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XXXXX
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P. Tang
XXXXX File: 11585-32
XXXXX
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Dear Sir:
This is in reply to your letter and subsequent telephone conversations between your XXXXX and L. Springstead/Phil Tang of my staff concerning the application of GST to a group accident and sickness plan established by XXXXX and its associated corporations. We regret the delay in replying to your letter which was necessitated as a result of a thorough review of this area both within the Department and with officials of the Department of Finance.
Our understanding of the facts of the situation is as follows:
A. A group accident and sickness plan (the "Plan") was established by XXXXX and its associated corporations to provide supplementary health care coverage and short term disability coverage to their employees.
B. Contributions to the Plan are paid to a trust fund (the "Fund") to be held in trust by persons (the "Trustees") appointed by the XXXXX and its associated corporations (collectively referred to as the "Employers") and the employee associations.
C. One Trustee is appointed by each of the Employers and the employee associations for a term of XXXXX years.
D. Claims under the Plan are paid directly by the Fund.
E. XXXXX charges the Fund a prescribed fee plus GST for its in-house plan administrative services provided by its employees.
F. An insurance company processes the supplementary health claims (XXXXX services) of the Plan and charges the Fund a monthly fee plus GST for its services.
G. XXXXX is also invoiced and pays for other professional services in respect of the administration of the Plan, but does not charge the Fund for re-imbursement.
Your Questions
1) Could the monthly administration fee charged by the insurance company (for its XXXXX services) to the Fund be considered an "Employer Expense" (as described in TIB B-032R) so that XXXXX could claim the input tax credits retroactive to January 1, 1991?
2) Can the fee charged by XXXXX to the Fund for its in-house services be considered an "Employer Expense" so that XXXXX can "recover" the GST it has charged and remitted retroactive to January 1, 1991?
3) Can XXXXX claim an input tax credit for payment of other professional services in relation to the administration of the Plan? If the services are invoiced to and paid by the Fund, can XXXXX claim the related ITC?
Our Comments
The Department 's position on input tax credit entitlement in single employer pension plans is described in TIB B-032R.
The Department has recently concluded the interpretative policy work on other employee benefit plans, and is of the view that the position the Department has developed and published with respect to single employer pension plans in TIB B-032R can not be extended to apply to other employee benefit plans or to plans that are sponsored by more than one employer. This is due to the fact that there is no appropriate legislative authority to extend the application of the bulletin to these plans.
1. As stated above, the Department's administrative position described in TIB B-032R does not apply to the Plan. The Fund is a trust, and is therefore a "person" separate from the Employers for purposes of Part IX of the Excise Tax Act. When the Fund is charged a monthly fee by the insurance company for its XXXXX services of processing the claims under the Plan, XXXXX is not entitled to claim an input tax credit since the supply of the services is not acquired by XXXXX for its own commercial use, and no tax was paid or payable by XXXXX[.]
2. The supply of the in-house services by XXXXX of administering the Plan is a taxable supply subject to GST. Hence, XXXXX must include the GST amount in the prescribed fee charged by it to the Fund.
These in-house services relate to the administration of the Plan; similar services are treated as "Employer Expenses" in the bulletin. However, as stated above, the administrative position taken in the bulletin cannot be applied to the Fund. It is our view that XXXXX is not entitled to claim an input tax credit for the tax paid by the Fund since the supply is for the beneficial use of all the Employers (not XXXXX alone), and no tax is directly paid or payable by XXXXX in respect of the supply.
3. As in 2 above, the professional services relating to the administration of the Plan may be viewed as "Employer Expenses"; however the administrative position taken in TIB B-032R does not apply to the Plan. The administration of the Plan is for the benefit of all the Employers, including XXXXX. XXXXX is not entitled to claim an input tax credit for payment of the professional services since these services are not acquired specifically by XXXXX for its own use or supply in the course of its commercial activities.
Again, If the professional services are invoiced to and paid by the Fund, XXXXX will not qualify for any input tax credit for the payment.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memorandum Series Section 1.4, do not bind the Department with respect to a particular situation.
Yours truly,
J. Sitka
A/Director
Financial Institutions Division
GST Rulings and Interpretations
Policy and Legislation.
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