15 June 2006 GST/HST Interpretation 59990 - Supplies of Cut Fruit and Vegetables

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to proposed transactions regarding the XXXXX. We apologize for the delay in responding to your submission.

We understand the following from the information in your letter XXXXX, and a telephone conversation with XXXXX:

1. XXXXX.

2. XXXXX.

3. XXXXX.

4. XXXXX.

5. XXXXX.

6. XXXXX.

7. XXXXX.

8. XXXXX.

9. XXXXX.

10. XXXXX.

XXXXX.

XXXXX.

11. XXXXX.

12. XXXXX.

13. XXXXX.

14. XXXXX.

Proposed Transactions

1. XXXXX.

2. XXXXX.

3. XXXXX.

4. XXXXX.

5. XXXXX.

6. XXXXX.

7. XXXXX.

Interpretation Requested

It is your view that these transactions have the same net cash position as exists in the circumstances of the previous rulings issued by CRA in that invoices would have been issued to the employer for administrative expenses, but the cash cost of the underlying expense would be borne by the trust.

You request our confirmation that both XXXXX and the trust would be entitled to claim input tax credits in the circumstances as proposed.

You also would like to know if our views would change if the trust issued a GST-only invoice in respect of the costs previously charged to the trust by XXXXX; and, if in either case, the GST was actually in fact paid by XXXXX to the trust.

Interpretation Given

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 obligation 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).

Since a pension plan is not a legal entity, the sponsor (e.g. the employer), the administrator (e.g. the employer, committee, board of trustees or other person as stipulated by provincial or federal pension legislation) and the trustee of the pension plan trust, among others, undertake activities with respect to the plan. Generally, under pension 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 trust can be charged against the pension trust assets (i.e. absorbed by the trust, paid from the trust assets) where a trust is established in respect of the pension plan. With respect to the application of GST/HST to pension plans, no particular type of property or service is classified as being for consumption, use or supply by a person (e.g. the employer, the trust) participating in the pension plan. Where an expense in respect of a particular property or a service is charged against the trust assets, the expense pertains to the administration of the pension plan and trust, and therefore for GST/HST purposes the expense is incurred in respect of property or services acquired for consumption, use or supply by the trust established in respect of the plan. Where an expense is charged against the employer, the particular property or service is for consumption, use or supply in the course of the employer's activities.

All pension trusts are engaged in the making of supplies of financial services as defined in the definition of "financial service" in subsection 123(1) of the ETA (e.g. the investment of funds, the payments of benefits to plan members, etc.). By virtue of Part VII of Schedule V to the ETA, a supply of a financial service is exempt unless the supply falls within Part IX of Schedule VI and is accordingly a zero-rated taxable supply. Further, a supply deemed under subsection 150(1) of the ETA to be a supply of a financial service is exempt by virtue of Part VII of Schedule V to the ETA. If a trust is engaged in commercial activities it will be entitled to claim input tax credits to the extent the property and 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 the administration of the pension plan and trust.

Where the employer invoices the trust, and the trust pays the invoice from the trust assets, the trust is paying the employer to undertake activities in respect of the plan and trust, and therefore generally the amount is consideration for a taxable supply made by the employer to the trust. The employer is either supplying or re-supplying property or services, as the case may be, to the trust. The only exception to this situation is where the employer is the administrator of the plan and it has acquired property or services from a third party (as opposed to supplying property or services itself, e.g. it using its own employees to provide investment management services to the trust instead of acquiring the services from a third party for the trust) in its fiduciary capacity of administrator of, and for the benefit of the plan and trust. Where the employer acquires a particular property or a service from a third party in its capacity of administrator and the trust pays for the supply directly, or indirectly by reimbursing the employer for the amount, and thus the amount is charged against the trust assets, the property or service is considered to have been acquired by the employer in its fiduciary capacity of administrator of, and for the benefit of the plan and trust, and therefore for consumption, use or supply by the trust. The employer is not considered to have acquired the property or service for consumption, use or supply in the course of its commercial activities and is not entitled to an input tax credit in respect of the tax paid on the consideration for the supply. However, since the employer acquired the property or service in its fiduciary capacity as the administrator for the benefit of the plan and trust, where the employer has paid for the supply and then the trust has subsequently reimbursed it for the amount, the reimbursement is not consideration for a supply and is not subject to GST/HST.

Therefore, unless XXXXX has acquired, imported or brought into a participating province a particular property or service from a third party in its fiduciary capacity of administrator of the plan and trust for consumption, use or supply by the trust as explained above, XXXXX is correct in charging GST and remitting GST on the amounts it invoices the trust, and that are paid by the trust to XXXXX as the amounts would generally be consideration for taxable supplies made by XXXXX to the trust. Provided XXXXX meets the requirements for claiming input tax credits under section 169 of the ETA, it is entitled to claim input tax credits in respect of the GST paid on property and services to the extent they are for consumption, use or supply in the course of its commercial activities.

It should be noted that 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. Therefore, XXXXX is required to charge and remit GST/HST on amounts it invoices other employers where the amounts are consideration for taxable supplies, and if the transactions are not made at arm's length and section 155 applies, GST/HST applies on the fair market value of the supplies.

With regards to the trust established in respect of the XXXXX pension plan, the trust is not entitled to input tax credits in respect of the amounts XXXXX invoices the trust unless the trust can demonstrate that the amounts are in respect of property or services for consumption, use or supply in the course of the trust's commercial activities and all the requirements for claiming an input tax credit under section 169 of the ETA are met.

XXXXX.

Since in the proposed scenario the trust is not making a taxable supply as discussed above, it should not charge and remit GST in respect of the invoice amount. Further, the trust is not entitled to claim input tax credits in respect of the GST paid by the trust on the invoices XXXXX originally issued in respect of taxable supplies made by XXXXX to the trust unless it can demonstrate that the expenses are in respect of particular property or services it has acquired for consumption, use or supply in the course of commercial activities of the trust and the requirements for claiming input tax credits under section 169 of the ETA are met.

XXXXX.

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

2006/06/02 — RITS 59999 — Place of Supply Rules and ITC Eligibility