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: 130384
October 19, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Deemed supplies of property and services to pension entities
This is further to our [...] communications dating from January 2011, in which we responded to your questions concerning the application of section 172.1 of the Excise Tax Act ("ETA") to various property and services provided by participating employers of registered pension plans. We wish to take this opportunity to respond formally to your questions.
All legislative references are to the ETA unless otherwise specified.
At issue in our communications was whether certain "specified resources" and "employer resources", described below, would form part of a deemed taxable supply pursuant to one of subsections 172.1(5), (6) or (7), in respect of which the employer would be deemed to have collected tax.
Legislation
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.
For purposes of subsection 172.1(6) and (7), an "employer resource" is essentially anything acquired, created, developed and/or produced by the employer including the employee labour and overhead required to do these things.
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. (For detailed information on the calculation of the deemed tax collected, please consult Part IV of GST/HST Notice 257.)
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) of the ETA 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.
Interpretation
Based on the above, a Plan employer is, generally speaking, deemed to have made a taxable supply and collected tax under any of subsections 172.1(5), (6) or (7) if the particular specified resource or employer resource is for consumption, use or supply in respect of "pension activity" of the pension plan.
In our view, the following items listed in your submission would be 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". We consider each of these items to be in respect of a "pension activity" to which section 172.1 would apply.
• Services pertaining to the establishment or subsequent amendment of a pension plan or plan trust.
• The preparation and filing of actuarial reports, financial reports and other information for a pension plan pursuant to statutory requirements.
• Administration services in relation to the collection of pension contributions and payment of pension benefits.
• The reconciliation of pension contributions to payroll records.
• The maintenance of records pertaining to employee hires, terminations and deaths.
• Pension benefit calculations.
• Pension adjustment calculations.
• Preparation of a pension entity's periodic pension rebate application forms (GST4607) and SLFI returns (GST/HST 494).
• Trustee services rendered by the employer or by third parties contracted by the employer.
• The retention of a trustee for a plan trust.
• Custodial or nominee services for plan trust assets.
• The appraisal of plan trust investment performance.
• The appointment of an investment manager for a plan trust.
• Plan trust portfolio management.
• Investment advice with respect to plan trust assets.
• Salaries or wages paid to employees who invest or manage funds for a pension entity.
• Brokerage, agents' charges and all other property or services relating to the acquisition, utilization or disposal of plan trust assets.
• Legal, accounting or auditing services rendered in respect of plan trust assets.
Conversely, we do not consider the following items listed in your submission to be in respect of a "pension activity". Accordingly, these would not be subject to the deeming rules of section 172.1.
• Third party accounting services supplied to an employer to determine the employer's obligations under section 172.1 of the ETA (i.e., with respect to deemed taxable supplies and the corresponding deemed tax collected).
• In the case of a hostile takeover of an employer, actuarial services and the preparation of an actuarial report to determine the liabilities of a pension plan, for the sole purpose of assessing the related financial impact on the assets and liabilities of a participating employer of the plan.
In addition, we discussed whether the deeming provisions of subsection 172.1(5) would apply in respect of supplies by a third party to an employer of payroll services that contain elements acquired by the employer for consumption or use its own activities as well as elements that are for supply to a pension entity for consumption, use or supply in a "pension activity".
Specifically, the payroll services in question involved the calculation and remittance of employee deductions for CPP, EI, income tax and a medical plan, but also included similar calculations and remittances in respect of a pension plan. In this case, we confirm that the services supplied by the third party in respect of the employer pension plan deductions would be considered as a "specified resource" for consumption use or supply in a "pension activity", and would generally be subject to the deeming rules of section 172.1. (The remaining service elements; i.e., the calculation and remittance of employee deductions for CPP, EI, income tax and a medical plan would be considered to be acquired for consumption or use by the employer in its own activities and not in respect of a "pension activity" for purposes of section 172.1.)
However, if the third party supplier were to provide all of the subject service elements together as part of a single supply to the employer, we would not require that the aforementioned "specified resource" (i.e., the third party services performed in respect of the calculation and remittance of pension plan deductions) to be included in a subsection 172.1(5) deemed taxable supply. For further information on determining whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies, please refer to GST/HST Policy Statement P-077R2, Single and Multiple Supplies.
As you know, the deemed tax collected on deemed taxable supplies made under section 172.1 must be calculated with reference to the fair market value of the particular specified resource or employer resource in question. In this regard, you also raised the question of whether resources that are otherwise subject to subsections 172.1(5), (6) or (7) could be excluded from the deeming rules if the value of those resources were immaterial. In response, we note that there are no de minimis rules that would preclude from subsections 172.1(5), (6) or (7) deemed supplies of insignificant value. However, we understand that the Department of Finance is currently examining issues of materiality with respect to the scope of the application of section 172.1.
Finally, notwithstanding the above classifications, please note that no particular specified resource or employer resource will in all cases be considered as relating to a "pension activity". Whether a particular resource falls within paragraphs (a) or (b) of the definition must be determined on a case-by-case basis. In making a determination, CRA may look to the provisions of the relevant pension plan documents, pension legislation and related documents or agreements.
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.
We trust that this information will be of some 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
UNCLASSIFIED
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