Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
|
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
|
Case Number: 58290XXXXX
XXXXXJune 8, 2006
|
|
Subject:
|
GST/HST INTERPRETATION
XXXXX Pension Plan
|
Dear XXXXX:
Thank you for your letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your pension plan operations funded through a trust. We apologize for the delay in responding to your submission.
As you are aware, in October 2003, the Department of Finance proposed an amendment to extend the application of section 261.01 of the Excise Tax Act (the "ETA") to a trust governed by a related-employer pension plan thereby permitting such plans to be eligible for the rebate that is otherwise limited to multi-employer plans as defined in subsection 261.01(1) of the ETA. However, the Department of Finance issued a further press release on November 17, 2005, stating that they will not be proceeding with the proposed amendment and that the Canada Revenue Agency would be addressing related-employer pension plans within its existing administrative policy.
We are currently revising Technical Information Bulletin 032R ("TIB-32R") to explain how the ETA generally applies to all pension plans that are funded through a trust. Although we have not completed the revision, we are pleased to provide you with the following information pertaining to the application of the ETA to expenses incurred by an employer and by a trust in respect of a pension plan.
Statement of Facts
XXXXX
1. XXXXX:
XXXXX.
XXXXX.
XXXXX.
2. XXXXX.
3. XXXXX.
4. XXXXX.
5. XXXXX.
6. XXXXX.
XXXXX.
7. XXXXX
XXXXX
XXXXX,
XXXXX,
XXXXX,
XXXXX,
XXXXX,
XXXXX,
XXXXX
XXXXX,
XXXXX,
XXXXX,
XXXXX,
XXXXX
XXXXX
XXXXX
XXXXX
8. XXXXX
9. XXXXX
10. XXXXX
11. XXXXX
12. XXXXX
13. XXXXX
14. XXXXX
15. XXXXX.
16. XXXXX.
17. XXXXX:
XXXXX.
XXXXX.
XXXXX.
XXXXX.
XXXXX
18. XXXXX.
Interpretation Requested
It is your understanding that TIB-032R will be revised to provide the treatment previously afforded to single-employer pension plans to related-employer plans. You would like to know how the revised TIB-032R will apply to costs incurred with respect to A's pension plan operations funded through a trust and how you may make a retroactive claim. You filed a waiver with CRA in XXXXX and request claims be allowed for all periods from that date until now as a result of the waiver and/or the Fairness Provisions because you have been trying to get a resolution to this issue for a number of years.
Interpretation Given
The purpose of a pension plan is to provide for pension benefits to employees in their retirement, and is generally viewed as part of the compensation package offered to employees. The plan documents provide the rules, including specific rights and entitlements, applicable to all the parties participating in the plan (e.g. the plan sponsor, the plan administrator, members of the plan among others), and for how the plan is funded. Although a pension plan is subject to the requirements of federal or provincial pension legislation, a pension plan is not a legal entity and it is not a person for GST/HST purposes. However, pursuant to the definition of "person" in subsection 123(1) of the ETA, a trust is a separate person. Therefore, where a fund is established under a pension plan and the fund is a trust, the fund is a separate person and is subject to the obligations and entitlements of the ETA as a person (e.g. a trust is considered to carry on activities, making and acquiring supplies, and is required to account for these transactions and file returns, etc).
Where a trust is engaged in commercial activities it is entitled to claim input tax credits to the extent it has acquired, imported or brought into a participating province, property or services for consumption, use or supply in the course of its commercial activities provided all the requirements for claiming an input tax credit under the ETA are met. However, a trust that is not engaged in any commercial activities (e.g. a trust whose only activity is the holding of financial instruments and making supplies of financial services that are exempt supplies) is not entitled to input tax credits with respect to the acquisition, importation or bringing into a participating province property or services for consumption, use or supply in the course of its activities that are not commercial activities.
Since a pension plan is not separate person, generally the sponsor (e.g. the employer), administrator (e.g. the employer, or in other cases a board of trustees or other person), and the trust (through the trustee) among other persons, carry on the activities in respect of the plan. Many expenses are incurred by the employer and the trust in carrying out activities with respect to the pension plan. Generally under pension law and trust law pertaining to pension plans, only those expenses that are reasonable and that pertain to the administration of the pension plan and the pension fund can be charged against the pension trust assets (i.e. the expense is absorbed by the trust, paid from the trust assets) where a trust is established in respect of a pension plan. Where an expense is charged against the trust assets, it pertains to the administration of the pension plan and fund, and therefore the expense is incurred in respect of property or services acquired for consumption, use or supply by the trust established in respect of the pension plan and pension fund. If the trust is engaged in commercial activities it will be entitled to claim input tax credits to the extent the property or services are for consumption, use or supply in the course of commercial activities of the trust and all the requirements are met in order to claim input tax credits under section 169 of the ETA. Otherwise, the trust may not claim any input tax credits in respect of property or services acquired in respect of the administration of the pension plan and fund.
Where an expense related to the pension plan is incurred by the employer and is not charged against the pension trust assets, it is our view that the expense is in respect of property or services acquired, imported or brought into a participating province by the employer for consumption, use or supply in the course of the employer's activities. Therefore, if the employer is engaged in commercial activities it is entitled to claim an input tax credit in respect of such property or services to the extent the property or service is for consumption, use or supply in the course of the employer's commercial activities and the requirements of section 169 of the ETA are met. In addition, in the scenario where the employer makes taxable supplies of property and services to the trust (e.g. the employer invoices the trust for taxable supplies such as accounting services it supplies to the trust) it is also entitled to input tax credits (provided the requirements in section 169 of the ETA are met), and the amount the employer charges the trust in respect of the taxable supply will be subject to tax.
In the possible scenario where a number of employers are participating in a plan and a particular employer incurs expenses for the employers, the particular employer would generally be making taxable supplies (e.g. a taxable supply of administrative services, or other services as the case may be) to the other employers, and therefore would be entitled to input tax credits (providing the requirements of section 169 of the ETA are met), and the amounts the particular employer charges the other employers would be consideration for taxable supplies and subject to GST/HST. Where the employers are not dealing with each other at arm's length, and the recipient of the supply is not a registrant who is acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities of the recipient, pursuant to section 155 of the ETA the consideration for the supply is deemed to be the fair market value of the property or service. Accordingly in those circumstances, GST/HST applies on the fair market value of the supply where it is a taxable supply.
The fund in respect of B is a trust and is therefore a separate person under the ETA. Unless B is engaged in commercial activities and acquires, imports or brings into a participating province property or services for consumption, use or supply in the course of commercial activities, it is not entitled to claim input tax credits in respect of property or services related to the pension plan. A, also a separate person under the ETA, is engaged in commercial activities, and to the extent it acquires, imports or brings into a participating province property or services related to the pension plan for consumption, use or supply in the course of its commercial activities, it is entitled to claim input tax credits provided the requirements in section 169 of the ETA are met.
Generally, under provincial pension legislation XXXXX and federal pension legislation, a pension plan must have an administrator. The administrator can be the employer, a committee, board of trustees or other person as stipulated. The administrator acts in a fiduciary capacity in relation to the members, former members and others entitled to benefits under the plan, and is generally responsible for ensuring the plan and fund adheres to the requirements of the particular pension legislation. Since an administrator of a pension plan is subject to fiduciary obligations with respect to the plan, it undertakes activities for the benefit of the plan and fund and not for its own benefit. It is our position that the administrator undertakes activities for the benefit of the plan and fund, and not for its own benefit, when it acquires property and services for the plan and fund from suppliers (for example, retains the investment manager for the trust in respect of the plan), and a charge is made against the trust assets for the consideration payable for the supply (either as direct payment by the trust fund or by reimbursement paid by the trust fund to the administrator). In such circumstances, the property and services are considered to have been acquired, imported or brought into a participating province for consumption, use or supply in the course of the activities of the trust relating to the pension plan.
A, the employer, is the administrator of its pension plans. Where it acquires property or services from a third party in its capacity of administrator and B pays for the supply directly, or indirectly by reimbursing A for the amount, and thus the amount is charged against the trust assets, the property or service is considered to have been acquired by A in its fiduciary capacity of administrator of the plan and fund and thus for consumption, use or supply by B. Therefore, A has not acquired the property or service for consumption, use or supply in the course of its commercial activities and it is not entitled to an input tax credit in respect of the tax paid on the consideration for the supply. However, since A acquired the property or service in its fiduciary capacity as the administrator for the benefit of the plan and fund, where A has paid for the supply and then B has subsequently reimbursed it for the amount, the reimbursement is not consideration for a supply and is not subject to GST/HST.
If the administrator makes supplies itself to the plan and trust instead of acquiring them for the plan and trust from a third party, the administrator will be required to apply GST/HST on the amount charged against the trust assets where the supply is a taxable supply. To illustrate, if A, the administrator, provides in-house services to the plan and trust, for example it uses its own employees to provide investment advice to B and thus B does not have to acquire such services from a third party, and an amount is charged against the trust assets, B is considered to have acquired a taxable supply of investment advice services from A, and therefore the amount is subject to tax. If an amount is not charged against the trust assets, A is not considered to have made a supply to B, but rather is undertaking activities for consumption, use or supply in the course of its own activities with respect to the pension plan and B.
In summary, where A has incurred expenses relating to the pension plan and B, and the expenses are not charged against the trust assets, the expenses are considered to be in respect of property and services for consumption, use or supply by A in the course of its activities. To the extent A is engaged in commercial activities and the requirements under section 169 of the ETA are met, it will be entitled to claim input tax credits for the GST/HST paid or payable on the consideration for the supplies of the property and services. Where A has made a supply of property or a service to B and charges B an amount for the supply, A is required to charge GST/HST on the amount, and is entitled to claim input tax credits as per section 169 of the ETA. However, where A has acquired property and services for B (as opposed to making a supply to B) in its fiduciary capacity of administrator and a charge is made against the trust assets directly or indirectly through reimbursing A for the amount paid or payable in respect of the supply, the particular property and services are considered to be for consumption, use or supply in the course of activities of B and not of A, and A is not entitled to claim an input tax credit in respect of GST/HST paid/payable on the consideration for the supply. In such circumstances, however, any reimbursement by B to A in respect of the supply is not subject to GST/HST.
Subsection 225(4) of the ETA provides time limits with respect to claiming input tax credits for a particular reporting period. Paragraph 225(4)(b) of the ETA, which is applicable to most registrants, provides that a person must claim an input tax credit for a particular reporting period by the due date of the return for the last reporting period to end within four years after the end of the particular reporting period. However, if the person is a specified person, subparagraph 225(4)(a)(iii) of the ETA provides, with certain exceptions, that the person must claim an input tax credit for a particular reporting period by the due date of the return for the last reporting period of the person to end within two years after the end of the person's fiscal year that includes the particular reporting period. A "specified person" for purposes of subsection 225(4) of the ETA is defined in subsection 225(4.1) of the ETA to mean a person that is a listed financial institution under subparagraphs 149(1)(a)(i) to (x) of the ETA during the reporting period; or, a person whose threshold amount from supplies of financial services determined under subsection 149(1) of the ETA exceeds $6 million in both the person's fiscal year that includes that period and the preceding fiscal year (except a charity, or a person whose supplies, other than supplies of financial services, in the two immediately preceding fiscal years are all or substantially all taxable supplies).
Since there is no specific provision in the ETA to provide for time limits for claiming input tax credits other than those set out in subsection 225(4) of the ETA, persons undertaking activities with respect to a pension plan (e.g. the employer, administrator, trust, etc.) are subject to the same time limitations for claiming input tax credits. Therefore, in the case of A pension plan operations, A and B will generally be able to go back four years or two years as the case may be to claim input tax credits for particular reporting periods where the requirements of section 169 and subsection 225(4) of the ETA are met.
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, Goods and Services Tax Rulings, 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9213.
Yours truly,
Susan Kissner
Industry Sector Specialist
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2006/06/23 — RITS 59027 — Supplies of Cut Fruit and Vegetables
Email this Content