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.
To
[Addressee]
From
Paul Hawtin
Industry Sector Specialist
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
320 Street, Tower A
Ottawa ON K1A 0L5
September 17, 2012
Case Number: 145341
Subject: GST/HST Interpretation
Supplies under TIB B-32 and deemed supplies under section 172.1
This is in reply to your [correspondence] of June 13, 2012, and […] September 6, 2012, in which you request clarification of the interpretive position taken in Technical Interpretation Bulletin B-32, Registered Pension Plans, and the application of the deemed supply rules under section 172.1.
All references are to the Excise Tax Act (ETA) unless otherwise specified.
Issue 1 – Third Party pension expenses incurred by a participating employer of a pension plan
SCENARIO:
* […] ([…] [The Corporation]) is a registrant and a “participating employer” as defined in subsection 172.1(1).
* The [Corporation] Pension Plan (the “Plan”) is a registered pension plan that governs a person that is a trust, and the trust is a “pension entity” of the Plan as defined in subsection 261.01(1). The pension entity is resident in Canada and a selected listed financial institution.
* [The Corporation] entered into contracts with non-resident third parties (e.g., […] ([…] [A Co]) and […] ([…] [B Co])) to supply investment management services relating to “pension activities” (Footnote 1) of the Plan. The investment management services are not “excluded resources” as described in subsection 172.1(2).
* [The Corporation] is liable to pay the consideration for the supplies made by [A Co] and [B Co] and is the recipient of those supplies. Neither [A Co] nor [B Co] calculated GST/HST on the consideration for the supplies described in the invoices to [the Corporation].
* As the Plan is responsible for bearing the cost of the investment management services, [the Corporation] forwarded the invoices to the pension entity. The pension entity paid the amounts stated in the invoices to [A Co] and [B Co] directly.
QUESTIONS
You wish to confirm whether the interpretive position stated in TIB B-032 would apply to require [the Corporation] to collect and remit GST/HST in respect of the payment made by the pension entity.
You also wish to confirm that subsection 172.1(5) would apply in respect of a deemed taxable supply of the investment management services, thereby requiring [the Corporation] to self-assess under that provision, and that [the Corporation] may issue a related tax adjustment note (“TAN”) pursuant to subsection 232.01(5).
INTERPRETATION
Legislation
Pursuant to subsection 172.1(5), a “participating employer” of a pension plan that is a GST/HST registrant is generally deemed to have made a taxable supply where 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.
An employer that is deemed to have made a taxable supply under subsection 172.1(5) 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. The taxable supply is deemed to have been made, and tax is deemed to have been collected, on the last day of its fiscal year in which the employer acquired the specified resource.
The amount of tax deemed collected is generally calculated on the fair market value (FMV) of the specified resource in question. As you are aware, the legislation essentially requires the deemed tax be calculated as the sum of federal and provincial parts of the GST/HST. The federal part is the amount determined by multiplying the FMV of the particular resource or part by the tax rate set out in subsection 165(1), which is currently 5%. The provincial part is generally determined by multiplying the FMV of the particular resource by the sum of the “provincial factors” calculated for each relevant participating province. The “provincial factor” is calculated with reference the formulae contained in the definition of that term in subsection 172.1(1). For a full explanation and demonstration of this calculation, please see example 10 in GST/HST Notice 257, The GST/HST Rebate for Pension Entities.
Subject to section 232.01, an employer may reduce its net tax when it issues a TAN to a pension entity in respect of deemed supplies made under subsection 172.1(5). Generally, the employer may issue a TAN to the pension entity if tax becomes payable, or has been paid without having become payable, by the pension entity on an actual supply by the employer of a specified resource; and the deeming provisions of subsection 172.1(5) apply. The total tax amount of the TAN is calculated with reference to the formulae delineated in subsection 232.01(4), and the employer may make a net tax deduction of that amount for its reporting period that includes the day on which the employer issues the TAN, subject to subsection 232.01(5). For a full explanation and demonstration of this calculation, please see examples 15 and 16 in GST/HST Notice 257, The GST/HST Rebate for Pension Entities.
Application of TIB B-32
Under TIB B-32, 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 pension plan trust assets, the payment by the trust is generally treated as consideration for a supply made by the employer to the trust where:
* the plan trust pays the third party supplier directly,
* the employer invoiced the plan trust for the costs of the inputs, and/or
* the plan 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 plan 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.
In the present case, since the pension entity paid [A Co] and [B Co] directly for the investment management services, we would consider [the Corporation] to have made a taxable supply of the services to the pension entity for consideration equal to the invoice amounts. [The Corporation] would therefore be required to account for GST/HST calculated on those amounts. Also, [the Corporation] would be entitled to claim an input tax credit (“ITC”) in respect of the property or service being acquired for supply to the plan trust, provided that all of the conditions of section 169 are met.
Assuming that the investment management services are for consumption, use or supply by the pension entity in the course of pension activities of the Plan, [the Corporation] would be required to self-assess in respect of a deemed taxable supply at its fiscal year end in accordance with subsection 172.1(5) above. Where the conditions of section 232.01 are met, [the Corporation] would be entitled to issue a TAN and make a corresponding reduction to its net tax equal to the total tax amount calculated under subsection 232.01(4) for the reporting period in which it issues the TAN.
Additional comments
With regard to the tax consequences of supplies made by non-resident persons, you may wish to confirm whether the services at issue are performed in whole or part in Canada or if [A Co] or [B Co] otherwise carry on business in Canada for purposes of the registration provisions of subsection 240(1). […].
Issue 2 – Supply of in-house services to the pension plan
SCENARIO:
* [The Corporation] consumed or used “employer resources” (Footnote 2) that are not “excluded resources” for the purpose of making taxable supplies of in-house services for consumption, use or supply by the pension entity of the Plan in the course of “pension activities” in respect of the Plan. The employer resources consumed or used relate to services performed by [The Corporation] employees to administer the Plan.
* [The Corporation] issued invoices to the pension entity for the in-house services. [The Corporation] calculated GST/HST on the invoice amounts and the transaction was recorded in the books and records of the parties.
* On the basis that [The Corporation] consumed or used the employer resources for the purpose of making a taxable supply in the course of its commercial activities, [the Corporation] claimed input tax credits (“ITCs”) in respect of tax payable on the employer resources where available.
* The invoice amounts plus the applicable GST/HST were paid to [the Corporation] from Plan trust funds. The pension entity did not claim ITCs in respect of the tax paid.
* On the premise that the amount paid by the pension entity for the in-house services was not consideration for a supply, [the Corporation] issued a refund to the pension entity of the GST/HST it had collected on the payment; however, it did not refund any of the pre-tax amounts originally stated in the invoice.
QUESTION:
You wish to confirm whether [the Corporation] was required to collect and remit GST/HST on the amount paid in respect of the in-house services provided by [the Corporation] to the Plan.
INTERPRETATION
Consistent with the provisions of TIB B-32 above, since [the Corporation] incurred pension related expenses that were invoiced to the pension entity and paid out of Plan assets, the payment by the pension entity must be treated as consideration for a supply made by [the Corporation]. Accordingly, [the Corporation] was required to collect and remit GST/HST in respect of the payment made by the pension entity on the supply of the in-house services.
Further, assuming that the employer resources were for consumption, use or supply by the pension entity in the course of pension activities of the Plan, [the Corporation] would be required to self-assess in respect of a deemed taxable supply at its fiscal year end in accordance with subsection 172.1(6). Also, where the conditions of section 232.02 are met, [the Corporation] would be entitled to issue a TAN and make a corresponding reduction to its net tax equal to the total tax amount calculated under subsection 232.02(3) for the reporting period in which it issues the TAN.
If you wish to discuss any of these matters further, please do not hesitate to call me at 613-952-9219.
FOOTNOTES
1 as defined in subsection 172.1(1)
2 as defined in subsection 172.1(1)
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