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: 134262
February 27, 2012
Dear [Client]:
Subject:
GST/HST RULING
New GST/HST rules for pension entities
This is further to your letter of April 11, 2011 and our telephone conversation of November 7, 2011, concerning obligations and entitlements of [...] ([...] [Institution A]) and its pension plans under the Excise Tax Act ("ETA").
All legislative references are to the ETA unless otherwise specified.
Facts
1. [Institution A] has made or is required to make contributions to [#] separate defined benefit pension plans (the "DB Plans") (iFootnote 1) of which it is the administrator. [Institution A] is a "participating employer" of the DB Plans.
2. For each of the DB Plans, [Institution A] has entered into a custodial agreement under which the custodian is designated as trustee, and the assets of each DB Plan are held on the terms of a respective written trust agreement.
3. Each of the DB Plans is a "registered pension plan" under the Income Tax Act, and each of those plans governs its respective trust. Each of the DB Plan trusts are "pension entities" for purposes of the ETA.
4. None of the DB Plans are funded by listed financial institutions, and the DB Plan trusts are "qualifying pension entities".
5. Each of the DB Plans has members located in both participating and non-participating provinces.
6. [Institution A] has made or is required to make contributions to [#] defined contribution pension plans (the "DC Plans") (iiFootnote 2). Each DC Plan is a "registered pension plan" under the Income Tax Act.
7. Contributions to the DC Plans are invested in segregated funds under contracts for insurance. These contracts are not held on the terms of a trust.
8. [Institution A] is a GST/HST registrant. The DB Plan trusts are not engaged in any commercial activity and are therefore not GST/HST registrants.
9. [Institution A], as administrator of the DB Plans, enters into third party service contracts with actuaries, custodians, and investment managers. These services ("specified resources") are acquired for pension activities of the DB Plans and [Institution A] supplies them to the DB Plan trusts on a GST/HST exempt basis.
10. In addition, [Institution A] provides in-house administrative services ("employer resources") relating to the collection of pension contributions and payment of pension benefits. These employer resources are supplied to the DB Plan trusts on a GST/HST exempt basis.
Rulings Requested
1. [Institution A] is deemed under section 172.1 to have made taxable supplies of the specified resources and employer resources described in facts 9 and 10 above, and is deemed to have collected tax in respect of those deemed supplies.
2. The DB Plans may claim a rebate with respect to deemed tax paid under section 172.1, in respect of the deemed taxable supplies made under that section by [Institution A].
3. The DC Plans are not eligible for a rebate under section 261.01.
4. An input tax credit ("ITC") is available to [Institution A] for GST/HST it incurs in respect of the acquisition of the specified resources and employer resources described in facts 9 and 10.
5. Where [Institution A] makes actual supplies of specified resources and employer resources to the DB Plans that are GST/HST exempt, it may not issue a tax adjustment note ("TAN") under subsection 232.01 or 232.02.
6. A representative of [Institution A] may sign and submit Form RC4607, GST/HST Pension Entity Rebate Application and Election, in respect of the DB Plans.
Rulings Given
1. Subject to section 172.1, [Institution A] is deemed to have made taxable supplies of the specified resources and employer resources described in facts 9 and 10 above, and is deemed to have collected tax in respect of those deemed supplies.
2. Subject to section 261.01, the pension entities of the DB Plans may each claim a rebate with respect to deemed tax paid under section 172.1, in respect of the deemed taxable supplies by [Institution A].
3. The DC Plans are not eligible for a rebate under section 261.01.
4. An ITC is available to [Institution A] for GST/HST it incurs in respect of the specified resources and employer resources described in facts 9 and 10.
5. Where [Institution A] makes actual supplies of specified resources and employer resources to the DB Plans that are GST/HST exempt, it may not issue a TAN under subsection 232.01 or 232.02.
6. [Institution A] representatives may not sign or submit Form RC4607 in respect of the DB Plans. This must be done by an authorized signatory of the trust.
These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.
Explanation
1. Deemed taxable supplies under section 172.1
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 the relevant pension entity.
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.
However, whether an employer is deemed to have made a taxable supply and collected tax under any of subsections 172.1(5), (6) or (7) is contingent on whether the particular specified resource or employer resource is for consumption, use or supply, as the case may be, in the course of "pension activities" in respect of the pension plan.
For this purpose, a "pension activity" in respect of a pension plan 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 "excluded activity" is generally an activity that is normally carried on by an employer for purposes other than for administering a pension plan; accordingly, excluded activities are not considered "pension activities". Specifically, an "excluded activity" is an activity undertaken exclusively for:
a) compliance by a participating employer of the pension plan (as an issuer, or prospective issuer of securities) with reporting requirements under a law of Canada or of a province in respect of the regulation of securities;
b) evaluating the feasibility or financial impact on a participating employer of the pension plan of establishing, altering or winding-up the pension plan, other than an activity that relates to the preparation of an actuarial report in respect of the plan required under a law of Canada or of a province;
c) evaluating the financial impact of the pension plan on the assets and liabilities of a participating employer of the pension plan; or
d) negotiating changes to the benefits under the pension plan with a union or similar organization of employees.
As the specified resources and employer resources described in facts 9 and 10 are related to the establishment, management or administration of the pension plan or a pension entity of the pension plan and would not qualify as an "excluded activity", they are considered as "pension activities" for the purposes of the aforementioned deeming provisions of section 172.1. As the specified resources described in fact 9 are for supply to pension entities of the DB Plans, they will be subject to subsection 172.1(5) above. Similarly, since the employer resources described in fact 10 are for supply to pension entities of the DB Plans, they will be subject to subsection 172.1(6). Accordingly, [Institution A] is deemed to have made taxable supplies under those subsections and will be required to self-assess in respect of the subject specified resources and employer resources. The amount of the self-assessment must be calculated with reference to the fair market value of the resource in question (iiiFootnote 3) . This calculation is explained in Part IV of GST/HST Notice 257, The GST/HST Rebate for Pension Entities. Example 11 of that Notice demonstrates the calculation with reference to the deemed tax collected under subsection 172.1(5).
2. Rebates under section 261.01
As all of the pension entities in respect of the DB Plans are qualifying pension entities, they are eligible for a rebate, subject to section 261.01. The amount of the rebate is equal to 33% of all "eligible amounts", which generally includes actual tax incurred by the pension entity as well as the deemed tax paid by the pension entity under section 172.1.
The definition of "eligible amount" excludes "recoverable amounts". A "recoverable amount" is generally an amount of tax that is included in determining an ITC of the pension entity for the claim period. It is also an amount for which it can reasonably be regarded that the pension entity has obtained or is entitled to claim another rebate, refund or remission, or an amount that can be reasonably regarded as having been included in an adjustment resulting from the issuance of debit notes or the receipt of credit notes. For complete information on eligible amounts and recoverable amounts, please see the respective definitions included in Part I of GST/HST Notice 257.
Please note that the eligible amount for a particular pension entity will vary depending on whether or not the entity is a selected listed financial institution ("SLFI"). The circumstances under which a particular pension entity will be considered to be an SLFI are discussed in the additional information set out in pages 9 through 14 of this letter.
Where the pension entity in question is not an SLFI, an eligible amount generally includes GST/HST that is paid or payable by the pension entity on its purchases of goods and services during a claim period of the entity as well as tax that is deemed to have been paid by the pension entity under any of subsections 172.1(5), (6) and (7). Under those deeming provisions, a pension entity that is not an SLFI is deemed to have paid both the federal and provincial parts of deemed tax collected by the relevant employer. Further information on the calculation of the federal and provincial parts is included in Part IV of GST/HST Notice 257.
However, where the pension entity is an SLFI throughout a claim period, an "eligible amount" would only include amounts of GST (or the federal part of the HST) paid by the pension entity on its purchases of goods and services. Also, while an "eligible amount" for an SLFI pension entity would include the tax that is deemed to have been paid under subsections 172.1(5), 172.1(6) and 172.1(7), that tax would only include the federal part of the deemed tax paid under those provisions. (We note that, even though the SLFI pension entity would only be deemed to have paid the federal part, the employer that is deemed to have made the taxable supply will be deemed to have collected both the federal and provincial parts.)
Further, SLFIs are required to use the special attribution method ("SAM") formula in proposed section 225.2 and the Selected Listed Financial Institutions Special Attribution Method (GST/HST) Regulations (the "draft SLFI Regulations") to calculate its tax liability for the provincial part of the HST for participating provinces. An SLFI pension entity would not be permitted to claim a rebate in respect of the actual provincial part of the HST paid or payable by the SLFI on its own purchases or on the provincial part of the deemed tax calculated under section 172.1. However, the SAM formula includes adjustments for amounts for the provincial part of the HST that would otherwise be claimed through a GST/HST rebate.
3. The DC Plans
As indicated previously, only a qualifying pension entity may be eligible for a rebate under section 261.01. Pursuant to the definition in subsection 172.1(1), a "pension entity" of a pension plan includes an entity of the plan that is a person referred to in paragraph (a) of the definition of "pension plan". Under paragraph (a), "pension plan" means a registered pension plan (as defined in subsection 248(1) of the Income Tax Act) that governs a person that is a trust or that is deemed to be a trust for the purposes of that Act.
Given that the insurance contracts in respect of the DC Plans are not held on the terms of a trust, a "pension entity" would not exist in respect of the DC Plans. Accordingly, there would be no rebate available for pension expenses pertaining to the DC Plans. Moreover, since the deeming provisions of section 172.1 are predicated upon the existence of a "pension entity" in respect of a particular plan (ivFootnote 4) , the employer would not be deemed to have made taxable supplies or to have collected tax under that section.
4. Employer ITCs
Pursuant to section 169, ITCs may be available for GST/HST paid or payable to the extent that a registrant acquires inputs for consumption, use or supply in the course of the commercial activities of the registrant. A "commercial activity" is defined, in part, in subsection 123(1) as "...a business carried on by the person... except to the extent to which the business involves the making of exempt supplies by the person".
An employer that makes a taxable supply of a specified resource or an employer resource will have done so in the course of a commercial activity (vFootnote 5) of the employer, and so would generally be entitled to an ITC in respect of tax paid or payable by the employer in respect of the particular resource. However, where the employer makes an exempt supply of a resource, the employer would not be engaged in a "commercial activity" in relation to that supply and so would not be entitled to a corresponding ITC.
As previously discussed, an employer that makes a taxable supply of a particular resource is considered to have done so in the course of a commercial activity, which will, subject to section 169, give rise to an ITC in respect of the tax paid or payable by the employer in respect of the resource. Therefore, notwithstanding that an ITC would not generally be available when an employer makes an actual supply that is exempt, the employer could nevertheless claim an ITC for tax paid or payable in respect of the acquisition of a particular resource where section 172.1 deems the employer to have made a taxable supply of the resource. Since the employer is deemed to have made the taxable supply at its fiscal year end, it would only be entitled to claim the relevant ITC in calculating its net tax for the reporting period in which the deemed supply occurs.
5. Issuance of a TAN
Generally, where an employer is deemed to have made a taxable supply of a specified resource or an employer resource to the pension entity under subsection 172.1(5) or 172.1(6), but has also charged tax on an actual supply of the same property or service to the pension entity, sections 232.01 or 232.02 allow the employer to reduce its net tax when it issues a TAN in respect of the resource to the pension entity. However, where [Institution A] has made an actual supply to a DB Plan that is exempt, sections 232.01 and 232.02 would preclude the issuance of a TAN in respect of the supply.
6. Authorized representatives
[Institution A] representatives may not sign or submit Form 4607 for pension entity rebates of the DB Plans; rather, only an authorized representative of the pension plan trust may do so. Generally, an authorized representative is someone who has legal authority, such as the trustee, to sign documents on behalf of the trust.
Additional Information
1. Information requirements under subsection 172.1(8)
You asked us to confirm what information must be provided to pension entities under subsection 172.1(8) and whether this information must be submitted to the Minister.
As you are likely aware, if any of the deeming rules of subsections 172.1(5) to (7) apply to a particular employer, subsection 172.1(8) requires the employer to provide prescribed information, in prescribed form and manner, to the particular pension entity that is deemed to have paid tax under these rules. For purposes of subsection 172.1(8), the information set out below must be provided to a pension entity by an employer that is subject to the aforementioned deeming provisions. Note that there is no requirement for this information to be provided to the Minister directly, although it must be made available upon request.
The following information concerning a deemed supply of a specified resource made under subsection 172.1(5) is required for purposes of subsection 172.1(8) above.
• The name of the employer and business number, if applicable.
• The name of the pension entity and corresponding pension plan number.
• A description of the specified resource sufficient to identify it and the date that the employer acquired it.
• The fair market value ("FMV") of the specified resource.
• The federal part (viFootnote 6) of the deemed tax paid on the deemed taxable supply of the employer resource (FMV of specified resource × 5%).
• Where the pension entity is not an SLFI, the provincial part (viiFootnote 7) of the deemed tax paid on the deemed taxable supply of the employer resource (FMV of specified resource × sum of the relevant provincial factors).
• Where the pension entity is not an SLFI, the provincial factors (viiiFootnote 8) used to calculate the provincial part of HST.
The following information about a deemed supply of an employer resource made under subsections 172.1(6) and (7) is required for purposes of subsection 172.1(8) above.
• The name of the employer and business number, if applicable.
• The name of the pension entity and corresponding pension plan number.
• A description of the employer resource sufficient to identify it.
• The federal part of the deemed tax paid on the deemed taxable supply of the employer resource (multiply the following three items):
• the fair market value ("FMV") of the employer resource,
• the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply, and
• The GST or federal part of HST.
• Where the pension entity is not an SLFI, the provincial part of the deemed tax paid on the deemed taxable supply of the employer resource (multiply the following three items):
• the fair market value ("FMV") of the employer resource,
• the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply, and
• the provincial factor.
2. Selected listed financial institutions and qualifying small investment plans
As requested in your submission, we wish to elaborate on the GST/HST reporting requirements of registrant and non-registrant selected listed financial institutions ("SLFIs") and the circumstances under which a pension entity may be considered an SLFI for purposes of the ETA.
SLFI - definition
Under proposed subsection 225.2(1) a financial institution is an SLFI throughout a reporting period in a fiscal year that ends in its particular taxation year if the financial institution is:
• a listed financial institution described in any of subparagraphs 149(1)(a)(i) to (x) of the ETA during the particular taxation year; and
• a prescribed financial institution.
A pension entity of a pension plan that is an investment plan and has one or more plan members residing in an HST province and one or more plan members residing in any other province would generally be considered to be an SLFI under proposed subsection 225.2(1). However, there is an exception to this rule; i.e., when a pension entity is not a prescribed financial institution as set out in section 11 of the draft SLFI Regulations for purposes of proposed subsection 225.2(1).
In general, a qualifying small investment plan (QSIP) that, at any time in the taxation year, has a permanent establishment in a participating province and any other province is not a prescribed financial institution and would not be an SLFI, provided that it does not have an election in effect under section 15 of the draft SLFI Regulations to be an SLFI (Form RC4606, Election or Revocation for a Qualifying Small Investment Plan to be Treated as a Selected Listed Financial Institution).
Based on subsection 9(2) of the draft SLFI Regulations, a pension entity would generally be a QSIP for a fiscal year if the total of its "unrecoverable tax amounts" for all of its reporting periods in its immediately preceding fiscal year is equal to or less than $10,000 on an annualized basis. The pension entity's unrecoverable tax amount for a reporting period of the fiscal year is generally the sum of the GST that became payable by the pension entity (or was paid without having become payable) during the reporting period minus ITCs of the pension entity claimed in its return filed for the reporting period. For pension entities, this unrecoverable GST calculation includes the GST that the pension entity is deemed to have paid under section 172.1 (i.e., the federal part of the deemed tax collected by a participating employer of the pension plan under that section) where the fiscal year begins after January 28, 2011.
It is important to note that, for a particular fiscal year, a QSIP would be an SLFI if the QSIP was an SLFI throughout either one of its two immediately preceding fiscal years, was not a QSIP for either one of the two immediately preceding fiscal years, and was not an SLFI throughout the third immediately preceding fiscal year unless it has applied under section 16 of the draft SLFI Regulations not to be an SLFI (Form RC4612, Application to Not be Considered a Selected Listed Financial Institution).
Also, based on section 14 of the draft SLFI Regulations, a pension entity would not be an SLFI where less than 10 per cent of the total plan members of the pension entity are resident in participating provinces and, generally, the total value of the actuarial liabilities of a defined benefits plan or the total assets of a defined contribution plan attributable to plan members resident in the participating provinces is less than $100,000,000. For this purpose and other provisions in the draft SLFI Regulations, a "plan member" of an investment plan that is a pension entity of pension plan is an individual who has a right, either immediate or in the future and either absolute or contingent, to receive benefits from the pension plan.
Registration and Reporting requirements of an SLFI
Where a particular pension entity is an SLFI, the entity is required to calculate its liability for the provincial part of the HST by using the special attribution method ("SAM") formula and then make an adjustment to its net tax calculation. This net tax adjustment must be made for each reporting period in which the entity is an SLFI.
Generally an SLFI engaged exclusively in making supplies of exempt financial services is not required to register for GST/HST purposes. However, an SLFI pension entity that has made a reporting entity election, a tax adjustment transfer election or a consolidated filing election is required to register effective the day the particular election comes into effect. It is important to note that where an SLFI pension entity is party to a consolidated filing election, it meets its requirement to be registered by being a member of a consolidated group of SLFI investment plans that is registered.
An SLFI that is resident in Canada may voluntarily register regardless of whether the SLFI is engaged in commercial activities or making taxable supplies, pursuant to subsection 240(3). For more information on the registration requirements for SLFI investment plans please refer to GST/HST Notice 265, GST/HST Registration for Listed Financial Institutions (Including Selected Listed Financial Institutions).
If the SLFI pension entity is a registrant, its reporting period is a fiscal year (i.e., a registrant SLFI that has not made an election under section 246 or 247 for monthly or quarterly reporting periods). An annual filer that is an SLFI is required to file Form GST494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, within six months after its fiscal year. Please note that where a person is an SLFI that is an annual filer, they are not required to file a Form GST34, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return for Registrants. In addition, the SLFI may have to pay quarterly installments.
Where an SLFI pension entity has made an election to be a monthly or quarterly filer, it will be required to file Form GST34 for each reporting period as an interim return, and make an interim net tax payment or claim an interim net tax refund for each period. The interim GST34 return must be filed within one month after the end of the reporting period along with a payment, where required. To reconcile the interim net tax with the actual net tax, the SLFI pension entity would also be required to complete and file Form GST494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, and either remit any additional amount owing or claim a refund of any excess amount previously remitted. The GST494 return must be filed within six months after the entity's fiscal year-end.
If the SLFI pension entity is not a GST/HST registrant, it will file Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST Return (Non-personalized) for each calendar month as an interim return, and make an interim net tax payment or claim an interim net tax refund for each period. The interim GST62 return must be filed within one month after the end of the month along with a payment, where required. Again, to reconcile the interim net tax with the actual net tax, the SLFI pension entity would complete and file Form GST494, and either remit any additional amount owing or claim a refund of any excess amount previously remitted. The GST494 return must be filed within six months after the entity's fiscal year-end. Under proposed section 244.1 of the ETA, a pension entity of a pension plan that is an SLFI is required to have fiscal years that are calendar years for any fiscal year that ends after 2010.
For a detailed explanation of the reporting requirements for an SLFI, please consult GST/HST Guide RC4050, GST/HST Information for Selected Listed Financial Institutions.
Reporting requirements of a non-SLFI
If a particular pension entity were not an SLFI, it would not calculate its net tax using the SAM formula, nor would it file a GST494 return. Instead, where the non-SLFI pension entity is a registrant, it would simply calculate its net tax for each of its reporting periods using Form GST34. If the non-SLFI entity were not a registrant, it would not be required to file either of the aforementioned forms. However, it would be required to file a GST62 return for each reporting period for which net tax is remittable within one month after the end of the reporting period.
Based on proposed changes to the Financial Services (GST/HST) Regulations, only a pension entity of a pension plan that is a registrant and not an SLFI may be a reporting institution and required to file Form GST111 Financial Institution GST/HST Annual Return Information Return within six months of its fiscal year end, pursuant to section 273.2 of the ETA. For this purpose, a "reporting institution" is a person where the total of all amounts, each of which is an amount included in computing, for the purposes of the Income Tax Act, the person's income, or, if the person is an individual, the person's income from a business for the person's last taxation year that ends in the fiscal year, exceeds the amount determined by the following formula:
$1 million x A/365
(where A equals the number of days in the taxation year).
3. Provincial attribution percentage
You also asked for information on the calculation of the provincial attribution percentage for a pension entity of a defined benefits plan.
The term "provincial attribution percentage" is relevant for pension entities that are SLFIs. As previously discussed, SLFI pension entities are required to calculate their liability for the provincial part of the HST using the aforementioned SAM formula.
A pension entity's "provincial attribution percentage" is represented by Element C of the SAM formula, and must be calculated for each participating province (i.e., British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia and Ontario) in which the entity has a permanent establishment, such as a province in which a plan member of the SLFI pension entity is resident. Element C of the SAM formula is based on the pension entity's provincial attribution percentage for a participating province for the immediately preceding taxation year, unless the pension entity elects otherwise. This provincial attribution percentage would also be used to calculate the "provincial pension rebate amount" of an SLFI pension entity when it makes an election to share a pension entity rebate with a participating employer.
Since there are no pension entities with respect to [Institution A's] DC Plans, we will restrict our discussion of the provincial attribution percentage calculation as it applies to defined benefits plans generally. A particular pension entity of a defined benefits plan would be required to perform this calculation, but only if it is an SLFI (as discussed above).
An SLFI pension entity of a defined benefits plan is required to use the formula in section 38 of the draft SLFI Regulations to calculate its provincial attribution percentage for each participating province. The provincial attribution percentage of a pension entity of a defined benefits plan is, in general, determined by dividing the actuarial liabilities of the plan that are reasonably attributable to members of the plan resident in the province by the total actuarial liabilities of the pension plan reasonably attributable to plan members resident in Canada.
Non-resident plan members
An SLFI pension entity of a pension plan is required to treat non-resident plan members as plan members resident in a non-participating province in Canada when calculating its provincial attribution percentage, unless the SLFI pension entity elects to exclude these non-resident plan members from the calculation of its provincial attribution percentage by making an election under proposed subsection 225.4(7) using Form RC4610, Election and Revocation of an Election to Exclude Non-Resident Investment Holdings from the Calculation of the Provincial Attribution Percentages.
Plan member residency unknown
In general, an SLFI pension entity of a defined benefits plan would be required to obtain residency information for plan members for which all or substantially all (i.e., 90% or more) of the value of the actuarial liabilities are reasonably attributable. However, the formula in subsection 38(1) of the draft SLFI Regulations accounts for situations where the plan member residency information available is less that 90%. Since a plan member is an individual, under section 6 of the draft SLFI Regulations, a plan member's province of residence is the individual's principal mailing address in Canada.
In general, the part of the formula in paragraph 38(1)(a) that is in the last set of the square brackets of element A accounts for actuarial liabilities that are unallocated to plan members because the plan member's province of residence is unknown. In general, the value up to 90% of the actuarial liabilities that are reasonably attributed to these plan members is allocated to the selected province which is the participating province with the highest tax rate on the first day of the fiscal year (currently Nova Scotia).
For example, consider a pension entity of a defined benefits plan that does not have plan members in the participating province with the highest tax rate (referred to in the SLFI Regulations as a "selected province") but does not know the residencies of all plan members. If the actuarial liabilities reasonably attributable to plan members for whom their province of residence is known, on December 31 of the fiscal year, represents 60% of the actuarial liabilities held in the plan at the attribution point, the provincial attribution percentage for the selected province is 30%. This is as a result of the application of the part of the formula that is in the last set of the square brackets of element A of paragraph 38(1)(a).
4. Penalties
Lastly, you ask whether there would be any penalty if a pension entity that is a "specified investor" were to provide its "investor percentage" (described in section 30 of the draft SLFI Regulations) to an SLFI distributed investment plan.
Under subsection 55(3) of the draft SLFI Regulations, if a pension entity (other than an individual or specified investor) receives a written request from an SLFI distributed investment plan in which it holds investments, it is required to provide the SLFI distributed investment plan with:
• its investor percentage calculated in accordance with section 30 of the draft SLFI Regulations for every participating province as of September 30 of the calendar year set out in the request; and
• the number of units held on that day (September 30) in the SLFI distributed investment plan and, if applicable, in each series of the plan.
This information must be provided to the plan on or before the particular day that is the later of:
• November 15 of that calendar year; and
• 45 days after the day on which the unit holder received the request.
The information requirements under subsection 55(3) do not currently apply to specified investors. Further, there is no penalty that would apply where a pension entity that is a specified investor provides its investor percentage to an SLFI distributed investment plan.
However, where a pension entity that is not a specified investor fails to satisfy the information requirement under subsection 55(3), penalties are proposed under subsection 55(8). Specifically, where any of these persons fail to provide the information requested by the SLFI distributed investment plan or misstates such information, the person is subject to a penalty for each such failure equal to the lesser of:
• $10,000; and
• 0.01% of the total value, on September 30 of the calendar year set out in the request, of the units of the plan in respect of which the person was required to provide information under any of subsections 55(3) to (5) of the draft SLFI Regulations.
However, as outlined in Part 7 of the Draft Regulations Amending Various GST/HST Regulations released January 28, 2011, section 55 of the draft SLFI Regulations applies in respect of a reporting period of a person that ends on or after July 1, 2010, except that no person is subject to a penalty under the draft SLFI Regulations in respect of information that is required to be provided to an SLFI distributed investment plan on or before the day on which the draft SLFI Regulations are published in the Canada Gazette, Part II.
Note that under subsection 55(6) a pension entity may also be required to provide its investor percentage to a SLFI distributed investment plan if it is a qualifying investor.
For more information on provincial attribution percentages, information requirements related to holding investments in SLFI distributed investment plans (including the definition of "investor percentage") and the related penalties, and other rules that apply to SLFI pension entities discussed in this letter, please see GST/HST Technical Information Bulletin B-107, Investment Plans (Including Segregated Funds of an Insurer) and the HST and GST/HST Notice 259, Information Requirements Related to Investments in Selected Listed Financial Institution Distributed Investment Plans (other than Exchange-Traded Funds or Exchange-Traded Series).
With the exception of the rulings provided above, 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 (including the draft SLFI Regulations), or our interpretative policy could affect these views.
We trust that this information will be of assistance. 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
i 1 [...]
ii 2 [...]
iii 3 Note that if the employer resource was consumed during the fiscal year for the purpose of making the pension supply, the FMV of the employer resource is determined at the time the employer began consuming the employer resource in the fiscal year. However, where the employer resource is used but not consumed, the FMV must be calculated on the use, as determined on the last day of the fiscal year. For a discussion on the meaning "consumption" and "use", please refer to paragraphs 16 and 17 of GST/HST Memorandum 8.1, Input Tax Credits: Eligible Input Tax Credits.
iv 4 Subsections 172.1(5) and (6) will only apply if the employer has made an actual supply of a specified resource or an employer resource to a pension entity. Subsection 172.1(7) applies where the employer uses or consumes an employer resource in the course of pension activities in respect of a "pension plan", which is defined to require a registered pension plan to govern a person that is a trust or that is deemed to be a trust for purposes of the Income Tax Act.
v 5 A "taxable supply" is defined in subsection 123(1) to mean "...a supply that is made in the course of a commercial activity".
vi 6 Please see section 1 of Part IV of GST/HST Notice 257.
vii 7 Please see section 2 of Part IV of GST/HST Notice 257.
viii 8 Please see the definition of "provincial factor" in Part IV of GST/HST Notice 257.
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