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.
DATE
FROM
Paul Hawtin
Industry Sector Specialist
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
320 Street, Tower A
Ottawa ON K1A 0L5
TO
[Addressee]
FILE
147682
SUBJECT : GST/HST INTERPRETATION
[…][Is the Master Trust entitled to a rebate]
This is further to our conversations and your submissions made between [mm/dd/yyyy], and [mm/dd/yyyy], concerning the availability of pension entity rebates in respect of pension plans that are participants in a master trust (the “Master Trust”) established by […][the Company].
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
1. [The Company] is the administrator of a number of pension plans including the […] and the […]. […] (the “Plans”) are registered pension plans for income tax purposes and participants in the Master Trust. [The Company] is not a listed financial institution.
2. On [mm/dd/yyyy] [the Company] and […](the “Trustee”) entered into a Master Trust Agreement (“MTA”) to permit the collective investment and reinvestment of assets of various participants, including the Plans, in the Master Trust.
3. Section […] of the MTA requires the Trustee to hold, invest, distribute and administer the Master Trust assets upon the terms and conditions of the MTA. The Trustee generally invests the assets of the Master Trust in accordance with instructions given by [the Company] pursuant to sections […] and […] of the MTA.
4. Sections […] and […] of the MTA indicate that a participating Plan generally acquires units in the Master Trust by transferring assets (namely cash, securities and/or real estate) to the Trustee. A unit represents an undivided interest in the Master Trust assets, and the interest of a Plan in the Master Trust is expressed by the number of units owned by the Plan. The Master Trust Fund (the “Fund”) consists of the Master Trust assets, together with any earnings, profits, increments and accruals arising therefrom, less any payments and disbursements made from the Fund.
5. Pursuant to sections […] and […] of the MTA, investment income and capital gains in respect of the Fund are allocated among the participants according to their pro-rata share of the net income and/or capital gains.
6. Pursuant to section […] of the MTA, net capital gains and net income of the Fund become payable to the Plans on various days specified in the MTA. A particular Plan may either accept payment of the allocated share of these amounts or reinvest it in the Fund by acquiring additional units of the Master Trust.
7. The Notes to the Financial Statements dated [mm/dd/yyyy] […] confirms that all investment income generated on Master Trust investments is reflected in the unit price of the Fund and that, as such, the dividend and interest income generated from the underlying investments are not reported separately in financial statements.
8. […]
9. […]
10. Under section […] of the MTA, the Trustee appoints a custodian in respect of the Fund for purposes of performing the custodial and related record keeping responsibilities of the Trustee. Further, a custody account for the Fund is required to be established in the name of the Trustee into which Master Trust assets are to be deposited.
11. Under section […] of the MTA, the Trustee may make payments from the Fund to any person as long as the payment is authorized by [the Company] or another party authorized to act for [the Company] subject to section […]. Under section […], the Trustee may make payments from the Fund in respect of taxes and environmental liabilities without such authorization.
12. Section […] of the MTA confirms that [the Company] is solely responsible for engaging investment managers in respect of the Fund. In this regard, the Trustee (or a custodian for the Trustee) must settle the investments as instructed by [the Company] or, pursuant to section […], an investment manager engaged by [the Company].
13. [The Company’s] letter to you of [mm/dd/yyyy], indicates that certain pension expenses, namely trustee fees, investment management fees, consulting fees and the GST/HST on these expenses, are paid by the Master Trust.
14. Submitted along with the letter of [mm/dd/yyyy], were agreements between [the Company] and […]. Each agreement stipulates that investment guidelines set forth by [the Company] must be followed and that [the Company] is liable for payment of investment management fees. Supporting transaction reports included in the submission detail the payment of, among other things, consulting fees and the investment management fees related to the aforementioned agreements. The reports break down the fees attributable to each Plan; however, the payment of the fees are made by the Trustee from the Fund.
15. Under section […] of the MTA, [the Company] must ensure that transactions entered into by the Trustee are authorized by and in compliance with applicable laws (including those pertaining to federal or provincial pension benefits) and any statement of investment policies and procedures applicable to the Fund.
16. Where the Trustee retains any cash balances, it may invest in the limited manner specified in sections […] and […] of the MTA.
17. Section […] of the MTA details the general powers and duties of the Trustee in administering and investing the Fund. […]
18. Section […] of the MTA […]. Further, section […] of the MTA states that the Trustee is authorized to charge and collect from the Fund any fees and expenses for the trustee services it provides pursuant to the MTA.
19. Under section […] of the MTA, the Trustee is not responsible for the administration of any Plan participating in the Master Trust; rather its duties are confined to the duties and responsibilities under the MTA in respect of the assets of the Fund.
20. Under section […] of the MTA, [the Company] has the power to terminate the Fund.
21. Section […] of the MTA states that, to the extent permitted by applicable laws, only the Trustee and [the Company] shall be necessary parties in any application to the courts for an interpretation of the MTA; no Plan or other person having an interest in the Fund shall be entitled to any notice or service of progress.
22. Under section […] of the MTA, no person entitled to benefits under a participant Plan shall have any claim against the Trustee except by or through [the Company].
INTERPRETATION REQUESTED
We understand that pension entity rebates have been filed pursuant to section 261.01 of the ETA in respect of the aforementioned fees and expenses paid out of the Fund. You wish to know whether these fees and expenses constitute eligible amounts in respect of which the Master Trust is entitled to a rebate under section 261.01. Alternatively, you wish to know whether the Plans would be entitled to such a rebate.
INTERPRETATION GIVEN
The Department of Finance is currently examining issues with respect to the treatment of master trusts. Based on the current provisions of the ETA, we are pleased to provide you with the following interpretation.
Under section 261.01, a 33% rebate is generally available to a pension entity that is a “qualifying pension entity” on the last day of a particular claim period of the entity. The amount of the rebate is generally based on otherwise unrecoverable tax paid by the pension entity that qualifies as an “eligible amount”.
Generally speaking, a “qualifying pension entity” is defined as a pension entity of a pension plan other than a pension plan in respect of which listed financial institutions made, or can reasonably be expected to make, 10% or more of the total pension contributions to the pension plan. As [the Company] is not a listed financial institution, rebates may be available, subject to section 261.01, to pension entities of [the Company’s] pension plans.
The definition of “pension plan”, in part, includes a registered pension plan that governs a person that is a trust, while a “pension entity” is defined to include that person. 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. However, 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).
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 the terms of its own written trust agreement. The trust must also be created exclusively to serve as the funding media for a particular registered pension plan and must be governed 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. In the present case, 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. Moreover, as noted in point 15 above, the MTA confirms that all transactions, including those pertaining to investments, are dictated by applicable federal or provincial pension legislation as well as any statement of investment policies and procedures that may be applicable to the Fund. As noted in point 14, such investment policies are stipulated by [the Company] under the terms of the investment management agreements. Therefore, 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. Accordingly, it is not entitled to a rebate under section 261.01.
However, if one or both of the Plans are a “qualifying pension entity”, they may be entitled to a section 261.01 rebate based on “eligible amounts” of the entity. An “eligible amount” for a particular claim period of a pension entity is defined in subsection 261.01(1) to include an amount of tax, other than a recoverable amount in respect of the claim period, that:
“(a) became payable by the pension entity during the claim period, or was paid by the pension entity during the claim period without having become payable, in respect of a supply, importation or bringing into a participating province of property or a service that the pension entity acquired, imported or brought into the participating province, as the case may be, for consumption, use or supply in respect of a pension plan…”
Therefore, to the extent that an unrecoverable amount of tax is paid or payable by a particular pension entity, the amount may qualify as an eligible amount upon which the pension entity may calculate a rebate. However, such amounts would not include authorized amounts paid or payable by the Master Trust from the Fund under the terms of the MTA.
If you wish to discuss any of these matters further, please do not hesitate to call me at
613-952-9219.
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