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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 167787
Dear [Client]:
Subject: GST/HST INTERPRETATION
Eligibility for ITCs in respect of pension expenses
This is further to your [correspondence] of [mm/dd/yyyy], in which you request information concerning the ability of certain employers to claim input tax credits (“ITCs”) for expenses incurred in relation to the pension plans that they sponsor.
All legislative references are to the Excise Tax Act (ETA).
In contrast to the situation where pension plan contributions are held in a trust and administered by a trustee, you describe an arrangement in which an employer (the “Employer”) that sponsors a pension plan (the “Plan”) instead enters into a group annuity contract with an insurer. We understand that there is no trust agreement in the arrangement.
We further understand that the Employer in the arrangement is responsible for incurring certain expenses under the Plan agreement in question (the “Agreement”) and, to this end, engages third-party suppliers of investment management services, actuarial services and administration services (the “Services”). The Employer is the recipient of the Services and pays consideration and applicable GST/HST directly to the suppliers. Moreover, under the terms of the Agreement, the Employer is legally responsible for the payment of the consideration for the Services and any applicable GST/HST. As such, it does not issue invoices or otherwise receive any payment or reimbursement in respect of expenses incurred in acquiring the Services.
INTERPRETATION REQUESTED
You have asked us for our views on whether
1. in the case where the pension plan assets are held through a group annuity contract, there would exist a “pension entity” of the Plan; and
2. the Employer would be entitled to claim ITCs for the GST/HST paid or payable on the consideration for the Services.
INTERPRETATION GIVEN
1. Pension entity
The existence of a “pension entity” is determined with reference to the definition of that term and the term “pension plan” in subsection 123(1). A “pension plan” for this purpose generally includes (1) a registered pension plan that governs a person that is a trust, or (2) a person that is a corporation where a registered pension plan is administered by the corporation (Footnote 1) , while a “pension entity” is defined to include the person. Assuming that there exists neither such trust nor corporation, there can be no pension entity.
We note that a segregated fund of an insurer is deemed to be a trust for GST/HST purposes by virtue of subsection 131(1). Under that subsection, the trust is considered to be a separate person from the insurer, and the insurer is deemed to be the trustee. Notwithstanding that a segregated fund is a trust for GST/HST purposes, it would not qualify as a “pension entity” unless it is governed by a registered pension plan. It is our understanding that this would not generally occur in the case of segregated funds; however, to make a definitive determination, one would need to refer to the words of the trust agreement (if any), the terms of the particular pension plan, and also to CRA forms T510 and T920 which are submitted at the time of plan registration and plan amendment respectively. If you would like us to determine whether a particular trust is governed by a registered pension plan, please submit the relevant documentation and we would be pleased to review it.
2. ITCs
Generally, under section 169, where a person acquires, imports or brings into a participating province a property or service during a reporting period of the person in which the person is a registrant and 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 that the property or service is acquired, imported or brought in for consumption, use or supply in the course of the person's commercial activities.
For purposes of the ETA, a “commercial activity” of a person is generally a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent that the business, adventure or concern involves the making of exempt supplies by the person.
For purposes of claiming ITCs, where an employer incurs an expense (i.e., the employer is liable to pay consideration to a third-party supplier under an agreement for the supply) related to a pension plan sponsored by the employer, the employer may be entitled to claim an ITC provided that all of the conditions of section 169 of the Act are met. For more information, please refer to Technical Interpretation Bulletin B-32, Registered Pension Plans.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, are not rulings and do not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
If you require additional information or clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8816.
Yours truly,
Paul Hawtin
Special Provisions – Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 As stated in the definition, such a corporation must be both (1) accepted by the Minister of National Revenue as a funding medium for the purpose of the registration of the pension plan; and (2) incorporated and operated either
* solely for the administration of a registered pension plan, or
* for the administration of the registered pension plan and for no other purpose other than acting as trustee of, or administering, a trust governed by a retirement compensation arrangement (as defined in subsection 248(1) of the Income Tax Act), where the terms of the arrangement provide for benefits only in respect of individuals who are provided with benefits under the registered pension plan.
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