6 December 2000 GST/HST Interpretation 25597[1] - Application of the GST/HST to Pension Plan Operations

Dear XXXXX:

Thank you for your letter of October 16, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your pension plan operations.

Statement of Facts

Our understanding of the facts is that the XXXXX pension plan operates as follows:

The XXXXX Pension Plan ("Plan") is a defined benefit pension plan that is sponsored by XXXXX and some of its related companies.

The employees of XXXXX and its related companies contribute 3.5% of base pay to the Canada Pension Plan yearly maximum pensionable earnings (YMPE) and 5% of the base pay over the YMPE to a maximum of $2,500.00 per year.

The employer's contribution is whatever is necessary to fund the promised pension benefits and is determined based on the recommendation of the company's actuary from an actuarial report that is filed with and approved by the Canada Customs and Revenue Agency.

The Pension Plan assets are invested in a number of approved investments and investment returns are credited to the Plan.

Employee and employer contributions are remitted semi-monthly to a plan trust bank account and pension benefits and expenses of the plan are paid out of that bank account as required.

You should note that there is only one Plan Asset account for the investments and one Board of Trustees for XXXXX and its related companies.

There is also a separate and relatively small plan for some employees in the Yukon and Northwest Territories and this plan has a different trustee and a separate Plan Asset account.

Since XXXXX the companies also have a defined contribution plan which is a sub component of the defined benefit plan. The members self-direct their own investments in the plan through a menu of 12 to 13 investment funds that are managed by a number of investment managers. Both the employees and employer contribute 5% and both plans use the same Board of Trustees.

Interpretation Requested

Since 1996, XXXXX has been involved in discussions with the Agency (then Department) with respect to its employee benefit plans and the potential application of Technical Interpretation Bulletin (TIB) B-032R to the GST treatment of these plans. In the course of these communications, you have been advised that this TIB applies only to single employer pension plans. Further, you have advised us that the XXXXX pension plan does not meet the definition of a Multi-Employer Pension Plan (MEPP) and is, therefore, not entitled to the rebate described in the new section 261.01 of the Excise Tax Act (ETA).

In your correspondence of October 16, 2000, you note that: 1) TIB B-032R is silent on the requirement that it only pertains to single employer plans, and 2) Regulation 8510(3)(b) contains a provision that deems all employers who are related to each other to be a single employer.

You are requesting that we provide "reasons why the XXXXX Pension Plan is not a single employer plan if that is the requirement for the Technical Interpretation Bulletin".

Interpretation Given

TIB B-032R sets out the administrative position of the Agency that was developed in respect of Registered Pension Plans. As outlined in the TIB, ""[O]nly the employer, and not the plan trust, is entitled to claim an input tax credit on Employer Expenses to the extent that they are acquired or imported by the employer for consumption or use in the course of its commercial activities, and the GST on the Employer Expenses is paid or payable by the employer".

The language of the TIB is quite clear in that it refers to "an employer" or "the employer" throughout. In order to claim input tax credits (ITCs), the supply must have been made in the course of the registrant's commercial activities. Registrants are not generally entitled to claim ITCs with respect to expenses incurred in relation to the commercial activities of others. In the case of XXXXX, the supplies made by XXXXX to the plan trust have a nexus to its commercial activities as well as to the commercial activities of the other employers in the plan; as XXXXX is not the only employer with employees in the plan trust, TIB B-032R does not apply.

As regards the term "single employer pension plan" used in our previous correspondence of August 23 and October 28, 1996, as well as September 13, 2000, it is, in fact, not contained in the TIB as it was recognized that this term could have one or several legal meanings under various pieces of federal and provincial legislation that have no application to the ETA. The term was used in correspondence with you to explain the requirement that, in order for the TIB to have application, the plan would have to be in relation to one employer only.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9262.

Yours truly,

Sheena France
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate