Copies have been sent to regional directors, operation managers, Investment Managers and Consultants, Investments Administrative Coordinators, field management and administration personnel and staff associated with Individual Retirement and Investment Services.
Important information regarding the Goods and Services Tax and Harmonized Sales Tax – Impact on mutual funds and segregated funds
Effective July 1, 2010, expenses charged to investment funds and all investment management and advisory fees will be subject to the Harmonized Sales Tax (HST) in Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland and Labrador.
The HST, a federally-administered tax, combines the Goods and Services Tax (GST) and the provincial retail sales tax (PST) into a single sales tax. The HST is new in Ontario and B.C., while new rules now make the tax in the existing HST provinces applicable to all funds.
What are the tax rates?
Province(s)/Territories HST rate
British Columbia 12% (5% federal and 7% provincial component)
Ontario, New Brunswick, , Newfoundland and Labrador 13% (5% federal and 8% provincial component)
Nova Scotia
British Columbia 12% (5% federal and 7% provincial component)
Ontario, New Brunswick, , Newfoundland and Labrador 13% (5% federal and 8% provincial component)
Nova Scotia
15% (5% federal and 10%
provincial component)
(as of July 1, 2010)
Alberta, Manitoba, Prince Edward Island, Quebec, Saskatchewan, Territories 5% federal GST only
What’s taxable?
The HST will apply to GST-taxable services that are charged to investment funds as well as to any investment management or advisory fees that are paid outside of the fund. These services are currently subject to five per cent GST. The HST will also apply to other services already subject to GST, for example annual trustee fees for RRSPs, RRIFs and RESPs.
The HST will not apply to expenses or fees that currently are not subject to GST such as insurance premiums (including premiums paid for benefit riders on segregated fund policies).
You may have seen media coverage of a proposed change in the definition of a financial service for GST purposes that would have the effect of introducing GST on commissions related to the sale and service of investment funds. Industry associations have opposed the nature and timing of this change in policy.
Federal Finance Minister Jim Flaherty has recently stated that no change in existing policy was intended, but rather just a clarification that all services previously taxed would continue to be taxed. This clarification was required following some 2009 court decisions against the Canada Revenue Agency (CRA) in this regard. We await confirmation from the CRA of the minister’s position.
What does this mean for investors?
The HST means a higher tax rate will apply to investment funds effective July 1, 2010. This will increase the costs incurred by the fund, where such costs are paid at the fund level, and for investors directly, where such costs are paid by the investor. Only half of the increase will be felt in 2010 due to the timing of the change.
The HST means a higher tax rate will apply to investment funds effective July 1, 2010. This will increase the costs incurred by the fund, where such costs are paid at the fund level, and for investors directly, where such costs are paid by the investor. Only half of the increase will be felt in 2010 due to the timing of the change.
How will the tax apply?
The specifics of how the HST will apply are not yet fully known. New rules defining what rates apply have been released for some sectors and discussed with industry representatives for others. We have been working with the federal, Ontario and B.C. governments for many months to try to address the challenges of applying various tax rates to a pooled product like investment funds. Industry associations continue to express concerns regarding the effects of this tax on Canadians’ ability to save and invest for retirement and other purposes.
The specifics of how the HST will apply are not yet fully known. New rules defining what rates apply have been released for some sectors and discussed with industry representatives for others. We have been working with the federal, Ontario and B.C. governments for many months to try to address the challenges of applying various tax rates to a pooled product like investment funds. Industry associations continue to express concerns regarding the effects of this tax on Canadians’ ability to save and invest for retirement and other purposes.
We will provide further detail once the government publishes the final regulations.
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