collected on those supplies before that day, Aco would add the excess amount in determining its net tax for its reporting period that includes February 27, 2018.

Scenario 2: On October 1, 2017, Aco started to charge, collect and remit GST/HST on an amount it determined to be the FMV of services rendered during each month

Services provided by Aco before September 8, 2017 (the prior services)

As Aco did not charge, collect or remit any tax in respect of any of the prior services, proposed subsection 272.1(8) would not apply to the prior services. Nevertheless, in accordance with existing paragraph 272.1(3)(b) and subsection 136.1(2), Aco was required to make a determination, on the first day of each billing period, of the FMV of the management and administrative services rendered to LP Fund during each billing period determined as if Aco were not a member of LP Fund and were dealing at arm’s length with LP Fund. Aco is required to amend its returns for those periods to account for this tax that was collectible by Aco.

The September 1 to 7, 2017 period would be a billing period for purposes of subsection 136.1(2) and based on the application of existing paragraph 272.1(3)(b), Aco would be required to make a determination, on the first day of that billing period, of the FMV of the management and administrative services rendered to LP Fund during that billing period.

Services provided by Aco on or after September 8, 2017 (the subsequent services)

Proposed subsection 272.1(8) and the proposed amendments to paragraph 272.1(3)(b) would apply to the subsequent services.

Any amount charged, collected or remitted as or on account of tax by Aco in respect of consideration that is reasonably attributable to the subsequent services would be deemed to be an amount of GST/HST collected in respect of the subsequent services at the time the amount was charged, collected or remitted. That is, the GST/HST charged on the FMV of the management and administrative services would be deemed to be GST/HST collected at the time the amounts were charged.

The September 8 to 30, 2017 period would be a billing period for purposes of subsection 136.1(2) and Aco would be required to make a determination, on September 30, 2017 (the last day of that billing period), of the FMV of the management and administrative services rendered to LP Fund during that billing period.

Although it is unlikely in this case that there will be a material change in the FMV of the management and administrative services as determined at the beginning and at the end of a particular monthly billing period, the following is provided to illustrate the application of the coming into force rules.

Where Aco accounted for the tax charged from October 1, 2017 onward with respect to the subsequent services in determining its net tax, Aco may be required to make an adjustment to its net tax as Aco would have calculated the tax charged on the FMV, as determined on the first day of a billing period, of the services rendered during the billing period (that is, Aco calculated the tax based on existing paragraph 272.1(3)(b)). Aco would need to make a determination, on the last day of each billing period, of the FMV of the management and administrative services rendered to LP Fund during each billing period determined as if Aco were not a member of LP Fund and were dealing at arm’s length with LP Fund.

To the extent that the total GST/HST on the FMV of the supplies made on or after September 8, 2017 and before February 27, 2018, exceeds the total GST/HST deemed collected on those supplies before that day, Aco would add the excess amount in determining its net tax for its reporting period that includes February 27, 2018. Except for the September 8 to 30, 2017 period, no net tax adjustment would be required if there is no difference between the FMV of the services as determined at the beginning and at the end of each billing period.

Scenario 3: Aco did not charge, collect or remit GST/HST before February 27, 2018

Services provided by Aco before September 8, 2017 (the prior services)

The application described under Scenario 2 to management and administrative services provided by Aco to LP Fund before September 8, 2017 (prior services) applies.

Services provided by Aco on or after September 8, 2017 (the subsequent services)

Since there was no tax charged, collected or remitted before February 27, 2018 in respect of the subsequent services rendered before February 27, 2018, Aco would need to make a determination, on the last day of each billing period that ends on or before February 27, 2018, of the FMV of the management and administrative services rendered to LP Fund during these billing periods (that is, from September 8, 2017 to January 31, 2018 inclusiveFootnote 7) determined as if Aco were not a member of LP Fund and were dealing at arm’s length with LP Fund. Aco is required to add the GST/HST calculated on the FMV amount in determining its net tax for its reporting period that includes February 27, 2018.

Further information

All GST/HST technical publications are available at Technical information – GST/HST.

To make a GST/HST enquiry by telephone:

  • for GST/HST general enquiries, call Business Enquiries at 1-800-959-5525;
  • for GST/HST technical enquiries, call GST/HST Rulings at 1-800-959-8287.

If you are located in Quebec, call Revenu Québec at 1-800-567-4692 or visit their website at revenuquebec.ca.

If you are a selected listed financial institution (whether or not you are located in Quebec) and require information on the GST/HST or the QST, go to GST/HST and QST - Financial institutions, including selected listed financial institutions or

  • for general GST/HST or QST enquiries, call Business Enquiries at 1-800-959-5525;
  • for technical GST/HST or QST enquiries, call GST/HST Rulings SLFI at 1-855-666-5166.
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