19 September 2001 GST/HST Interpretation 36243 - Input Tax Credits in Respect of GST/HST Paid by a Defined Benefit Pension Plan

Dear XXXXX:

Thank you for your letter of June 07, 2001 concerning whether or not an employer may claim input tax credits in respect of GST/HST paid by a defined benefit pension plan sponsored by the employer and its related companies.

The Canada Customs and Revenue Agency (CCRA) issued Technical Information Bulletin B-032R (the Bulletin) in June 1993 outlining the application of the GST/HST to supplies acquired for the operation of registered pension plans. The Bulletin applies to a pension plan where the funding medium is a trust resident in Canada. A trust is a person for GST/HST purposes. A trust governed by a registered pension plan qualifies as an investment plan by virtue of subparagraph 149(5)(a)(i) of the Excise Tax Act (ETA), and is included as a listed financial institution under subsection 149(1) of the ETA.

On page 1 of your letter, you state that only those plans with commercial activity are eligible to register for GST/HST and claim input tax credits. This is incorrect. As noted in the Bulletin under the section "Registration for Purposes of the GST", as a listed financial institution, the registered pension plan may voluntarily apply to register for GST/HST purposes under the provisions of subsection 240(3) of the ETA. As further discussed in the Bulletin, if the plan trust acquires or imports and pays for the Employer Expenses (see Bulletin for a description of Employer Expenses), when the related property or services are acquired or imported for use in activities that are the responsibilities of the employer pursuant to the pension plan agreement or the applicable legislation, the CCRA will consider that this property or these services are re-supplied by the plan trust to the employer. Where the plan trust is a registrant, it will be able to claim an input tax credit for the GST paid or payable on the Employer Expenses that it re-supplied to the employer. The plan trust must also charge and remit the relevant GST on the value of the consideration for the re-supply where it is a taxable supply.

On page 2 of your letter, you refer to an interpretation provided to XXXXX in XXXXX (a copy of which you included with your submission) wherein John Sitka referred to "employers/sponsors" of a plan trust. As is CCRA's normal practice when providing interpretations, the "Statement of Facts" quoted in an interpretation are those provided by the requestor and CCRA's interpretation is usually provided in the "Interpretation Given" section. In this specific letter, CCRA's interpretation was set out as "Our Comments" below a description of the service. It is probable that the description of the services was provided by the requestor and CCRA merely quoted the description as was set out in the incoming request.

You further state on page 3 of your letter that the administrative position described in the Bulletin, which has always applied only to plans sponsored by a single employer, is in contradiction to the widely understood effect of the Bulletin. However, CCRA has issued a number of interpretations stating its position. For example, in a letter dated XXXXX XXXXX CCRA states that "(t)he 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 plans". Another letter dated XXXXX wherein CCRA states that "(i)t is necessary to consider the funding medium since Technical Information Bulletin B032R only applies to single employer pension plans (including an employer who is a university) where the funding medium is a trust resident in Canada". Further, it is CCRA's understanding that the private sector has also been aware of the Bulletin's limited application to single-employer pension plans. In his paper entitled "Hot Topics for Financial Institutions" presented at the 1999 Commodity Tax Symposium, Danny Cisterna of Deloitte & Touche states "(f)or GST/HST purposes and, more specifically, in accordance with the policies set out in Technical Information Bulletin B-032R Registered Pension Plans, an employer engaged in commercial activities that sponsors a pension plan exclusively for its employees is able to claim ITCs in respect of certain administrative expenses relating to the plan. These policies are specifically geared to single employer pension plans. Unfortunately, employers who participate in sponsoring a multi-employer pension plan generally cannot take advantage of the benefits outlined in B-032R because they do not incur administrative expenses directly nor are they charged for specific expenses."

In its Backgrounder to the proposed addition of section 261.01 to the ETA dated August 12, 1999, the Department of Finance, stated that the rebate for trusts governed by a multi-employer pension plan will "place trusteed multi-employer pension plans on a comparable footing with trusteed single-employer pension plans with respect to the overall amount of tax borne on expenses relating to the plan". It was recognized that "(u)nder the goods and services tax and harmonized sales tax (GST/HST), an employer engaged in commercial activities that sponsors a pension plan exclusively for its employees is able to claim input tax credits in respect of certain administrative expenses relating to the plan. However, employers who participate in sponsoring a multi-employer pension plan cannot avail themselves of the same treatment because they do not incur administrative expenses directly nor are they charged for specific expenses."

In view of the fact that there are some plans that are neither single-employer plans nor multi-employer plans as defined in subsection 261.01(1) of the ETA, the CCRA undertook a review of the Bulletin to determine whether its application should be changed or extended to these types of plans. The CCRA determined that it would not change its administrative position and advised the Department of Finance of its decision. It is the responsibility of the Department of Finance to consider whether further legislative amendments might be necessary to capture these plans.

We trust that our comments are of assistance to you in clarifying the CCRA's views on this matter.

Yours truly,

A. Venne
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate