Draft legislation released by the federal Department of Finance aims to improve the application of the GST to the financial services sector.

Finance said that the draft legislation released Wednesday improves on a previous draft released in January 2007 that sought to address advantages that currently exist in favour of imported financial services over domestic services in the levying of GST/HST. It also streamlined the application of the GST input tax credit rules to financial institutions.

Following consultations with the financial services sector, several improvements are now being proposed, Finance said.

These include provisions:

• to allow Canadian firms to use a simpler approach to self-assess tax on services provided by their foreign branches to Canadian branches;

• to allow financial institutions to exclude certain derivative transactions from the self-assessment rules that apply to imported services;

• to allow large banks, insurance companies and securities dealers to use their own proposed methods to allocate input tax credits in certain circumstances; and

• to provide financial institutions and the Canada Revenue Agency with more flexibility in the use of the process for pre-approving an input tax credit allocation method.

“The changes proposed today will support the economy by ensuring that the tax system is fair and functions smoothly,” said Finance Minister Jim Flaherty, in a release.

The draft legislation would also implement measures that were announced in the 2007 draft, including:

• replacing the complex system of legislative and administrative rules that currently apply to different employer-sponsored registered pension plan trust structures with a new, uniform GST rebate system; and

• introducing a new GST annual information return for financial institutions to improve GST reporting.

Comments on the draft legislation are due by October 23.

IE