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XXXXX
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File: 11595-2March 22, 1996
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This is in reply to the memorandum of February 16, 1996 from XXXXX of your office concerning the above-noted trust fund.
Facts
Our understanding of the facts is as follows:
1. XXXXX (the "Trust") was established by the XXXXX (the "Association") to hold and administer funds for the purpose of providing health and welfare benefits (excluding pension benefits) to employee's of participating Association members.
2. The benefits include:
• payments for medical and paramedical services
• payment for dental services
• sickness and accident benefits
• accidental death and dismemberment insurance[.]
3. The Trust is also responsible for other benefits under other types of insurance policies or agreements, e.g., life insurance. For this purpose, group life insurance coverage is obtained from a licensed insurer.
4. Under the Declaration of Trust (Draft), the trustees are authorized to:
• define and compute the benefits to be provided and the conditions of eligibility of such benefits
• in their sole and absolute discretion to enter into such contracts or arrangements and to procure such insurance policies as the trustees think advisable and have the power to renew, modify or terminate any such contract, arrangement or policy
• direct that contributions be paid by participating employers direct to any person, firm or corporation for the purpose of such person, firm or corporation providing health and welfare benefits to participating employees
• perform a number of other activities necessary for the operation of the Trust, e.g., invest the principal and interest of the Trust, engage and pay assistants, agents, professionals and other persons necessary for the administration of the Trust.
5. Members of the Association are required to make contributions either to the Trust or directly to a firm or corporation which has entered into an agreement with the Trust to provide health and welfare benefits to participating employees.
6. Any policy may be procured and issued in the name of the Trust.
7. A trustee may be reimbursed from the trust fund actual expenses incurred in attending each meeting of the Board of Trustees which the trustee is personally present. Except for this reimbursement, the trustee is not entitled to be paid or receive any compensation for the performance of its duties as a trustee, out of or from the trust fund.
Issue
1. Whether GST should be collected on the contributions from the employers who participate in the plan.
2. Whether there is any entitlement by the Trust to input tax credits in respect of its operations.
Our Position
1. With respect to the issue of whether GST should be collected from the employers who participate in the plan, it is our view that GST is not exigible since the payment by the employer is consideration for the acquisition of employment services, i.e., in lieu of paying an amount to the employees directly for salary or wages, the employer contributes, on the employees behalf, to a health and welfare trust of which the employees are beneficiaries. The employers are not recipients of supplies from the Trust.
2. With respect to input tax credit entitlement by the Trust, it is our view that the Trust is not entitled to input tax credits since it is engaged exclusively in exempt activities. Its services fall under paragraph (l) of the definition of "financial service", i.e., "... the arranging for, a service referred to in any of paragraphs (a) to (i), ..." of the definition of "financial service". Specifically, the Trust is arranging for services under paragraph (d), "the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a financial instrument" and paragraph (f), "the payment or receipt of money as dividends (other than patronage dividends), interest, principal, benefits or any similar payment or receipt of money in respect of a financial instrument". As a result, the services supplied by the Trust are exempt financial services and there is no entitlement to input tax credits.
If you have any questions, please contact P. Roach at (613) 952-9214 or R. Osudar at (613) 952-9220.
Yours truly,
J. Sitka
A/ Director
Financial Institutions/Corporate Reorganizations
GST Rulings and Interpretations
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