1 July 1996 GST/HST Interpretation 11585-32[9] - Multi-employer Pension Plans

Dear Sir:

This is in reply to your submission of June 29, 1995 concerning the application of the Goods and Services Tax ("GST") to multi-employer pension plans (the "MEPP's["]) by XXXXX. We apologize for the delay in replying.

In your letter, you indicate that pursuant to TIB B-032R, the employer of a single employer pension plan is allowed to claim input tax credits for GST incurred on supplies acquired for use in administering the pension plan (referred to as the "Employer Expenses") to the extent that the related property or services are acquired for use exclusively in commercial activities. If a GST registrant plan trust is invoiced for the Employer Expenses, the plan trust may re-supply the related property or services to the employer. In doing so, the plan trust may claim input tax credits for tax incurred with respect to these Employer Expenses. Where the plan trust is NOT a GST registrant, the bulletin provides an administrative concession such that the employer is treated as having acquired the Employer Expenses directly from the original supplier and paid the related GST, and the employer is eligible for the related input tax credits to the extent such expenses are for consumption, use or supply in the course of its commercial activities..

You state that these same principles could be applied to the MEPP's.

In a MEPP, usually a third party administrator is appointed to administer the plan. As with single employer plans, the administrator of a MEPP is required to incur the same costs in administering the MEPP for the employers. The payment of contributions by the employers represents two parts: one being the payment of deferred wages for the employees and another the receipt of the plan administrative services by the plan administrator. In your view, "the fact that the administrator provides these services for nil consideration does not mean that such services are not in the course of the administrator's commercial activities".

You recommend that the administrator (providing the administrative services) should be able to claim input tax credits for the "Employer Expenses" incurred in making supplies of these services to the employers. In the alternative, a portion of the contribution paid by the employers can be viewed as consideration for the supply of the Employer Expenses made by the administrator; and the employers would be allowed to claim ITC's based on their prorated shares of the Employer Expenses. This alternative would be extremely difficult to implement for those plans involving many employers.

Our Comments:

TIB B-032R applies to single employer pension plans and not multi-employer pension plans.

In a MEPP, if the plan administrator does not acquire the "Employer Expenses" for use in providing a taxable supply of the administrative services to another person or does not charge a consideration for the supply, the administrator cannot be said to have acquired those Employer Expenses for use "in the course of its commercial activities". Under these circumstances, it is our opinion that there is no legislative basis to allow the administrator input tax credits for GST paid or payable on the "Employer Expenses". Where the administrator is NOT a GST registrant, there is no basis to allow the administrator to claim any input tax credits on its purchases under the current legislation. We understand that the officials of the Department of Finance are aware of the situation as it is one of the issues related to the Finance Committee review of the GST.

We trust our comments will be of assistance to you.

Yours truly,

J. Sitka
A/Director
Financial Institutions and Corporate Re-organizations Division
GST Rulings & Interpretations