CALGARY, Sept. 14, 2012 /CNW/ - In a report published today by The
School of Public Policy, authors Ken McKenzie and Michael Firth
challenge the way financial services (mutual funds, insurance, loans,
etc.) are taxed under the GST in Canada.
The authors find serious flaws with the current application of the
exemption-based approach applied to financial services. Under the
exemption approach no GST is levied on transactions designated exempt
under the GST, nor is a financial institution able to recover the GST
on inputs used to provide the good or service.
"When a financial institution is not able to recover GST on its
purchases of inputs, the GST will be embedded in the price charged for
those financial services," they write. "This will be true for both
consumer and business purchases of financial services."
"Consumers should choose among various financial services - investing in
GICs versus mutual funds, term versus whole life insurance, etc. - on
the basis of their relevant merits, not because of differences in
effective tax rates due to differential treatment under the GST."
McKenzie and Firth propose several tax reforms to rectify these issues.
They recommend retaining the exemption-based approach, but offer up
several ways in which it can be improved. One of these is the
zero-rating of business-to-business transactions by allowing businesses
to recover GST paid on inputs related to providing financial services.
To accomplish this goal, a new system for determining recovery of GST
by financial institutions will need to be created, including rules
around attributable costs. A system for taxing imported supplies will
also be needed.
They also recommend that all financial services be treated in a similar
matter and taxed at the same effective rate so that consumers face a
"level playing field between different types of financial services."
The report can be found at www.policyschool.ucalgary.ca/publications
SOURCE: The School of Public Policy - University of Calgary
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