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: 119214
December 22, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of GST/HST to the [...] [Employer] and to its pension entities
Thank you for your letter of [mm/dd/yyyy] (from [...]), and your subsequent [...] correspondence concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the [...] [("Employer")] and to its pension entities.
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 based on the information that you have provided:
1. The [...] [Employer] is the sponsor of [...] pension plans (the "Plans"). All [...] Plans are defined benefit pension plans. The [...] Plans are: [...]
2. Each Plan is a registered pension plan for income tax purposes, and each Plan governs a trust. The Plan trusts are pension entities of the Plans for the purposes of the ETA, as they are either trusts described in paragraph 149(1)(o) of the Income Tax Act (ITA) or persons deemed to be trusts for the purposes of that paragraph;
3. The [Employer] is a participating employer of all of the Plans, with the exception of [...] [Plan X], for the purposes of the ETA. That is, the [Employer] is an employer that has made, or is required to make, contributions to the Plans or payments thereunder in respect of the employer's employees or former employees, or is an employer prescribed for the purposes of the definition of "participating employer" in subsection 147.1(1) of the ITA;
4. All of the members of [...] [Plan Y] and [...] [Plan Z] are former employees of the [Employer] or of [...]. All of these former employees have now retired. Thus, neither [Plan Y] nor [Plan Z] had any active members who were employees of the [Employer] on December 31, 2010;
5. The [Employer] is registered for GST/HST, has monthly reporting periods, and has a fiscal year that is the calendar year.
6. The Plan's pension entities are also registered for GST/HST, each having an effective registration date of July 1, 2010; and
7. Each of the Plans' pension entities has a reporting period of a fiscal year (annual filer) which is the calendar year and each became a selected listed financial institution ("SLFI") on July 1, 2010.
RULINGS REQUESTED
You have requested rulings with respect to the following:
1. You have asked us to confirm that the GST/HST that the [Employer] is deemed by section 172.1 of the ETA to have collected for the 2010 fiscal year should be reported on the [Employer's] December 2010 GST/HST return;
2. You have also asked us to confirm that the Plans' pension entities may file pension entity rebate applications for the claim periods included in the period from September 23, 2009 to December 31, 2010. You have asked how many claim periods each of the [...] pension entities will have for the 2010 calendar year. Specifically, you want to know whether each pension entity can file only one Form RC 4607, GST/HST Pension Entity Rebate Application and Election, for the entire 2010 calendar year. In addition, you wish us to confirm the filing deadlines for Form RC 4607 for the [...] pension entities for the 2010 calendar year;
3. You have asked us to confirm that the Plans' pension entities can each claim a 33% rebate on eligible amounts pertaining to the full year of 2010 in Form RC 4607, and you also request that we confirm your understanding that the Plans, as pension entities, can transfer these rebates to the [Employer] using Form RC 4607. You have also asked whether any pension entity rebates that are shared with the [Employer] would be included in the [Employer's] December 2010 GST/HST return. In addition, you have asked whether the GST/HST return in which the portion of the rebate that is shared with the [Employer] can be filed as usual;
4. You have asked us to confirm that the introduction of the new pension entity rebate regime does not alter the position taken by CRA in our letter dated [mm/dd/yyyy] (Case No. [...]). This letter addressed [...] [Employer] pension plans [...] and advised you that [...] as listed financial institutions [...]; and
5. For the purposes of section 172.1 of the ETA, when calculating the amount of tax that is deemed to have been collected by the [Employer], you have asked us to confirm that the "provincial factor", as defined in subsection 172.1(1), for the [Plan Y] and [Plan Z] pension entities for the 2010 fiscal year is zero.
You have also requested that we provide you with a ruling in respect of questions relating to the pension entity rebate that you have asked in your [...] [correspondence] of [mm/dd/yyyy] [...]. These questions will be the subject of a separate interpretation letter (Case No. 133819).
Rulings Given
Based on the facts set out above, we rule that:
1. Any GST/HST that the [Employer] is deemed to have collected pursuant to section 172.1 of the ETA as a participating employer must be reported by the [Employer] on its GST/HST return for the reporting period in which it is deemed to have made the supplies and to have collected the tax. With respect to the 2010 fiscal year, the [Employer] is deemed to have made taxable supplies and to have collected tax on the last day of its fiscal year, December 31, 2010, and the return for the reporting period is to be filed by January 31, 2011.
2. The [...] Plans' pension entities that are qualifying pension entities may each file pension entity rebate applications for their claim periods beginning on or after September 23, 2009. The [Employer], jointly with the pension entities for which the [Employer] is a qualifying employer, may elect to transfer some or all of the pension entities' rebate amounts in respect of those claim periods to the [Employer]. The Plans' pension entities will each have two claim periods for the 2010 calendar year. The first claim period includes the period from January 1, 2010 to June 30, 2010, and the pension entities must each file pension entity rebate application forms in respect of this first claim period on or before June 30, 2012. The second claim period includes the period from July 1, 2010 to December 31, 2010, and the pension entities must file pension entity rebate application forms in respect of this second claim period on or before June 30, 2013;
3. The [...] [Employer] Plans' pension entities that are qualifying pension entities may claim pension entity rebates on eligible amounts pertaining to the 2010 calendar year, and may jointly elect with the [Employer], as a qualifying employer, to transfer some or all of these rebate amounts to the [Employer]. Any net tax deduction to which the [Employer] is entitled as a consequence of such an election may be deducted by the [Employer] in its GST/HST return for its reporting period during which a pension entity files the election, and the [Employer] would file that return as usual;
4. Provided that the facts remain unchanged [...], we can confirm that the [Employer] pension plans as listed financial institutions [...]. The introduction of the pension entity rebate does not affect this [...].
5. The provincial factor for [Plan Y] and [Plan Z] would be zero for the 2010 fiscal year.
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
1) Accounting for deemed tax collected by a participating employer
A registrant participating employer that is deemed to have collected tax in respect of deemed supplies made pursuant to subsections 172.1(5) to (7) of the ETA must account for these amounts of tax. The participating employer is deemed to have made taxable supplies on the last day of the employer's fiscal year, and is deemed to collect tax on those deemed supplies on that day. The participating 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.
Any GST/HST that the [Employer] is deemed to have collected by virtue of any of subsections 172.1(5) to (7) of the ETA as a participating employer must be reported by the [Employer] on its GST/HST return for the [Employer's] reporting period that includes the last day of the [Employer's] fiscal year. As the last day of the [Employer's] fiscal year is December 31, any supplies that the [Employer] is deemed by section 172.1 to have made would be deemed to occur on this date. The [Employer] would be required to account for the GST/HST that it is deemed to have collected on its GST/HST return which relates to the reporting period which includes this date.
For further reference, additional information concerning deemed tax collected by a participating employer is available in Part IV of GST/HST Notice 257, Draft GST/HST Technical Information Bulletin, The GST/HST Rebate for Pension Entities.
2) Claim periods and filing deadlines
The pension entity rebate is available pursuant to section 261.01 of the ETA to pension entities that are qualifying pension entities on the last day of a particular claim period of the entity. This rebate is available for claim periods of a qualifying pension entity that begin on or after September 23, 2009. A claim period has the meaning assigned by subsection 259(1) of the ETA. A registrant's claim period is a reporting period, and a non-registrant's claim period is the first two or last two fiscal quarters of a fiscal year. A pension entity must not file more than one pension entity rebate application form for each of its claim periods.
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. If the pension entity is not a registrant, it must file the rebate claim within two years after the end of the claim period.
If the [Employer's] [...] pension plans are qualifying pension entities, then each of the Plans' pension entities may apply for a pension rebate amount equal to 33% of all of its eligible amounts for a particular claim period. Generally speaking an eligible amount is an amount of GST/HST paid or payable by a pension entity during a particular claim period, as well as GST/HST that is deemed by section 172.1 of the ETA to have been paid by the pension entity to a participating employer during that claim period. Additional information about how to determine whether a pension entity is a qualifying pension entity, as well as what constitutes an eligible amount is available in GST/HST Notice 257.
The pension entity rebate may be claimed for the claim periods of a pension entity that begin on or after September 23, 2009. The Plans' pension entities' first claim period that begins after September 23, 2009, is the period that is the first and second fiscal quarters of those Plans' fiscal year, which would be the period from January 1, 2010 to June 30, 2010. Their second claim period for the 2010 calendar year would be the period from July 1, 2010, to December 31, 2010.
The pension entity rebate applications for the claim period from January 1, 2010 to June 30, 2010 must be filed on or before the day that is two years after the end of that claim period, i.e. on or before June 30, 2012. The pension entity rebate applications for the claim period from July 1, 2010 to December 31, 2010 must be filed on or before the day that is two years after the date that the GST/HST return for that claim period must be filed. As the Plans' pension entities are SLFIs and annual filers, the date on or before which the GST 494, GST/HST Return for Selected Listed Financial Institutions, must be filed would be June 30, 2011 which is six months after the end of the fiscal year. The pension entities would consequently be required to file the Form RC 4607 that relates to that claim period on or before June 30, 2013.
The Plans pension entities became SLFIs on July 1, 2010, and would therefore calculate their pension entity rebates for the claim period from July 1, 2010 to December 31, 2010, as SLFIs. SLFIs are subject to specific rules with respect to the pension entity rebate, and as a consequence calculate their rebates differently than non-SLFIs. The specific rules that apply to SLFIs for the purposes of the pension entity rebate are discussed in detail throughout GST/HST Notice 257.
3) Sharing the pension entity rebate with an employer
A pension entity that is entitled to a rebate may make an election, which must be made 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.
Where an election is made, a qualifying employer may reduce its net tax in respect of the transferred amount. The employer may make a net tax deduction in respect of its elected shared portion in the reporting period that includes the day on which the election is filed with the Minister. The election must be filed by the pension entity at the same time that it files its rebate application for the particular claim period. The shared amount must therefore be accounted for by the employer as a net tax deduction on the employer's GST/HST return for the reporting period in which the pension entity files its rebate application and the election to share the rebate amount. The transferred amount deducted by an employer should not be reported on line 111 of the employer's GST/HST return. Instead, the employer should report the shared amount on line 107 as a net tax adjustment and should then include that total in line 108 as a net tax deduction.
When a pension entity is an SLFI throughout the claim period, the eligible amount upon which the rebate is calculated would only include amounts of GST (or the federal part of the HST) that are paid by the pension entity on its own purchases of goods and services, as well as the federal part of the HST that is deemed to have been paid under section 172.1. This is because SLFIs are not permitted to claim a rebate on amounts that can reasonably be regarded as being the provincial part of the HST. As a result, a pension entity that is an SLFI may only claim a rebate in respect of GST or the federal part of HST.
While an SLFI pension entity is not 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, it may nevertheless make a corresponding adjustment for these amounts using the special attribution method ("SAM") formula described in subsection 225.2(2). As SLFIs, the [Employer's] pension entities are required to use the SAM formula and the draft Selected Listed Financial Institutions Attribution Regulations (the "draft SLFI Regulations") in determining their net tax. For detailed information about how an SLFI pension entity calculates its net tax, please refer to GST/HST Technical Information Bulletin B-107, Investment Plans (Including Segregated Funds of an Insurer) and the HST.
To allow qualifying employers of an SLFI pension entity to realize a corresponding amount in respect of the provincial part of the HST, the pension entity must calculate its "provincial pension rebate amount". The "provincial pension rebate amount" would be added to the "pension rebate amount" and the sum of those amounts would generally be multiplied by the employer's elected shared percentage. The resulting amount is the amount that would be taken by the qualifying employer as a net tax deduction on its GST/HST return.
You have asked whether any rebates that the Plan's pension entities elect to share with the [Employer] would be included in the [Employer's] December 2010 GST/HST return. The [Employer] may account for such an amount on its December 2010 GST/HST return provided one of the pension entities has filed a Form RC 4607, GST/HST Pension Entity Rebate Application and Election during the [Employer's] reporting period which relates to that GST/HST return. Otherwise, the [Employer] would deduct any rebate amounts which are transferred to it by the pension entities on the [Employer's] GST/HST return for the reporting period for which the elections have been filed.
4) [...] pension entity rebate
You have asked us to confirm that the introduction of the new pension entity rebate regime does not alter the position taken by the Canada Revenue Agency in the [...] letter that you received from the Public Service Bodies and Governments Division of Excise and GST/HST Rulings Directorate dated [mm/dd/yyyy] (Case No. [...]). This letter addressed the [...] [Employer] pension plans [...] and advised you that these bodies, as listed financial institutions [...].
Based on the information you have provided [...]. The Plans' pension entities continue to be listed financial institutions [...].
5) Calculation of the provincial factor
A registrant participating employer may be deemed to have collected tax pursuant to section 172.1 in respect of supplies that it is deemed to have made to a pension plan. The amount of tax that the employer is deemed to have collected is calculated as the sum of the federal and provincial components of the tax.
The provincial factor is used in determining an amount of the provincial part of the HST that a participating employer may be deemed to have collected under any of subsections 172.1(5) through (7). "Provincial factor" is defined in subsection 172.1(1) in the following manner:
"provincial factor" in respect of a pension plan and a participating province, for a fiscal year of a person that is a participating employer of the pension plan, means the amount (expressed as a percentage) determined by the formula
A x B
where
A is the tax rate for the participating province on the last day of the fiscal year; and
B is
(a) if the person made contributions to the pension plan during the fiscal year that may be deducted by a person under paragraph 20(1)(q) of the Income Tax Act in computing its income (in this paragraph referred to as "pension contributions") and the number of active members of the pension plan who were employees of the person on the particular day that is the last day of the last calendar year ending on or before the last day of the fiscal year is greater than zero, the amount determined by the formula ... ;
(b) if paragraph (a) does not apply and the number of active members of the pension plan who were employees of the person on the particular day that is the last day of the last calendar year ending on or before the last day of the fiscal year is greater than zero, the amount determined by the formula ... ; or
(c) in any other case, zero.
As a registrant and as a participating employer of both [Plan Y] and [Plan Z], the [Employer] must determine the applicable provincial factor in respect of those Plans in order to calculate the provincial part of the HST that it is deemed to have collected in respect of those Plans for the 2010 fiscal year. Paragraph (a) of this provision would not apply to [Employer] in respect of either Plan since the number of active members of [Plan Y] and [Plan Z] who were employees of the [Employer] on the particular day that is the last day of the last calendar year ending on or before the last day of the fiscal year is zero. Paragraph (b) would not apply either, as the number of active members of [Plan Y] and [Plan Z] who were employees of the [Employer] on the particular day that is the last day of the last calendar year ending on or before the last day of the fiscal year is zero. Paragraph (c) would therefore apply, and the provincial factor would be calculated on the basis that component B of the formula is zero. The provincial factor for [Plan Y] and [Plan Z] would therefore be zero for the 2010 fiscal year. The deemed tax collected by the [Employer] would therefore only be calculated with reference to the federal part of the tax.
The "provincial factor" is used solely to determine the amounts of deemed tax that a participating employer has collected and a pension entity has paid pursuant to section 172.1. As discussed earlier in this letter, as SLFIs, the pension entities of the [Employer's] Plans will use the SAM formula and the draft SLFI Regulations in determining their net tax, including liability for the provincial part of the HST in respect of the deemed supplies under section 172.1. SLFI pension entities are required to make adjustments under the SAM formula which correspond to certain provincial portions of tax. For example, subparagraphs (ii), (iii) and (iv) of element G12 of the SAM formula require SLFI pension entities to include amounts that can reasonably be regarded as the provincial part of the deemed tax calculated under section 172.1.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8221. 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,
Kathryn Sigetich
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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