Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 145447
July 26, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Pension plans and segregated funds
This is in response to […], and further to our letter to you of July 20, 2012, on the captioned subject.
INTERPRETATION REQUESTED
You wish to confirm whether pension plans that are structured as a “segregated fund” (Footnote 1) of an insurer would qualify as a “pension plan” under the definition contained in subsection 172.1(1) of the Excise Tax Act (ETA), thereby subjecting a participating employer of the plan to the deeming rules of subsections 172.1(5), (6) and (7). You also wish to confirm whether the ETA treatment of such a plan would change for segregated funds in the Province of Quebec.
All legislative references are to the ETA unless otherwise indicated.
INTERPRETATION GIVEN
As you are aware, a “participating employer” of a “pension plan” that is a GST/HST registrant is deemed to have made a taxable supply where subsections 172.1(5), (6) or (7) apply. An employer that is deemed to have made a taxable supply under these subsections is also deemed to have collected tax in respect of the deemed taxable supply, meaning that the employer must self-assess tax equal to the deemed tax collected.
Subsection 172.1(5) will generally apply where a “participating employer” acquires a “specified resource” for the purpose of making a supply to a “pension entity” of a “pension plan” for consumption, use or supply by the pension entity in the course of pension activities of the pension plan. Where subsection 172.1(5) applies, the employer is deemed, on the last day of its fiscal year, to have made a taxable supply of the specified resource, or part, to the pension entity, and is deemed to have collected tax in respect of the deemed taxable supply. Similarly, subsection 172.1(6) will generally apply where a “participating employer” consumes or uses an “employer resource” for the purpose of making a supply to a “pension entity” of a “pension plan” for consumption, use or supply by the pension entity in the course of “pension activities” of the pension plan. Where subsection 172.1(6) applies, the employer, on the last day of its fiscal year, is deemed to have made a taxable supply of the employer resource to the pension entity, and is deemed to have collected tax in respect of the deemed taxable supply.
If an “employer resource” is acquired by the employer for consumption or use in “pension activities” but not for supply to a “pension entity”, the deeming provisions of subsection 172.1(7) must be considered. Under that provision, a “participating employer” of a “pension plan” that is a GST/HST registrant is generally deemed to have made a taxable supply where the employer consumes or uses the employer resource in the course of “pension activities” of the pension plan and the consumption or use is not for the purpose of making a supply to a “pension entity”. Similar to the provisions of subsections 172.1(5) and (6), where subsection 172.1(7) applies, the employer is deemed, on the last day of its fiscal year, to have made a taxable supply of the employer resource, and is deemed to have collected tax in respect of the deemed taxable supply.
For purposes of the aforementioned deeming provisions, the term “pension plan” is defined in subsection 172.1(1) to include a registered pension plan (as defined in subsection 248(1) of the Income Tax Act) that governs a person that is a trust or that is deemed to be a trust under the Income Tax Act. Further, a “pension entity” of a pension plan is defined in subsection 172.1(1) to include such a trust.
Subsection 131(1) deems a segregated fund of an insurer to be a trust for purposes of Part IX of the ETA. Under that subsection, the trust is considered to be a separate person from the insurer, and the insurer is deemed to be the trustee. Activities of the segregated fund are considered to be activities of the trust, and not of the insurer.
Therefore, by virtue subsection 131(1), a segregated fund of an insurer is a trust for purposes of Part IX of the ETA, including the definition of “pension plan” in subsection 172.1(1). The provisions of subsection 131(1) apply equally to segregated funds of insurers in the Province of Quebec.
Notwithstanding that a segregated fund is considered as a trust for purposes of Part IX of the ETA, the trust will not qualify as a “pension plan” under section 172.1(1) unless it is governed by a registered pension plan. To determine whether a trust is governed by a registered pension plan, one would need to refer to the words of the trust agreement, the terms of the particular pension plan, and also to CRA forms T510 and T920 which are submitted at the time of plan registration and plan amendment respectively. If you wish to determine whether a particular trust is governed by a registered pension plan, please submit the relevant documentation for our review.
The foregoing interpretation represents our general views with respect to the subject matter of your request. These interpretations are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect these interpretations.
We trust that this information will be of some assistance. If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8816.
Yours truly,
Paul Hawtin
Special Provisions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 For purposes of the ETA, a “segregated fund” is defined in subsection 123(1) as a specified group of properties that is held in respect of insurance policies all or part of the reserves for which vary in amount depending on the fair market value of the properties.
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