Budget 2016 changes for HST/GST

Some significant changes are proposed in the 2016 federal budget for indirect tax. How will new regulations on HST/GST for registered charities and financial institutions impact your work?

Shortly after Budget 2016 was tabled, CPA Canada released the federal budget brief with analysis and commentary on the most significant changes affecting professional accountants, business and the general public. The most talked about components of Budget 2016 focused on the new government’s longer-term fiscal goals for Canada – from a deficit-financed investment in infrastructure to much-needed tax system review and the Canada Child Benefit.

But for indirect tax professionals and CPAs who work in the charitable sector and financial services, this year’s key proposals are new regulations that impact the application of HST/GST.

HST/GST FOR CHARITABLE DONATIONS

Before Budget 2016, HST/GST applied to the full amount of a charitable donation, even when the donor received property or services much smaller in monetary value than the donation itself. New HST/GST treatment will bring this type of exchange in line with the Income Tax Act’s split-receipting rules, where a tax receipt is issued for the donation minus the value of the donor gift exchanged in thanks.

This ensures that the majority of all donations made to charities will not be subject to HST/GST, with historic tax relief extending to donations as far back as December 21, 2002.

Exceptions for charitable donations remain, including fundraising events – like a gala dinner or auction – and the small supplier clause. However, the capital gains exemption introduced by the previous federal budget has been discontinued and no longer applies to donations involving private company shares and real estate.

DEFINING DE MINIMIS FINANCIAL INSTITUTIONS

Under Budget 2016, a person who earns more than one million in interest during a taxation year will be considered a de minimus financial institution for HST/GST purposes, even though that person would not generally be in competition with a traditional financial institution.

Many high income financial professionals with considerable interest-based earnings will now be required to file the Financial HST/GST Annual Information Return. It is also important to note that taxpayers who qualify as a financial institution are subject to more rigorous reporting and compliance obligations.

To allow Canadians to engage in basic deposit activities without incurring treatment as a financial institution for HST/GST purposes, Budget 2016 proposes that demand deposits, term deposits and guaranteed investment certificates (GICs) of less than one year be exempt when determining the one million threshold.

ADDITIONAL INDIRECT TAX UPDATES

Other notable indirect tax revisions to the application of HST/GST from Budget 2016 include:

  • optional charge and collection of HST/GST for closely related corporations and partnerships on some intercompany supplies
  • a self-assessment requirement for cross-border reinsurance on Canadian expenses and imported supplies for financial institutions
  • modified zero-rating rules for certain exported supplies of call centre services 
Learn more about the implications of Budget 2016 for Canadian indirect tax and deepen your knowledge on sector-specific HST/GST issues with one or more of our upcoming professional development opportunities:

Specialized HST/GST: Financial Services

May 9-10, 2016 | CPD: 12 hours
CPA Canada Offices | Toronto, ON

Specialized HST/GST: Cross-Border Transactions
May 11-12, 2016 | CPD: 12 hours
CPA Canada Offices | Toronto, ON

Specialized HST/GST: Public Sector Bodies
May 26-27, 2016 | CPD: 12 hours
CPA Canada Offices | Toronto, ON

In-Depth HST/GST Course
May 29-June 3, 2016 | CPD: 34 hours
Elearning & In-Residence | Niagara Falls, ON

Highlights

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