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: 133414
October 19, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Deemed supplies of property and services to pension entities
This is in response to your [...] [enquiry] of March 2, 2011, concerning the application of section 172.1 of the Excise Tax Act ("ETA") to various property and services provided by participating employers in respect of various [...] pension plans.
All legislative references are to the ETA unless otherwise specified.
You represent [...] ("[Corporation A]"), which we understand provides administration services in respect of [...] (collectively, the "Plans"). [Corporation A] administers the Plans according to [...]. In fulfilling their responsibilities, we understand that, for the benefit of all active and retired members, [Corporation A] provides the following services in respect of the Plans:
[...]
By contrast, employers (whose employees are members of the Plans) provide services to active members. We understand that [...]. In this regard, the employers use their own employees (i.e., "employer resources", as defined in subsection 172.1(1) and discussed below) to render the following services in respect of the Plans, consideration for which is paid [...] from Plan assets.
Upon entry, termination, retirement or death of an employee, the employers use employer resources to:
1. communicate to employees when and how they become eligible to enroll in the Plans;
2. provide complete, accurate and timely enrolment information about Plan members;
3. where applicable, retain Plan enrollment waivers;
4. complete and submit death certificates;
5. complete and submit employment termination notices; and
6. upon a member's retirement [...].
Employers use employer resources to provide periodic administrative tasks in respect of the Plans, namely:
7. remitting member/employer contributions on a monthly basis;
8. preparing and submitting payroll report information on annual and fiscal basis;
9. balancing remittances with payroll reports;
10. updating income tax information of Plan members where necessary;
11. distributing pension adjustment amounts to members annually
12. distributing benefit statements to members annually; and
13. maintaining members' Plan records for at least six years beyond the period of a particular employment relationship.
Lastly, employers use employer resources to occasionally engage in the following activities in respect of the Plan:
14. updating and reporting member records and tombstone data;
15. assisting members with "purchase of service" applications and providing supporting information;
16. completing and submitting long-term disability confirmation reports and related forms necessary for Plan administration;
17. advising of any updates to certain group disability plans;
18. providing employees with Plan information by posting notices and providing brochures; and
19. maintaining employee websites for Plan administration.
You state that the cost to the employer of the employer resources relating to the tasks enumerated in items 1-19 above is immaterial and that, in most cases, this would amount to less than one full-time equivalent position.
INTERPRETATIONS REQUESTED
1. On the assumption that the value of the employer resources utilized in providing the tasks enumerated in points 1-19 above are immaterial, you wish to confirm whether Plan employers would nevertheless be required to calculate and remit GST/HST on deemed taxable supplies under section 172.1.
2. You wish to confirm whether the employers are subject to the deeming rules of subsection 172.1 in the situation where [Corporation A] provides administrative services in respect of the Plan.
INTERPRETATION
Legislation
Regarding employer resources, 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(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 subsections 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 section 172.1 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 in relation to an employer resource under subsections 172.1(6) or (7) is contingent on whether the employer resource in question 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.
Interpretation
As previously noted, whether an employer is deemed to have made a taxable supply and collected tax under either of subsections 172.1(6) or (7) is contingent on whether the employer resource in question is for consumption, use or supply in the course of a "pension activity" in respect of the pension plan.
With the exception of item 17, and in certain cases items 1 and 18, we consider each of the employer resources listed in points 1-19 above to be in respect of a "pension activity" of a Plan since they pertain to the establishment, management or administration of the Plan. Accordingly, they are subject to the deeming provisions of subsections 172.1(6) or (7). The deemed tax collected on deemed taxable supplies under these provisions must be calculated with reference to the fair market value of the particular employer resource in question. While there are no de minimis rules that would preclude from subsections 172.1(6) or (7) deemed supplies of insignificant value, we understand that the Department of Finance is currently examining issues of materiality with respect to the scope of the application of "employer resources" for the purposes of section 172.1.
Regarding items 1 and 18, to the extent that the costs of these employer resources are charged against Plan assets for the provision of information to employees concerning their contributions, they would be considered as being in respect of the establishment, management or administration of a Plan or a pension entity of the Plan, and would be a "pension activity" in respect of the Plan.
Regarding item 17, activities undertaken in the administration of a group disability plan would not fall within the definition of a "pension activity". Activities undertaken in the administration of a group disability plan would not be subject to the deeming rules of section 172.1.
We wish to note that no particular employer resource will necessarily be classified as relating to a "pension activity". Whether a particular item 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.
We also note that many expenses are incurred by the employer and the pension entity in carrying out activities with respect to the pension plan. Expenses incurred by the employer in carrying out these activities, whether reimbursed by the pension entity or not, will generally be subject to the deeming rules of section 172.1.
Lastly, where [Corporation A] provides administrative services in respect of a Plan, the deeming provisions of section 172.1 will apply as long as the conditions of that section are met. Among other things, the terms of section 172.1 will only apply to a "participating employer" of a pension plan. A "participating employer" of a pension plan is generally an employer that has made, or is required to make, contributions to the plan or payments thereunder in respect of the employer's employees or former employees.
ADDITIONAL INFORMATION
As requested, we wish to elaborate on the circumstances that would make a particular pension entity a selected listed financial institution (SLFI) for purposes of the ETA.
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).
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 under section 15 of the draft SLFI Regulations to be an SLFI in effect (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 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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