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: 137345
July 5, 2012
Dear [Client]:
Subject: GST/HST RULING
Eligibility to claim input tax credits on pension related expenses
Thank you for your letter of July 21, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to pension related expenses.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. […] (the Company) operates an advertising business and is registered for GST/HST with BN […].
2. The Company is the sponsor of a defined contribution plan referred to as the Pension Plan for Employees of […] (the Plan). Benefits are payable under the Plan in the event of retirements, deaths and terminations of employment.
3. The Plan is governed by the Pension Benefits Act, […] and regulations thereunder and is registered under the Income Tax Act.
4. […] the Plan documents indicate that the Company, as the administrator of the Plan, shall determine all questions relating to eligibility, membership, contributions and benefits and decides all matters relating to the overall investment operation, administration, interpretation and application of the Plan.
5. […] the Company has established a Pension Fund (the Fund) [under the terms of the Plan] for the purpose of receiving the contributions and providing benefits called for by the Plan. The Fund is administered by the Funding Agent in accordance with the terms of the Funding Agreement.
6. […] “Pension Fund” is defined as the Fund established under the terms of the Plan and the Funding Agreement to which all contributions under the Plan and from which all benefits payable under the Plan are to be paid.
7. […] “Funding Agent” as the insurance company, trust company or a group of at least [#] individuals…appointed by the Company to hold, administer and invest the Pension Fund.
8. The […] is the current Funding Agent.
9. […] member contributions and Company contributions are remitted to the Funding Agent for deposit to the member’s credit.
10. […] reasonable fees and expenses related to the administration of the Fund and Plan, including fees and expenses of the Company and its agents, may be paid from the Fund unless paid directly by the Company.
11. […] any overpayment by the Company in the Plan Year in excess of the amount required to be contributed or payments made by the Company in respect of expenses relating to the Plan that should have been paid out of the Pension Fund may be returned to the Company out of the Pension Fund. Where this is the case, the Funding Agent simply deducts these amounts from the surplus portion accumulated by the Fund and forwards a cheque to the Company.
12. The Plan is not funded through a person that is a trust or a corporation as respectively defined under paragraphs 149(1)(o) and 149(1)(o.1) of the Income tax Act. Instead, contributions remitted to the Funding Agent are held under a group insurance contract entered into by the Company with the Funding Agent (i.e., the issuer) and invested into various investment funds.
13. The Funding Agent provides benefits payable to the member under the terms of the Plan by making withdrawals from the account to which contributions have been allocated for the member. Where applicable, the Funding Agent may also pay the benefits in the form of an annuity.
14. In [mm/yyyy], the Plan filed a pension entity rebate application on form RC4607 to recover some of the GST/HST paid on expenses (e.g., audit and actuarial) incurred in connection with the administration of the Plan. The rebate was disallowed by the Summerside Tax Centre as the Plan is neither a trust nor a corporation.
RULING REQUESTED
You would like to know if the Company may claim input tax credits (ITC) on the GST/HST paid on expenses incurred in connection with the administration of the Plan and Fund whether or not the expenses are reimbursed by the Fund to the Company.
RULING GIVEN
Based on the facts set out above, we rule that, subject to all requirements of section 169 being met, the Company may claim ITCs for the GST/HST paid or payable on expenses incurred in connection with the administration of the pension Plan and Fund to the extent that the expenses were incurred in the course of the Company’s commercial activity. However, the Company must also account for GST/HST on amounts reimbursed by the Funding Agent in connection with these expenses.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Under section 261.01 a pension entity may generally claim a rebate of 33% on all “eligible amounts” for a claim period provided it is a “qualifying pension entity” on the last day of that particular claim period.
Under subsection 172.1(1) a “pension entity” of a pension plan is an entity that is a person referred to in paragraph (a) of the definition of “pension plan”, a corporation referred to in paragraph (b) of that definition, or a prescribed person. It is either a trust as described in paragraph 149(1)(o) of the Income Tax Act, a corporation described in paragraph 149(1)(o.1) of that Act or a prescribed person.
As the plan is neither funded through a trust nor a corporation as referred to above, the Plan does not meet the definition of pension entity. Hence the Plan is not eligible to claim the pension entity rebate.
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 that do not apply in this case), except to the extent that the business, 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 case at hand, expenses incurred by the Company with respect to the administration of the Plan and Fund relate to property or services acquired for consumption, use or supply in the course of the Company’s activities. As the person liable under the agreements, the Company may claim ITCs on GST/HST paid on expenses incurred in connection with the administration of the Plan and Fund to the extent that the expenses were incurred in the course of the Company’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, the Company must account for GST/HST on amounts reimbursed by the Funding Agent. This obligation to account for tax could also arise if the Company invoices the Funding Agent for the expenses or the Funding Agent pays on behalf of the Company a third party vendor directly. In such instances, the Company would generally be making a taxable supply of the Plan and Fund administration expenses to the Funding Agent.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9220. 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,
Constantin Constant
Special Provisions - FI Unit
Financial Institution & Real Property Division
Excise and GST/HST Rulings Directorate
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