Canada | Distributed investment plans required to request certain investor information by 15 October 2023

• A distributed investment plan (DIP) that is a selected listed financial institution is required to make a written request to obtain certain information from its investors by 15 October 2023.
  
  
• Without this information, certain investors may be deemed to be residents of the highest-rate province, resulting in the DIP having higher tax liabilities or lower refunds.
  
  
• The required information depends on the type of investor and the value of the holdings.
  
  
  

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.

Background

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:

• $10,000
  
  
• 0.01% of the total value of the units held by the investor in the DIP

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

Selected investor

Under subsection 52(1) of the regulations, a selected investor generally includes a person that:

• Is resident in Canada
  
  
• Holds units with a total value of less than CA$10m
  
  
• Is not an individual
  
  
• Is not a DIP

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:

• The address that determines its province of residency as of 30 September 2023
  
  
• The number of units held by the investor as of 30 September 2023

Qualifying investor

Subsection 52(1) of the regulations define a qualifying investor as  an investment plan that:

• Holds units with a total value of less than CA$10m
  
  
• Is not a DIP (e.g., a mutual fund trust, investment limited partnership or investment corporation)
  
  
• Is neither a qualifying small investment plan1 under subsection 7(2) of the regulations nor a qualifying private investment plan,2 as proposed under subsection 7(3) of the regulations
  
  
• Meets one of the following conditions:
  
  • Is an SLFI
    
    
  • Is a member of an affiliated group and the members together hold units with a total value of CA$10m or more
    
    
  • Is a member of an affiliated group and at least one member of the affiliated group is an SLFI

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:

• Its "investor percentage" and the number of units held in each series as of 30 September 2023
  
  
• Confirmation that it is a qualifying investor

Securities dealer

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:

• Hold CA$10m or more in a particular series
  
  
• Are not an individual, a specified investor or a DIP

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:

• Its investor percentage as of 30 September 2023
  
  
• The number of units held as of 30 September 2023

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), East

• Jadys Bourdelais

Ernst & Young LLP (Canada), West

• David D. Robertson

Ernst & Young LLP (Canada), Central

• Jan Pedder
  
  
• Sania Ilahi
  
  
• Tariq Nasir

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.