Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 116038
January 13, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Eligibility to Claim Input Tax Credits (ITC) on Pension Plan Expenses
Thank you for your letter of June 29, 2009, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to expenses related to your pension plan.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that
1. [...] (the "[Company]"), an entity registered for GST/HST purposes, has setup a single employer defined-benefit pension plan (the "Plan") for its employees in Canada. This Plan has been in effect since [mm/dd/yyyy] and complies with the federal Pension Benefits Standards Act, 1985 (Canada).
2. The [Company] is responsible for the overall operation and administration of the Plan whose day-to-day administration is carried out by a Pension Committee appointed by the Board of Directors. The duties of the administrator include: giving written directions to make payments out of the trust fund, consulting and advising with respect to the investment of the trust fund, interpreting provisions of the Plan, filing of documents, consulting with and obtaining opinions from lawyers, accountants or other experts and exercising such powers, taking such acts, employing such persons to ensure proper performance of [these] functions.
3. As required under the Plan, a pension trust agreement was entered into by the [Company] and [...] (the "Trustee"). The Agreement governs the activities of the trust fund ("Trust Fund") established under the Plan.
4. Only the [Company] is permitted to make contributions to the Trust Fund which is comprised of the assets, earnings, profits delivered to the Trustee by the [Company] less authorized payments.
5. The responsibilities of the Trustee include: to hold title to all assets of the Trust Fund; to keep the Trust Fund distinct from its own assets or any other person's assets; to distribute, disburse and pay on direction of [the Company]; to collect and receive income, principal, dividends; to receive contributions under the Plan; to act in accordance with direction of the [Company] or an investment manager; to prepare and file tax returns; to pay taxes levied; to keep accurate records of assets, receipts and disbursements.
6. The Trustee shall pay out of the Trust Fund all expenses with respect to the operation or administration of the Trust Fund; reasonable expenses and compensation of agents and counsel appointed by Trustee in respect of the Trust Fund; fees and expenses of investment manager, actuary in respect of the Plan or Trust Fund and any expenses incurred by the [Company] in the administration of the Plan or Trust Fund.
7. On the direction of the [Company] or an investment manager, the trustee may write, issue, purchase, hold, sell and exchange derivative products and enter into derivative contracts. The Trustee may purchase any securities, currencies, or other assets and hold or retain the same in trust. The Trustee may sell securities, currencies, or other assets, convert transfer or otherwise dispose of any securities.
8. To carry out the activities of the Trust Fund, the [Company] has incurred certain expenses such as investment management fees, consulting fees, actuarial valuations, and custodial fees. Specifically, the [Company] has retained the services of the investment management firm [...] [(the "Firm")] to provide investment management services relating to the investment of the Trust Fund assets. [The Firm] has invested the trust funds by purchasing mutual fund units of the [...] and the [...]. The [Company] has also contracted with investment advisor [...] [the "Advisor"] to provide professional consulting services with respect to the investment and plan operation monitoring. The services include the provision of plan asset mix review, assessment of manager's performance, assessment of manager's organization, review and recommendation of changes to Plan Statement of Investment Policy and Procedures. The [Company] has paid GST on the supply of the aforementioned services.
9. In fact, all expenses related to the pension plan are paid out of the Trust and the [Company] does not reimburse the Trust for any of these payments; neither the [Company] nor the Trust has ever claimed input tax credits (ITC) on expenses related to the administration of the pension Plan or Trust Fund. Consequently, CRA's administrative policy outlined in TIB B-032R Registered Pension Plans has not been followed.
10. The [Company] and the Plan Trust fiscal years end on December 31.
Interpretation Requested
You would like to know if ITCs can be claimed where the expenses are paid by the Trust or where the expenses are paid by the [Company].
Interpretation Given
Treatment before January 1, 2010
A plan trust is, for GST purposes, a separate person from the employer. Assets vested in the plan trust become the property of the plan trust, and accordingly are not the property of the employer. The very purpose for creating the plan trust is to ensure that ownership of the assets is separated from the employer.
A trust governed by a registered pension plan qualifies as an investment plan by virtue of subparagraph 149(5)(a)(i) and is included as a listed financial institution under subsection 149(1).
An essential function of a plan trust is to hold funds for investment purposes. Most services provided by a plan trust are normally financial services and are exempt from GST. The contribution of funds to the plan trust by the members of the plan and by the employer as well as the distribution of funds to the beneficiaries by the trust constitute financial services and are exempt. The investment of funds in financial instruments and the receipt of interest or dividends also constitute exempt supplies.
Generally, under section 169, where a person acquires or imports property or a service and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person will be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) the property or service is acquired or imported for consumption, use or supply in the course of the person's commercial activities.
As indicated above, ITCs are generally available only to a person who, where tax becomes payable or is paid by the person, has acquired the supply. The CRA will consider an employer that is an administrator of a pension plan ("employer-administrator") to have satisfied this requirement under subsection 169(1) if the employer-administrator is the only person liable to pay the consideration for a supply of property or services under the relevant agreements.
In the case at hand, where the [Company] is liable to pay for pension related expenses including plan trust expenses and the expenses are paid by the Plan Trust, the employer may claim ITCs on the GST paid or payable on those expenses subject to the requirements of section 169. Hence, to the extent that the investment management services acquired from [the Firm] and the professional services acquired from [the Advisor] are incurred in the course of commercial activity, the [Company] would be entitled to claim ITCs on the GST paid on these expenses as the [Company] is the person liable under the agreements and the expenses are paid by the Plan Trust.
However, where the employer is liable to pay for pension related expenses, the trust pays the consideration for the supply directly to the third party supplier, and the expenses are incurred for activities relating to the plan trust assets, such as the holding of or the investing of funds, we consider the payment made by the plan trust to be consideration for a supply of property or services that took place between the employer and the plan trust at the time that the plan trust pays the consideration for the supply directly to the third party supplier.
Where this is the case, it is our view that the [Company] would be making a supply of property or services to the Plan Trust as such expenses would have been incurred for the benefit of the Plan Trust. In other words, the expenses would have been incurred for use, consumption or supply in the operation of the Plan Trust. The [Company] should charge, collect and remit GST on the supply to the Plan Trust where the supply is not exempt. Specifically, in this case, the [Company] should charge and collect GST on the payments made by the Plan Trust to [the Firm] in relation to the supply of the investment management services. The [Company] should not collect GST on the payments made to [the Advisor] as those expenses relate to the appraisal of the Plan's investment performance and fall under the responsibility of the employer.
Please note that unless the Plan Trust is involved in commercial activity, the Plan Trust is not entitled to claim ITCs on GST paid or payable in respect of supplies of goods and services acquired in activities relating to the plan trust assets (e.g., the (re)supply of the investment management services made by the [Company] to the Plan Trust); these expenses are generally incurred for activities relating to the Plan Trust assets that are exempt and excluded from commercial activity.
In the context of the situation presented the tax implications can be summarized as follows:
[The Company is] liable to pay for the Plan expenses
a) an ITC may be available to the [Company];
b) if the expense does not relate to plan trust assets, there are no further GST/HST implications despite the fact that the Trust paid for those expenses;
c) if the expense relates to plan trust assets and the Trust paid the third party supplier, we consider that a supply was made by the [Company] to the Trust for consideration equal to the amount paid to the supplier.
Trust liable to pay for Plan expenses
a) Generally no ITC is available as the Trust is involved in exempt activities unless the expense relates to some sort of commercial activity of the Trust (e.g., the supply of taxable goods and services by the Trust to the [Company]).
Where the pension plan expenses support the [Company's] overall business activities comprised of taxable and exempt supplies, ITCs should be restricted to the extent that the pension inputs have been used in commercial activity. In other words, the tax paid or payable should be apportioned between commercial and exempt activities. Where the pension inputs solely relate to commercial activity i.e., for resupply to the Trust, full ITCs may be claimed.
Please note that the determination as to whether an expense is incurred in respect of activities relating to the plan trust assets should be based on the relevant agreements entered into by the parties and legislation governing pension plans. More information on this determination is available in TIB B-032R Registered Pension Plans.
Subsection 225(4) provides time limits with respect to claiming ITCs for a particular reporting period. Paragraph 225(4)(b), which is applicable to most registrants, provides that a person must claim an ITC for a particular reporting period by the due date of the return for the last reporting period to end within four years after the end of the particular reporting period.
Therefore, the [Company's] pension plan operations will generally be able to go back four years to claim ITCs for particular reporting periods where the requirements of section 169 and subsection 225(4) are met.
Treatment on or after January 1, 2010
Effective September 23, 2009, the Minister of Finance introduced a new GST/HST pension plan rebate. The rebate includes a mechanism for a deemed taxable supply from the employer to the pension entity on most pension-related expenses incurred by the employer on the last day of the employer fiscal year. Generally, the pension entity is entitled to claim a rebate of 33% of the GST/HST it has paid or is deemed to have paid. The rebate is available irrespective of the nature of the plan arrangements or whether the pension entity is registered for the GST/HST.
The amendments apply for fiscal years of employers beginning on or after September 23, 2009. The amendments apply to a pension entity's claim periods (i.e., the first two or last two fiscal quarters of a fiscal year if the pension entity is not a registrant) beginning on or after September 23, 2009.
Therefore, as the amendments have now been passed into law, your Plan Trust, as a non registrant, will be entitled to claim the rebate for the claim periods beginning on or after January 1, 2010. On December 31, 2010, and every fiscal year end thereafter, the [Company] will be deemed to have collected tax on the deemed taxable supplies made to the Plan Trust, and, as was the case in prior years, subject to section 169, the [Company] will also be entitled to claim ITCs on the GST paid or payable on pension-related expenses incurred in the course of commercial activity.
For your convenience, should you need more information on the rebate, you may refer to the following links at:
http://www.cra-arc.gc.ca/E/pub/gi/notice257/README.html.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-1512. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Constantin Constant
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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