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: 141971
April 12, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Supplies by a participating employer of a pension plan
This is further to your [correspondence] of January 31, 2012, concerning supplies made by an employer to a master trust in a pension arrangement and the related application of section 172.1 of the Excise Tax Act (ETA).
All legislative references are to the ETA unless otherwise specified.
ASSUMPTIONS
1. An employer, located in Ontario, maintains […] pension plans for its employees.
2. The funds pertaining to each plan are held in a master trust that does not qualify as a “pension entity” under section 172.1.
3. The employer, as administrator of the pension plans, entered into third-party service contracts with […] (the Contractors). The employer is the recipient of the services.
4. The employer, as recipient, paid the Contractors directly for the supply of their services. Since the supplies in question were made to the employer before July 1, 2010 (the day on which Ontario became a participating province), it paid GST equal to 5% of the value of the consideration for the services. The employer recovered the tax charged as an input tax credit (“ITC”).
5. On a periodic basis, the employer batches the invoices received from the Contractors and sends them to the trustee of the pension plans for reimbursement of the pre-tax amount. Since the master trust holds the pension funds pertaining to the pension plans, the employer reimbursements are paid by the master trust.
6. The employer treated a reimbursement received in April, 2010 as consideration for the supply to the master trust of services originally acquired from the Contractors. As the supply was made in Ontario, the employer collected and remitted GST at 5% of the amount of the reimbursement.
7. In August and September of 2010, the employer requested reimbursements in respect of supplies it had acquired from the Contractors before July 1, 2010. The employer treated the August and September reimbursements as consideration for the supply to the master trust of the services originally acquired from the Contractors. As the supply was made in Ontario after July 1, 2010, the employer collected and remitted HST at 13% of the amount of the reimbursement.
ISSUES
Firstly, you note that the employer treated the reimbursements as supplies in accordance with the interpretive position expressed in Technical Interpretation Bulletin B-032; however, you submit that the employer has, in error, exceeded its compliance requirements with respect to that position. In this regard, you note that, had the August and September reimbursements instead been paid to the employer before July 1, 2010, it would only have been liable for GST on those reimbursements as opposed to HST. Accordingly, you have requested confirmation that the employer would be entitled to reduce the amount of tax it remitted with respect to the August and September reimbursements to correspond with the ITC claim by the employer, which was in respect of GST only.
Secondly, you wish to confirm our views on the deeming provisions of section 172.1 as they might apply in situations where an employer makes a supply to a master trust. Further, you wish to confirm whether a pension entity in a pension arrangement that includes a master trust would be eligible for a rebate under section 261.01.
INTERPRETATION AND ANALYSIS
Master trusts
It is our understanding that a “master trust” generally holds the assets of beneficiary pension plans in a particular pension plan arrangement. A master trust agreement may provide for the collective investment and reinvestment of the assets of the participating trusts and each of the plans in the arrangement may hold units in the master trust.
Under subsection 172.1(1), 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 master trust is not governed by a pension plan in the arrangement it may not qualify as a “pension entity” as defined in subsection 172.1(1). Nevertheless, in an arrangement where a pension plan governs a person that is a trust, such as a trusts created in respect of a beneficiary pension plan, such a trust may be a “pension entity”, subject to the aforementioned definition.
We would require the relevant plan documents and agreements, including the trust documents, to provide more specific advice with respect to any supplies that may take place.
Issue 1: HST transition
Where an employer makes a supply to another person, the employer would be required to collect and remit GST/HST based on the value of consideration for a taxable supply, and the recipient of that supply, whether it is a master trust or a pension entity, 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 re-supplied property or services, 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.
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, a person who makes a taxable supply is required to collect the tax payable by the recipient. Where the employer in the present case made taxable supplies in Ontario before July 1, 2010, it would generally have been required to collect GST equal to 5% of the value of consideration for the supply. However, where the employer makes a taxable supply in Ontario on or after July 1, 2010, it is required to collect HST equal to 13% of the value of the consideration for the supply.
Pursuant to section 168, tax is generally payable by the recipient of a taxable supply on the earlier of the day that consideration for the supply is paid and the day it becomes due. Consideration, or part thereof, for a taxable supply is deemed to become due on the earliest of:
* the day the supplier first issues an invoice in respect of the supply for that consideration or part, or the date of that invoice, whichever is the earlier;
* the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and
* the day the recipient is required to pay that consideration or part to the supplier pursuant to a written agreement.
Accordingly, the employer would have been required to collect Ontario HST on the supply where consideration is paid or becomes due on or after July 1, 2010.
Issue 2: Application of section 172.1
As you are aware, a “participating employer” of a pension plan that is a GST/HST registrant is generally deemed to have made a taxable supply where,
* under subsection 172.1(5), the employer acquires a particular property or a service (i.e., a “specified resource”) for the purpose of re-supplying some or all of that property or service to a pension entity for consumption, use or supply by the pension entity in the course of pension activities of the pension plan;
* under subsection 172.1(6), the employer consumes or uses an “employer resource” for the purpose of making a supply of property or a service to a pension entity for consumption, use or supply by the pension entity in the course of pension activities in respect of the pension plan; and
* under subsection 172.1(7), the employer consumes or uses an “employer resource” in the course of pension activities of the pension plan and the consumption or use is not for the purpose of making a supply of property or a service to a pension entity.
For this purpose, a “pension activity” is defined in subsection 172.1(1) as an activity (other than an “excluded activity”) that relates to:
a) the establishment, management or administration of the pension plan or a pension entity of the pension plan; or
b) the management or administration of assets in respect of the pension plan.
An employer that is deemed to have made a taxable supply under subsections 172.1(5), (6) or (7) is also deemed to have collected tax in respect of the deemed taxable supply, meaning that the employer must self-assess tax equal to the deemed tax collected.
We understand that the Department of Finance is currently examining issues with respect to the scope of the application of section 172.1 to master trusts. However, based on current provisions of the ETA, subsections 172.1(5) and (6) will generally apply where specified resources and employer resources (collectively the “resources”) are acquired, used or consumed by an employer for supply to a “pension entity” (Footnote 1) . In that case, the provisions of subsections 172.1(5) or 172.1(6) will apply to deem the employer to have made a taxable supply and to have collected tax. In these circumstances, we note that tax paid or payable on the actual supply to the pension entity, as well as the deemed tax paid by the pension entity on the deemed taxable supply by the employer, would be “eligible amounts” in respect of which the pension entity may calculate a rebate, subject to section 261.01. Detailed information in this regard is included in GST/HST Notice 257, The GST/HST Rebate for Pension Entities.
On the other hand, where an employer resource is acquired by the employer for consumption or use in the course of pension activities in respect of a pension plan but not for supply to a pension entity, the deeming provisions of subsection 172.1(7) must be considered. Under that subsection, if a participating employer consumes or uses an employer resource in the course of a “pension activity” in respect of a “pension plan”, the employer will be deemed to have made a taxable supply of the resource in respect of which it will be deemed to have collected tax, and a specified pension entity will be deemed to have paid tax. The deemed tax paid by the specified pension entity on the deemed taxable supply by the employer would be an “eligible amount” in respect of which the specified pension entity may calculate a rebate, subject to section 261.01. Detailed information in this regard is included in GST/HST Notice 257.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments 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 this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8816.
Yours truly,
Paul Hawtin
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 As discussed above, whether an employer is making a supply to a pension entity or to a master trust must be determined on a case-by-case basis examining the relevant plan documents and agreements.
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