20 September 2007 GST/HST Ruling 88383 - Importation and Supply of the XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

XXXXX

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX Pension Plans.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

We understand that you are doing the accounting for the XXXXX pension plan. Your plan is a single employer company pension plan with both defined benefit and defined contribution components.

Interpretation Requested

You would like some guidance on the claiming of Input Tax Credits (ITCs) in relation to the XXXXX pension plan.

Interpretation Given

As discussed with you in our telephone conversation XXXXX, without all the facts and documentation outlining the XXXXX pension plan arrangement we are unable to give any specific guidance to you. However, we can give you the following general information that may be of assistance to you in determining the eligibility for ITCs of the persons involved in the pension plan.

Although a pension plan is subject to the requirements of federal or provincial pension legislation, a pension plan is not a legal entity and it is not a person for GST/HST purposes. However, pursuant to the definition of "person" in subsection 123(1) of the ETA, a trust is a person. Therefore, for GST/HST purposes where a pension plan trust is established under a pension plan, the trust is a separate person and is subject to the obligations and entitlements of the ETA as a person.

Claiming ITCs for pension plans expenses

The ETA sets out the methods for determining the amount that is claimable as an ITC and the circumstances and conditions that must exist before an ITC can be claimed. A person may be able to claim an ITC with respect to property or a service if all the following criteria are met:

•   the property or service must be acquired, imported or brought into a participating province by a person for consumption, use or supply in the course of the person's commercial activities;

•   the person must be a registrant during the reporting period in which the GST/HST on the property or service becomes payable by the person or is paid without having become payable;

•   the person must have obtained sufficient documentary evidence to substantiate the ITC prior to making the claim in a GST/HST return;

•   tax must be payable by the person in respect of the supply, importation or bringing in, or be properly paid by the person prior to its becoming payable; and

•   the ITC must be claimed in a return filed within the time limit for claiming the ITC.

Generally, where a supply is made in respect of property or a service and the supplier issues the invoice to a pension plan trust the property or service is acquired for consumption, use or supply by the pension plan trust established in respect of the plan.

Pension plan trusts are generally engaged in the making of supplies of financial services as defined in the definition of "financial service" in subsection 123(1) of the ETA (e.g. the investment of funds, the payments of benefits to plan members, etc.). By virtue of Part VII of Schedule V to the ETA, a supply of a financial service is exempt unless the supply falls within Part IX of Schedule VI, in which case it would be a zero-rated supply.

If a pension plan trust is engaged in commercial activities (for example, as lessor of real property) it will be entitled to claim input tax credits to the extent property or services are acquired by the pension plan trust for consumption, use or supply in the course of commercial activities of the trust and all the requirements under section 169 of the ETA are met in order to claim input tax credits. Otherwise, the trust may not claim any input tax credits in respect of property or services acquired.

Generally, a particular property or service is acquired for consumption, use or supply in the course of an employer's activities where the employer is the person liable to pay the consideration for the supply under the agreement for the supply.

Where the employer invoices the trust in respect of property or services supplied in relation to the pension plan, and the trust pays the invoice from the trust assets, generally, the amount is consideration for a taxable supply made by the employer to the trust. The employer is supplying or re-supplying property or services to the trust.

The exception to this situation is where the employer has acquired property or services from a third party in a fiduciary capacity, for example, as administrator of, and for the benefit of, the pension plan trust. Where the employer acquires a particular property or a service from a third party on behalf of the trust and the trust pays for the supply directly, or indirectly by reimbursing the employer for the property or service, it is considered to have been acquired by the pension plan trust, and therefore for consumption, use or supply by the trust. The employer is not considered to have acquired the property or service for consumption use or supply in the course of its commercial activities and is not entitled to an input tax credit in respect of the tax paid on the consideration for the supply.

For example, if an employer contracts with an investment manager for its services and under the pension plan arrangement the trust pays for the investment advice regarding the plan trust assets the employer will not be entitled to claim an ITC for the GST/HST paid on the supply of the investment management services. If the employer pays the invoice, the result will be the same. Pursuant to paragraph 169(1)(c), the employer would be eligible for ITCs only with respect to supplies that it acquires for "consumption, use or supply in the course of commercial activities of the person." Since the services normally relate to the assets owned by the pension plan trust and are acquired for consumption or use by the pension plan trust to invest pension plan assets, the requirement under section 169 of the ETA would not be met.

Where an employer acquires property or services for the benefit of the pension plan trust, pays for the supply and is reimbursed by the trust, the reimbursement is generally not consideration for a supply and is not subject to GST/HST.

Accounting for GST/HST in relation to pension plan expenses - Technical Interpretation Bulletin B-032R Registered Pension Plans

The Canada Revenue Agency currently has an administrative policy outlined in Technical Interpretation Bulletin B-032R entitled "Registered Pension Plans". A registrant may apply the provisions of the administrative policy in accounting for GST/HST in relation to pension plan expenses provided the registrant does so on a consistent basis otherwise the above legislative interpretation of the ETA must be applied. The bulletin has been enclosed for your convenience. You should be aware that the Canada Revenue Agency is currently reviewing its policy on the application of the GST/HST to the operation of pension plans.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments 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 this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 952 9220.

Yours truly,

Larry Springstead
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/09/28 — RITS 92521 — B-032R Registered Pension Plans