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: 130705
June 24, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
GST/HST Rebate for Pension Entities
Thank you for your letter of November 29, 2010, concerning the calculation of the new rebate for pension entities under the Excise Tax Act ("ETA").
You have asked for clarification concerning the amounts on which a "pension entity" (as defined in subsection 172.1(1) of the ETA) within a multi-employer pension plan may claim a rebate. More specifically, you are concerned about the ability of a pension entity that is a selected listed financial institution ("SLFI") to claim a rebate on the provincial component of the HST paid or deemed paid by the entity.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
INTERPRETATION
Pursuant to subsection 261.01(2), a "qualifying pension entity" (as defined in subsection 261.01(1)) may generally claim a rebate equal to 33% of all "eligible amounts" of the pension entity for a claim period.
The term, "eligible amount", is defined in subsection 261.01(1) of the ETA. 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 the latter 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.)
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. Further, 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.
As you are aware, SLFIs are required to use the special attribution method ("SAM") formula described in subsection 225.2(2) (iFootnote 1) and the draft Selected listed Financial Institutions Attribution (GST/HST) Regulations (the "draft SLFI Regulations") in determining their net tax. While 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, it may nevertheless make a corresponding adjustment for these amounts using the SAM formula.
This deduction is computed in element G of the SAM formula. Specifically, paragraphs 49(a) and (b) of the draft SLFI Regulations describe a number of different adjustments that may be made to element G. Of these adjustments, subparagraph (iii) of element G2 of paragraph 49(a) contains rules that allow an SLFI pension entity that has received a pension entity rebate for the GST or federal part of the HST to make a corresponding adjustment for an amount in respect of the provincial part of the HST.
It is important to note that there are other adjustments that may be required under element G of the SAM formula, for example subparagraph (iv) of element G7 of paragraph 49(b) requires an SLFI pension entity to include the federal part of the deemed tax paid under section 172.1. Also, subparagraphs (ii), (iii) and (iv) of element G12 require the SLFI pension entity to include amounts that can reasonably be regarded as the provincial part of the deemed tax calculated under section 172.1. The total of all prescribed amounts, including the adjustments described above, will be reported using Form GST494, on line 035 of Part D if positive and 037 of Part D if negative.
ADDITIONAL INFORMATION
Lastly, we wish to elaborate on the circumstances that would make a particular pension entity an SLFI for purposes of the above rules.
Under the definition contained in subsection 123(1), an SLFI means, at any time, a "listed financial institution" that meets the criteria set out in subsection 225.2(1).
As you indicate in your submission, pension entities of pension plans having one or more plan members residing in a particular 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 are exceptions to this rule, specifically, 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 has a permanent establishment in a participating province and any other province at any time in the taxation year is not 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).
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 (or in the fiscal year where that fiscal year is the first fiscal year of the pension entity) 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., GST on taxable supplies made 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 and not a QSIP in either one of its two immediately preceding fiscal years and 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).
Also, 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.
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 hope this clarifies the administration of the pension rebate for pension entities, including those involving multi-employer pension plans. 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 The SAM formula in subsection 225.2(2) is described as [...].
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