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: 96213
December 21, 2010
Dear [Client]:
Subject:
GST/HST RULING
Status of Annual External Audit Fees
Thank you for your fax of July 29, 2007, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the external auditor's fees in respect the audit of the [...] Pension Trust Fund.
All legislative references are to the Excise Tax Act (ETA).
Statement of Facts
We understand that the following facts apply to your situation.
1. [...] (the "Employer") has its headquarters in [...] [Province X].
2. The Employer and a number of its subsidiaries and affiliates are members participating in pension plans administered under a Master Trust Plan ("MTP"). More than [...] % of the plan members are employed by a related group of employers. As such, the MTP is not a multi-employer pension plan for the purposes of section 261.01 as it read prior to Bill C-9 receiving Royal Assent on July 12, 2010.
3. The Employer is the administrator of the MTP, with the plan administrative responsibilities delegated to the Employer management committee. In support of this statement, section [...] of the Master Trust Agreement ("MTA") made between the Employer and [...] (the Trustee) states, [...].
4. Subsection [...]. [quote from provincial benefit regulation]
5. The MTP represents defined benefit plans with assets in excess of [...] dollars.
6. Under section [...] of the MTA, the Trustee is responsible to [...].
7. According to an engagement letter dated [mm/dd/yyyy], the Employer appointed [...] (the "Auditors") as the external auditors of [...] Pension Trust Fund for the year ending [mm/dd/yyyy]. The Auditors shall audit in accordance with generally accepted auditing standards the statement of net assets [of the Fund] available for benefits at [mm/dd/yyyy], and issue to [the Employer] a report on the annual audit.
8. The Employer's Chief Financial Officer and the Director of Corporate Pensions and Benefits, who are Employer committee members of the plan's unit-holder group, sign a Management Representation Letter addressed to the Auditors, that states: [...]. In paragraph [...] of the letter, the Employer states that its officials have made available to the auditor [...].
9. The Auditors issued [...] invoices dated [mm/dd/yyyy] and [mm/dd/yyyy] to the Employer for the performance of the audit service plus HST. They were approved by both the CFO of the Employer and the Director of Corporate Pensions.
10. The invoices are paid out of the MTA Fund held by the Trustee, as allowed in section [...] of the MTA, as follows: [...]. The Auditors' invoices identify the Employer plan account distribution by employer number, which ensures that the amount on the invoice is paid out of the Employer portion of plan contributions.
11. The Employer has consistently applied the provisions of TIB B-032R, Registered Pension Plans.
Ruling Requested
You would like to know if the Employer is eligible to claim an input tax credit (ITC) in respect of HST charged on the external auditor's fee.
Ruling Given
Based on the facts set out above, for the purposes of TIB B-032R, we rule that the Employer is eligible to claim an ITC, based on the requirements of section 169, in respect of the HST charged on the Auditors' invoices dated [mm/dd/yyyy] and [mm/dd/yyyy].
Explanation
For the purposes of applying the guidelines of TIB B-032R we offer the following comments:
Whether an employer can claim an ITC on pension related expenses depends on the classification of the expenses. An employer can claim ITCs on expenses that are considered to be Employer Expenses subject to section 169. In general, these activities are specified as the employer's responsibilities in the pension plan agreement or under the applicable pension legislation.
On the other hand, the employer is not allowed to claim ITCs on expenses that are considered to be Plan Trust Expenses; those expenses are related to plan trust assets and are regarded for use in the plan trust's operation. If the Plan Trust Expenses are incurred by a trust established under the pension plan that is registered for GST/HST, the trust would be entitled to claim an ITC to the extent that they are incurred in the course of commercial activity.
In the case at hand, the regulation governing the pension plan requires that the Employer file an actuarial report or cost certificate. The regulation also requires that an audit of the assets of the pension plan be performed and filed at the same time that the actuarial report or cost certificate is filed. The Trust Agreement indicates that the Employer can authorize a person to audit the assets and transactions of the Master Trust Fund. In fact, the Employer did contract with the Auditors for the provision of the annual financial statement audit of the assets of the [...] Pension Trust Fund.
Due to the statutory requirement to file an audit report concurrently with the actuarial report and the actual performance of the said audit by the Employer through the Auditors, we are of the opinion that the external audit fees are best classified as Employer Expense. Since the Employer has been consistently using the guidelines [announced] in TIB B032R as a basis for claiming ITCs, we therefore conclude that the Employer is eligible to claim an ITC on the invoices submitted by the Auditors in relation to the annual financial statement audit of the assets of the [...] Pension Trust Fund.
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 from the employer to the pension entity on most pension-related expenses incurred by the employer on the last day of the employer fiscal year. Generally, the pension entity is entitled to claim a rebate of 33% of the GST/HST it has paid or is deemed to have paid. The rebate is available irrespective of the nature of the plan arrangements or whether the pension entity is registered for the GST/HST.
The amendments apply for fiscal years of employers beginning on or after September 23, 2009. The amendments apply to a pension entity's claim periods (i.e., the first two or last two fiscal quarters of a fiscal year if the pension entity is not a registrant) beginning on or after September 23, 2009.
For your convenience, should you need more information on the rebate, you may refer to the following links at:
http://www.cra-arc.gc.ca/E/pub/gi/notice257/README.html
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.
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
Speciality Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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