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: 157148
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Eligibility to claim input tax credits on pension plan related expenses
Thank you for your [correspondence] of September 26, 2013, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to pension plan related expenses.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Our understanding of the facts based upon your submission of September 26, 2013 and our subsequent conversations […], is as follows:
1. […]. [A Co] is registered for GST/HST purposes (BN […]). [A Co] is a specified person for GST/HST purposes as its threshold amounts under subsection 249(1) exceed $6 million.
2. [A Co’s] Pension Plan (the Plan) was established effective [mm/dd/yyyy] by the […] Directors of [A Co]. The Plan provides pension benefits to eligible employees of [A Co] who choose to participate in the Plan. The Plan is governed by the Pension Benefits Standards Act, 1985, R.S.C. and regulations thereunder (PBSA) and is registered for purposes of the Income Tax Act. The Plan is not registered for GST/HST purposes.
3. The revised and restated articles of the Plan ([mm/dd/yyyy]) state that the Plan has two components: the Defined Benefit component and the Defined Contribution component. The Defined Benefit component is limited to employees who transferred to [A Co] from the public service and were formerly under the […][Public Service Superannuation Act (PSSA)] Plan. The Defined Contribution component is available to all other employees, as well as to the continued employees (referred to above) who elect to participate. The “Administrator” of the Plan is defined to mean [A Co].
4. According to section […] of Article […] of the Plan, […], [A Co] as the Administrator, administers and operates the Plan including: engaging counsel and agents and obtaining and paying for clerical, medical, legal, investment, management, trustee, custodian and actuarial services, for the administration and operation of the Plan.
5. Under section […] of the Plan, the Administrator is entitled to obtain investment information and advice from an investment advisor(s) selected by the Administrator.
6. In accordance with section […] of the Plan which directs that [A Co] establish a Trust Fund or an insurance contract for the funding of the Plan, [A Co], as the Administrator, established an insurance contract for the funding of the Plan. The Pension Fund is administered in accordance with the terms of the insurance contract. The insurance contract was not provided for review.
7. The Pension Fund is to be held separate and distinct from [A Co]’s assets and its assets are to be accounted for separately between the Defined Benefit component and the Defined Contribution component.
8. [A Co] has contracted with […]([…][B Co]) to be the pension plan service provider and funding agent for the Plan. Both components of the Plan are funded under this contract.
9. According to section […] of the Plan, […], all normal and reasonable expenses incurred in the operation of the Plan and all taxes levied or assessed with respect to the Pension Fund may, at the discretion of [A Co] as the Administrator, be paid from the Pension Fund.
10. […].
11. Section […], sets out that the Plan is to be administered and construed in accordance with the laws of Canada, including, but not limited to the PBSA and the Income Tax Act.
12. […]
13. The submission includes a detailed listing of […] fees payable from the Plan. [A Co] enters into agreements with and contracts for these services with third parties (e.g., […][C Co], a pension consulting firm). The fees payable from the Plan are as follows:
* Administration: Annual statements, benefit calculations, PA and data handling, retirees’ indexation, questions and general consulting, annual information return, pension adjustment reversals and Office of the Superintendent of Financial Institutions’ assessment form.
* Actuarial Consulting: Committee-preparation and attendance, actuarial valuation, regulations and defined contribution provision changes (plan text, booklet, etc.), general consulting, actuarial valuation report-additional disclosure required by the Canadian Institute of Actuaries, actuarial valuation change in going concern assumptions and preparation of the presentation for the Board of Directors’ Audit Committee regarding the actuarial valuation.
* Investment Consulting: Defined benefit component performance review, defined contribution component performance review, defined contribution communication program, defined benefit surplus monitoring and rebalancing for the de-risking strategy, committee-preparation and attendance, general consulting and special requests, asset mix and Statement of Investment Policies and Procedures review for defined contribution component, preparation of the presentation for the Board of Director’ Audit Committee regarding de-risking, investment instructions to [B Co] on fund change and analysis and manager search for fund replacement.
14. An example of the discharging of such an expense for which [A Co] has contracted with [C Co] and for which you wish to claim an ITC is as follows:
* Sample invoice [#] dated [mm/dd/yyyy], for the amount of $[…] plus $[…] […][GST/HST] was issued to [A Co] from [C Co], a pension consulting firm.
* Work is completed by the pension consultant, [C Co].
* The invoice is sent to [A Co] for payment.
* The Vice President of Human Resources reviews and approves the invoice for payment.
* The Plan service provider, [B Co] is then notified that the funds can be taken from the Plan for payment.
* Invoice is paid by the Plan to [C Co].
RULINGS REQUESTED
You would like to know
1. Is [A Co] entitled to claim an input tax credit (ITC) on the pension expenses related to the plan that are itemized in Fact # 13 and that are discharged in the manner described in Fact # 14?
2. If [A Co] can claim ITCs, how far back is it eligible to claim them?
3. If [A Co] is eligible to claim an ITC, can it claim 100% of the GST/HST paid or a certain percentage?
RULINGS GIVEN
Based on the facts set out above, we rule that
1. [A Co] may claim ITCs for the GST/HST paid or payable on expenses described in Fact # 13 incurred in connection with the administration of the Plan where [A Co] is the recipient of the supplies described and to the extent that expenses were incurred in the course of [A Co]’s commercial activity. However, [A Co] is required to account for GST/HST on amounts paid from the Pension Fund in connection with these expenses.
2. An ITC that arises in a particular reporting period during which [A Co] is a specified person must generally be claimed in a return filed by the due date of the return for the [A Co]’s last reporting period that ends within two years after the end of the fiscal year that includes the particular reporting period.
3. Subject to all requirements of section 169 being met, [A Co] is eligible to claim an ITC in respect of GST/HST to the extent (expressed as a percentage) the property or service is acquired or imported for consumption, use or supply in the course of [A Co]’s commercial activities.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
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.
A “commercial activity” of a person means a business carried on by the person, or an adventure or concern of the person in the nature of trade (other than certain exclusions), except to the extent that the business or adventure or concern in the nature of trade involves the making of exempt supplies by the person. A commercial activity also includes the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply.
In the present case, the expenses incurred by [A Co] (the person liable to pay the consideration under the agreement for the supply) with respect to services related to the administration of the Pension Plan relate to property or services acquired for consumption, use or supply in the course of [A Co]’s activities. As the person liable to pay for the services, [A Co] may claim ITCs on GST/HST paid on expenses incurred in connection with the administration of the Plan to the extent that the expenses were incurred in the course of [A Co]’s commercial activity subject to all requirements of section 169 being met.
However since the expenses incurred have been paid from the Pension Fund assets, [A Co] must account for the GST/HST on these amounts. As with the investment management services of [C Co], where expenses incurred by [A Co] have been paid from the Pension Fund, we would consider [A Co] to have made a taxable supply of services for consideration equal to the invoice amounts. [A Co] would therefore be required to account for the GST/HST calculated on these amounts under sections 221, 225 and 228.
Time limits for claiming ITCs are set out in subsection 225(4). An ITC for a particular reporting period must generally be claimed by a person who is a specified person in a return filed by the person on or before the due date of the return for the last reporting period of the person that ends within two years after the end of the particular reporting period, or that ends within four years for a person who is not a specified person. A specified person is generally defined under subsection 225.1(4.1) to include a person whose threshold amounts under subsection 249(1) exceed $6 million.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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,
Nancy Jardine
Special Provisions - FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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