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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa, ON
K1A 0L5
Case number: 117638
February 27, 2012
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Eligibility to claim input tax credits on pension plan expenses
Thank you for your letter of May 21, 2009 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to pension plan expenses. We apologize for the delay in responding.
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.
Our understanding of the facts is as follows:
[...] (the "Company") is registered for GST/HST with Business Number [...]. The Company manufactures [...]. The Company incurs administrative, legal, custodial, investment management and audit expenses in the course of administering its pension plan and fund. The invoices dated for [yyyy] and early [yyyy] are forwarded to the trustee [...] for payment from the pension fund.
The Canada Revenue Agency ("CRA") is unable to provide you with a ruling as the requested agreements and contracts governing the administration [of the] pension plan and pension fund have not been provided. However, we are pleased to provide you with the following interpretation which is a general interpretation of how the law would apply; this may assist the employer and the plan trust in determining their obligations and entitlements under the ETA.
Interpretation Requested
You would like to know whether input tax credits (ITC) can be claimed on the aforementioned pension related expenses.
Interpretation Given
A plan trust is, for GST purposes, a separate person from the employer. Assets vested in the plan trust are the property of the plan trust, and accordingly are not the property of the employer. The very purpose for creating the plan trust is to ensure that ownership of the assets is separated from the employer.
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.
A trust governed by a registered pension plan qualifies as an investment plan by virtue of subparagraph 149(5)(a)(i) and is included as a listed financial institution under subsection 149(1).
An essential function of a plan trust is to hold funds for investment purposes. Most services provided by a plan trust are normally financial services and are exempt from GST. The contribution of funds to the plan trust by the members of the plan and by the employer as well as the distribution of funds to the beneficiaries by the trust constitute financial services and are exempt. The investment of funds in financial instruments and the receipt of interest or dividends also constitute exempt supplies.
Prior to September 23, 2009, it is the CRA's administrative position as outlined in Technical Bulletin B-032, Registered Pension Plans, dated August 2011, that all property and services that are acquired or imported for use in activities relating to the plan trust assets, such as the holding or the investment of the assets, will be regarded as for the use in the plan trust's operation, and considered as Plan Trust Expenses. Property and services that are acquired or imported for use in activities related to the pension plan and not the plan trust assets will be regarded as having been acquired for use in the operation of the employer's business and considered Employer Expenses.
The determination as to whether an expense can be classified as an Employer Expense or a Plan Trust Expense should be based on applicable pension legislation or plan governing documents.
Subject to section 169, where GST/HST has been paid or payable on expenses regarded as Employer Expenses, the employer may claim an ITC to the extent that the expenses were used in the employer's commercial activity. On the other hand, only the plan trust is entitled to claim an ITC in respect of expenses that are regarded as Plan Trust Expenses provided they relate to the plan trust's commercial activity. Generally the plan trust would not be able to claim ITCs on Plan Trust Expenses as they are incurred for activities that are exempt.
Please note that the administrative position discussed above only applies to single employer pension plans.
Where the administrative position above has not been followed consistently or where the pension plan is not a single employer pension plan, the CRA will apply the interpretive position also outlined in B-032. This position takes the view that where the employer is the person liable (i.e., the employer is the recipient) under the relevant agreements to pay the consideration for pension-related expenses, the employer may claim ITCs on the GST/HST paid or payable on these expenses provided that all the requirements of section 169 are met. However, where the pension-related expenses for which the employer is liable are being paid out of trust assets (i.e., the pension fund), the payment by the plan trust will be regarded as consideration for a taxable supply of property or services made by the employer to the plan trust. The employer should account for tax on the consideration.
Note that multiple employee pension plan trusts have been able to claim a rebate for property and services that were acquired, imported, or brought into an HST-participating province by the trust for consumption, use, or supply, in relation to the plan. The rebate was equal to 33% of the otherwise unrecoverable tax paid or payable by the trust for expenses relating to the plan.
Effective September 23, 2009, the Minister of Finance introduced a new GST/HST pension plan rebate. The rebate includes a mechanism for a deemed taxable supply by the employer to the pension entity on the last day of the employer's fiscal year for most pension-related expenses incurred by the employer.
The employer must account for the amounts of tax that it is deemed to have collected by reporting this tax on its GST/HST return for the reporting period in which it is deemed to have made the taxable supplies and to have collected the tax. The employer may claim an ITC on GST/HST paid or payable on the pension-related expenses to the extent they have been incurred in the course of commercial activity.
Generally, a pension entity (e.g., a trust governed by a registered pension plan as defined under the Income Tax Act) that qualifies for the pension rebate is entitled to claim 33% of the GST/HST it has paid or is deemed to have paid unless the pension entity is a selected listed financial institution, in which case, it is entitled to claim a rebate only in respect of the GST or the federal portion of the HST. The rebate is available whether or not the pension entity is registered for the GST/HST.
If a pension entity is a registrant, a rebate for a particular claim period must be filed within two years after the filing due date for the GST/HST return for that claim period. The claim period for a pension entity that is a registrant is its reporting period. If the pension entity is not a registrant, it must file the rebate claim within two years after the end of the claim period. The claim period of a pension entity that is not a registrant is the first two or last two fiscal quarters of its fiscal year.
A pension entity that is entitled to a rebate may make an election jointly with all of the participating employers of the pension plan to transfer some or all of that pension entity's rebate entitlement to qualifying employers. Section 261.01 provides for three different types of elections. These elections are discussed in detail in GST/HST Notice 257.
These legislative amendments apply to fiscal years of employers beginning on or after September 23, 2009 and to a pension entity's claim periods beginning on or after September 23, 2009. They also apply to all pension plans whether single or multiple employer plans.
Please note that once the new rules take effect, our interpretive and administrative positions referred to above cease to apply.
Should you need more information with respect to our administrative position and the new pension rebate, you may refer to the following links at:
http://www.cra-arc.gc.ca/E/pub/gm/b-032/b-032-e.html
http://www.cra-arc.gc.ca/E/pub/gi/notice257/README.html
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)952-1512. 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
Specialty Tax Unit
Financial Institution & Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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