September 21, 2023
Canada | Distributed investment plans required to request certain investor information by 15 October 2023
A distributed investment plan (DIP), which generally includes mutual fund trusts and certain partnerships, that is a selected listed financial institution (SLFI) is required to make a written request to obtain certain information from its investors by 15 October 2023. The information provided by the investors is used to calculate the DIP's provincial attribution percentage and the DIP's Goods and Services Tax (GST)/Harmonized Sales Tax (HST)/Quebec Sales Tax (QST) net tax liability/refund. If a DIP does not request this information by 15 October 2023, certain investors may be deemed to be residents of the highest-rate province (i.e., 15%) and, as a result, the DIP may have higher tax liabilities or lower refunds.
The GST/HST place-of-supply rules result in the vendors of a DIP generally charging GST/HST based on the place of consumption (such as the address of the trustee for a mutual fund trust). Absent any special rules, a DIP would have an incentive to locate its contracting addresses in lower GST/HST-rate jurisdictions such as Alberta, where the GST/HST is imposed at a rate of 5%, as opposed to higher GST/HST-rate jurisdictions such as Ontario, where GST/HST applies at a rate of 13%. To even the playing field, DIPs that are SLFIs must perform a special calculation to determine their effective rate of GST/HST in accordance with certain investor information, including the investor's residency. DIPs are thereby required under the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (the regulations) to obtain this information from their investors to properly calculate their GST/HST/QST liabilities.
If a DIP has not requested the required information from its investors by 15 October 2023 and does not possess the required information by 31 December 2023, it may have to treat some or all of its investors as being resident of the highest-rate province. This may lead to additional GST/HST/QST costs for the DIP. Therefore, it is recommended that a DIP send the information request to its investors by 15 October 2023. Investors are required to respond within 45 days of receiving the request. Under subsections 52(12) and (13) of the regulations, an investor that fails to respond may be subject to a penalty equal to the lesser of:
The information required depends on the type of investor and the value of the holdings. In general, a DIP is required to request information from the following investors:
Types of investors
Under subsection 52(1) of the regulations, a selected investor generally includes a person that:
This type of investor includes certain corporations, trusts, pension plans and partnerships. If the DIP sends a written request to a selected investor, the investor is required to provide the following information:
Subsection 52(1) of the regulations define a qualifying investor as an investment plan that:
This type of investor generally includes pension plans that are SLFIs. A DIP is not required to send an information request to qualifying investors; however, in accordance with subsections 52(9) and (10) of the regulations, these investors must provide the required information voluntarily by 15 November 2023. Given that qualifying investors may not be aware of their obligation to provide this information voluntarily, a DIP should send an information request to qualifying investors requesting the following information for each investor:
A securities dealer that sells or distributes units of the DIP must provide details on the units held by the investor and the residency of the investors in the participating provinces as of 30 September 2023.
Institutional investors with CA$10m or more invested in a particular series or unit
This type of investor is generally limited to investors that:
Institutional investors include corporations, banks, insurance companies and lending companies. A DIP that has institutional investors as its unitholders should obtain the investor percentage and the number of units held by the institutional investor as of 30 September 2023.
Distributed investment plans
Subsection 1(1) of the regulations generally defines a DIP to include mutual fund trusts, mutual fund corporations, segregated funds of an insurer, unit trusts and investment limited partnerships. It should be noted that foreign partnerships with Canadian investors may be subject to the SLFI rules (including the obligation to request investor information and to self-assess GST/HST/QST). Regardless of the number of investments held by DIP investors, it is recommended that DIPs obtain the following information for each investor:
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), East
Ernst & Young LLP (Canada), West
Ernst & Young LLP (Canada), Central
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 A qualifying small investment plan generally includes an investment plan that pays less than CA$10k per year of the federal component of GST/HST at the rate of 5%.
2 As proposed, a qualifying private investment plan refers to a private investment plan, pension entity or master pension entity that generally meets two conditions: (i) fewer than 10% of the plan members reside in the participating provinces, and (ii) the total value of its assets and actuarial liabilities attributable to plan members who reside in the participating provinces is less than CA$100m. If enacted, this definition would apply to any fiscal year that ends after 9 August 2022.