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XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
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M. Guerra
Case: HQR0000704
File 11585-32
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November 4, 1997
Dear XXXXX
This letter is in response to the facsimile of January 03, 1997, received from XXXXX We have previously provided you with an interim response dated May 20, 1997, with respect to the XXXXX single-employer pension plans. Administrative policy with respect to multi-employer pension plans is still being reviewed by the Department of Finance, however, XXXXX has requested, and we have agreed to provide, a letter stating our current administrative position with respect to multi-employer pension plans.
Our understanding of the facts is as follows:
Statement of Facts
1. XXXXX is involved in a number of pension plans including a multi-employer pension plan, XXXXX
2. The plans have each been set up as trusts and are regarded as separate legal entities from the City. None of the pension plans are registered for GST.
3. The City appoints members of a Pension Board ("Board") to administer the pension plans. The duties of the Board include the establishment of overall policies for the pension and benefit plans.
4. The Board is not a separate legal entity.
5. The administrative functions of the Board are carried out by the Pension and Benefits Division ("PBD") of the City.
6. The investment functions of the Board are carried out by the Investment Division ("ID") of the City.
7. The employees of the PBD and ID are legally employees of the City.
8. The PBD incurs the following expenses on behalf of the pension plans:
• salaries, benefits, membership dues (professional accounting, pension and benefits association) and allowances of employees of the Division and members of the administrative board who work with the pension plans
• conference fee, seminar fees and related travel for items that deal with the administration of pension plans
• telephone rental, long distance, fax, photocopying, postage, printing and courier charges for items that deal with the pension plans
• data processing charges for using an outside service to administer the pension plans database
• actuarial and legal fees for each pension plan
• fees to maintain the registration of the pension plans with the Superintendent of Pensions
• other items such as stationary, office supplies, industry publications, furniture and fixtures
9. The ID incurs the following expenses on behalf of the pension plans:
• salaries, benefits, membership dues (professional accounting) and allowances of employees of the Division and members of the administrative board who work with the pension plans
• conference fee, seminar fees and travel regarding investment decisions, policies and procedures used for the investment portfolio for the pension plans
• telephone rental, long distance, fax, photocopying, postage, printing and courier charges for items that deal with the pension plans
• external financial audit of the pension plans
• investment manager fees, portfolio measurement fees, custodial service fees and banking fees related to the investments of the pension plans
• other items such as stationary, office supplies, industry publications, furniture and fixtures
10. The City is invoiced for and pays for all the expenses incurred by the PBD and the ID. Expenses incurred by the PBD and ID are allocated (at cost) to the various pension plans every six months. This procedure is done through a journal entry, there is no actual invoicing per se done.
11. Beginning in 1996, investment manager fees are invoiced to and paid for directly from the plan trust.
Interpretations Requested
The main questions posed by the client are as follows:
• Can the expenses incurred by the Pension and Benefits Division and the Investment Division be classified as Employer Expenses or Plan Trust Expenses per Technical Information Bulletin B-032R?
• Are the administrative services provided by the Pension and Benefits Division a taxable supply for GST purposes?
• If the City is not making a taxable supply and therefore no GST should be charged, are the Pension and Benefits Division and Investment Division eligible for a rebate for municipalities?
• If the City is to charge GST on any supplies, can the pension plans claim ITCs equal to the amount of GST paid to the Pension and Benefits Division?
Analysis
A response with respect to the single employer pension plans was provided on May 20, 1997. This letter will respond to the client's questions with regards to multi-employer pension plans.
The Department's administrative position on input tax credit entitlement described in TIB-032R applies specifically to single employer pension plans only and cannot be applied to multi-employer pension plans. There is no legislative authority to extend this position to multi-employer pension plans therefore we do not make the distinction between Employer Expense and Plan Trust Expenses.
In a multi-employer pension plan that is established pursuant to one or more collective agreements, a board of trustees or other similar body constituted in accordance with the terms of the pension agreement or the collective agreement is the "administrator" of the plan. In the case of any other multi-employer plan, a pension committee constituted in accordance with the terms of the plan is the "administrator" (see subsection 7(1) of the Pension Benefits Standards Act, 1985). In both cases, the administrator will be responsible for the administration of the plan. The employers/sponsors are only required to make periodic pension contributions to the plan, they are not required to administer the plan. Hence, if an employer/sponsor of a multi-employer pension plan is invoiced for expenses relating to the administration of the plan, the employer/sponsor cannot be said to have acquired the related property or services for use in the course of its commercial activities, and no ITC's can be claimed by the employer. If the employer/sponsor "re-supplies" the expenses to the board of trustees and charges tax on the re-supply, the employer/sponsor may be said to have acquired the related property or services for re-supply (to the board of trustees) in the course of its commercial activities, and may claim the appropriate input tax credit in accordance with the rules of section 169 of the Act.
Further, it is also our view that, where an employer/sponsor of a multi-employer pension plan provides in-house taxable services to the board of trustees, the provision of these services constitutes the making of a taxable supply by the employer to another person, and tax must be charged in accordance with the provisions of subsection 165(1) of the Act.
In applying the above to this case, the administration of the plan is done by a Pension Board on behalf of the various plan sponsors/employers. The Board has engaged the City as administrator of the plan. In this regard then, the administration of this plan is not the responsibility of the City, the City is merely providing a service to the Pension Board. This service is supplied to the Pension Board and is therefore taxable at 7%. The City would be entitled to input tax credits on the inputs used in providing this service to the Pension Board. Since the Pension Board is not acquiring these services for consumption or use in the course of commercial activities, it is not entitled to claim input tax credits. If the Board were designated as a para-municipal organization (since we are dealing with the XXXXX and various departments), it could be entitled to claim a rebate under section 259. This issue is currently under review by the Department of Finance therefore, the current position is that the Board cannot claim any input tax credits or rebates.
Should you have any questions, please do not hesitate to contact me at (613) 952-9577 or Duncan Jones at (613) 952-9210.
Sincerely,
Marilena Guerra,
C.M.A. Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch
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