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: 142567
Dear: [Client]
Subject: GST/HST INTERPRETATION
[…][Is a Master Trust a pension entity]
This is further to our conversations and your submissions made between [mm/dd/yyyy], and [mm/dd/yyyy], concerning the status of a master trust established by […] (the “City”) as a “pension entity” as defined in subsection 123(1) of the Excise Tax Act (ETA).
All legislative references are to the ETA unless otherwise specified.
FACTS
1. The City has […] defined benefit pension plans: […] (collectively the “Plans”). Based on ongoing actuarial studies, the City makes contributions as necessary to maintain the ability of the Plans to meet their fiduciary responsibilities.
2. The second recital to the […] (the “MTA”) included in your submission indicates that the City established a unitized pooled fund trust that is prescribed pursuant to paragraph 149(1)(0.4) of the Income Tax Act and in respect of which the trust elected to be a master trust. The trust is known as (the “Master Trust”).
3. The sixth recital to the MTA indicates that the trust agreements establishing the trust funds for the Plans empower the administrator of each Plan to direct the City in the management of the assets of each Plan. To this end, the City is responsible for the assets of the Plans and is subject to the terms of the Statement of Investment Policy and Procedures (the “Policy”) included in your submission.
4. Section […] of the Policy indicates that on [mm/dd/yyyy], the Plans coming led their assets in the Master Trust.
5. Section […] of the Policy states that the Plans hold units of the Master Trust and share, on a pro-rata basis, in all income, expenses and capital gains and losses of the Master Trust. The City reports to each Plan the net value of the assets held within the Master Trust.
6. Section […] of the Policy states that investment strategies in respect of the Master Trust assets must take into account both the return and risk objectives of the Plans and the City.
7. The purpose of the Policy is to provide the framework for the management and investment of assets of the Master Trust. The Policy is designed to ensure that the investment and administration of the assets of the Master Trust are within the parameters set out in the […]. Section […] (in respect of each Plan) of Appendix A to the Policy confirms that the guidelines set out in the Policy should be followed while investing the pooled assets of the Master Trust.
8. Section […] of the Policy confirms that management control and responsibility for the Master Trust assets ultimately rests with the City. The City appoints internal and external agents to perform the administrative functions of the Master Trust.
9. The preamble to section […] of the Policy states that a City employee, namely the General Manager […] for the City […] oversees administrative matters with respect to the Master Trust while the City’s […] essentially monitors the assets of the Master Trust in accordance with the duties described in paragraph […] of the Policy.
10. The City also engages an investment manager, a trustee, an investment consultant and an actuary, all of whom are outside third party contractors who supply their services to the City. The City is the recipient of the services and pays the contractors directly. The reimbursement of these amounts by the Master Trust to the City is settled through the appropriate journal entries.
11. The investment manager is required, among other duties described in paragraph […] of the Policy, to invest the assets of the Master Trust in accordance with the Policy. […].
12. The MTA indicates that the City has engaged […] as trustee (“Trustee”) of the Master Trust. Paragraph […] of the Policy states that the Trustee must, among other things, fulfil the regular duties of a trustee as required by law, maintain safe custody of the assets of the Master Trust and record income and provide financial statements to the Chief Investments Officer monthly or as required.
13. Section […] of the MTA states that all assets paid or delivered by the City or Plan Trusts to the Trustee together with any earnings, profits and increments thereon constitute the Master Trust Fund and shall be held by the Trustee in trust and applied by the Trustee in the manner and for the purposes provided in the MTA.
14. Section […] of the MTA states that the trustee shall hold legal title to all assets comprising the Master Trust Fund, for the account of the Master Trust Fund. Further, section […] states that the Trustee must credit all payments and distributions received in respect of the assets of the Master Trust to the Master Trust Fund.
15. Section […] of the MTA requires the Trustee keep the Master Trust Fund in separate accounts and records of the Trustee. Further, section […] of the MTA states that the Trustee must keep detailed accounts and records of all assets and transactions with respect to the Master Trust Fund and must make those records available for audit by any person authorized by the City.
16. Section […] of the MTA indicates that the Trustee shall make all required distributions, disbursements and payments out of the Master Trust Fund to relevant persons, including the City. […].
17. Under section […] of the MTA, the Trustee must act in accordance with the direction of the City or the investment manager with respect to the exercise of its powers, including the acquisition and disposition of any asset forming part of the Master Trust Fund or with respect to any other matter pursuant to the MTA.
18. Section […] of the MTA states that the Trustee is vested with the authority to enable it to administer the Master Trust Fund and carry out its responsibilities under the MTA. Under section […] the Trustee has the power, in consultation with the City, to employ such counsel, auditors, advisors, agents or other persons (who may be employed by the City) for the purpose of discharging its duties and to pay out of the Master Trust Fund their reasonable expenses and compensation.
RULING REQUESTED
You wish to confirm that the Master Trust is not a person for purposes of the ETA and that the operation and management activities undertaken with respect to the Master Trust form part of the operations of the City and should be treated as such for purposes of the ETA. You also wish to confirm that the Master Trust is not a pension entity. We understand that the Department of Finance is currently examining issues with respect to the treatment of master trusts. Based on current provisions of the ETA, we are pleased to provide you with the following interpretation.
INTERPRETATION GIVEN
The word “person” is defined in subsection 123(1) of the ETA to include a trust. Accordingly, where a trust is established, it is subject to the obligations and entitlements of the ETA as a separate person.
Whether a trust exists in any particular situation is a question of fact. The existence of a trust is generally evidenced in a trust document that sets out the terms of the trust and specifies the obligations and responsibilities of the trustee.
In the present case, it appears that the MTA, in tandem with the terms of the Policy, demonstrates the general common-law attributes of a trust: the City, as settlor, establishes the Master Trust and transfers assets thereto with the intention that they will be held by the Trustee for the beneficiaries of the Plans. Further, the Trustee is the legal owner of the Master Trust assets and has an obligation to manage and dispose of the trust assets for the beneficiaries. On these bases, it is reasonable to assume that the Master Trust is a trust and therefore a “person” for purposes of the ETA.
Whether the trust is a “pension entity” is determined with reference to the definitions of that term and the term “pension plan” in section 123(1) of the ETA. The definition of “pension plan” includes a registered pension plan that governs a person that is a trust, while a “pension entity” is defined to include that person. Accordingly, if a trust is not governed by a pension plan in the arrangement it may not qualify as a “pension entity” as defined in subsection 123(1). Nevertheless, in an arrangement where a registered pension plan governs a person that is a trust, such as a trust created in respect of a beneficiary pension plan, such a trust may be a “pension entity”, subject to the aforementioned definition.
In our view, a trust is considered to be governed by a registered pension plan if the trust holds all the property of a pension plan and is governed by its own written terms (i.e., trust agreement). The trust must also be created exclusively to serve as the funding media for a particular registered pension plan and must be ruled by the wider terms of the particular registered pension plan that it serves.
The facts indicate that the Master Trust is not ruled by the terms of any particular Plan. While the investment of the Master Trust assets must take into account the objectives of the Plans, all administrative and management decisions made in respect of the Master Trust assets are subject to the rules and guidelines set out in the MTA and the Policy. As stated in Fact 5 above, it is the Policy that provides the framework for the management and investment of assets of the Master Trust. Furthermore, each of sections […] in Appendix A of the Policy confirms that the Policy guidelines should be followed while investing the assets of the Plans. Accordingly, it is our view that the Master Trust is not governed by any particular Plan and is therefore not a “pension entity” for GST/HST purposes.
ADDITIONAL INFORMATION
Where pension related expenses incurred by the employer (i.e., the person liable to pay the consideration under the agreement for the supply) have been paid for out of trust assets, CRA generally views the payment as consideration for a supply made by the employer to the trust where:
* the trust pays the third party supplier directly,
* the employer invoiced the trust for the costs of the inputs, and/or
* the trust reimburses the employer.
In such circumstances, the employer would generally be considered to be making a supply of the relevant property or services to the trust, and sections 221, 225 and 228 would generally require a registrant employer to collect and remit GST/HST calculated on the consideration for the supply.
Given that the City is reimbursed by the Master Trust for the expenses described in Fact 10, the provisions of sections 165 and 221 of the ETA would apply. Pursuant to section 165, a recipient of a taxable supply is required to pay tax calculated on the value of consideration for the supply. On the other hand, under section 221, a person who makes a taxable supply is required to collect the tax payable by the recipient. Therefore, where the City makes a supply to the Master Trust, the City would be required to collect and remit GST/HST based on the value of consideration for a taxable supply, and the Master Trust would be required to pay it.
In addition, an employer that makes a taxable supply of goods and services in such a situation would generally be entitled to ITCs in respect of tax paid or payable by the employer on the original acquisition of the property or services supplied to the trust, provided that all of the conditions of section 169 are met. Subject to that section, the ITC available to the employer is based on the tax paid by the employer and the extent to which the goods and services acquired were for consumption, use or supply in the commercial activities of the employer.
The foregoing interpretations represent our general views with respect to the subject matter of your request. These interpretations 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 these interpretations.
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
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