November 4, 2013
It’s time once again for many tax directors and pension plan administrators to meet the year-end requirements of the complex GST/HST and QST pension plan rules. Federal and provincial changes to indirect taxes in 2013 may change the way your organization has to calculate its tax obligations and rebate claims under the pension plan rules.
You should act now to make sure you understand how the 2013 changes will affect your obligations and those of your pension entities. Acting early could help simplify your compliance obligations for 2013 and 2014 and also help you determine how these changes may affect your cash flow.
|Are your organization and your pension plans affected by some of the changes in 2013? |
- Quebec —Financial institutions, including many pension entities of registered pension plans (pension entities), that have a permanent establishment in Quebec and in another province are generally now known as Quebec selected listed financial institutions (SLFIs). If your pension entity is now considered a Quebec SLFI, it will have to follow many new QST rules.
- Federal — Some employers may benefit from relieving provisions announced in the 2013 federal budget. Employers may wish to elect to apply the new provisions starting in 2013 while others may want to start in 2014. Some employers will have to act by December 31, 2013 at the latest to file the appropriate documents for 2013 and 2014.
- British Columbia — Employers and pension entities may be affected by B.C.’s removal of HST and its return to a GST and a new PST system on April 1, 2013. This change will affect the calculation of the GST/HST on actual supplies and on the deemed supplies to be remitted by qualifying employers. The change will also affect the calculation of the provincial value added tax (PVAT) of the pension entities.
- Prince Edward Island —The 14% HST that P.E.I. introduced on April 1, 2013 will affect the amount of tax to be remitted by qualifying employers and the calculation of the PVAT of pension entities.
This TaxNewsFlash-Canada highlights some issues employers need to consider to help them remit the right amount of taxes on actual and deemed supplies to pension entities of their pension plans and outlines issues for pension entities to consider when determining their SLFI status for GST/HST and QST purposes.
Employers – Remit the right amount of taxes on actual and deemed supplies
|Background — Pension plan rules |
Under the GST/HST pension plan rules, many qualifying participating employers with registered pension plans are deemed to make taxable supplies to pension entities of their pension plans on the last day of their fiscal year and must remit an amount of GST/HST related to those supplies. These deemed supplies can include external costs, such as actuarial costs, as well as internal costs, such as salaries of employees responsible to collect and remit pension contributions.
The deemed supplies under the pension plan rules are in addition to any actual supplies made by the employer to the pension entities during the year. For example, an employer that provides taxable services to the pension entity of its pension plan must collect and remit GST/HST on these services like any other supplies to a third party. The deemed supplies will generally include such actual taxable supplies.
Similar rules apply for QST purposes.
Tax treatment of certain payments made by pension entities
If an employer has acquired a pension-related service but the pension entity has paid the supplier directly or indirectly for the service, the CRA has taken the position that the payment by the pension entity is consideration for a supply made by the employer to the pension entity. The CRA’s position applies to the following three cases:
- The plan entity paid the third party supplier directly
- The employer invoiced the plan entity for the costs of the input, or
- The plan entity reimbursed the employer.
These payments may be made throughout the fiscal year and would be treated as actual supplies. As such, employers must also determine the taxable status and the correct place of supply of those services made by the employer to the pension entity to determine whether GST/HST or QST applies as well as any PST.
Determining deemed supplies for the year
At the end of its fiscal year, the employer must determine its deemed supplies for the year. The deemed supplies generally include:
- Most actual supplies
- External costs, such as actuarial and audit fees
- Internal costs such as salaries of employees with pension plan-related responsibilities.
Employers are required to remit an amount of GST/HST on these deemed taxable supplies in their reporting periods that include the last day of their fiscal year.
The pension plan rules include complex rules to deal with the consequences of having both actual and deemed supplies, including tax adjustments to help limit the impact of the tax paid twice on actual and deemed supplies, repayments of pension plan rebates affected by those adjustments, and PVAT adjustments for the pension entities. The 2013 federal budget introduced a new relieving measure for actual supplies that may alleviate some compliance issues— see below.
With a two-year deadline to claim pension plan rebates, some potential claims under the pension plan rules, which were introduced a few years ago, are now statute-barred. Employers and pension entities should carefully review their facts and circumstances to help minimize unremitted GST/HST and QST and potential lost rebate claims on pension plan related supplies, and to help manage compliance requirements.
See KPMG’s TaxNewsFlash-Canada 2012-43, “Pension Plans – Your GST/HST Filing Deadlines Are Fast Approaching”, for details on the deemed supplies and the calculations of the related pension plan rebates.
Relief for remitting tax on actual supplies
Your organization may benefit from a relieving measure introduced in the 2013 federal budget for eligible employers relating to the actual supplies. The new measure allows an eligible employer and a pension entity to jointly elect to treat actual supplies made by the employer to the pension entity to be made for no consideration as long as the employer accounts for and remits tax when required on the deemed supplies.
The new election applies for actual supplies made after March 21, 2013. As such, most eligible employers that apply the new measure for 2013 will have to apply two different sets of rules to their fiscal year. As a result, taking advantage of the new relief could increase the compliance requirements for many employers for the fiscal year that includes March 21, 2013.
Employers and pension entities that wish to make the election should carefully determine whether they meet all the conditions and should ensure they remain compliant because the new measure authorizes the CRA to revoke the election in some circumstances. If you wish to make the election, the CRA has recently issued a new GST/HST form for you to use.
See KPMG’s TaxNewsFlash-Canada 2013-17, “Employers — New GST/HST Relief Available Under Pension Plan Rules”, for details on this relieving measure.
Employers and pension entities that want to jointly make the election must carefully review the filing requirements for 2013 and 2014 and the conditions and consequences of filing the election.
HST and QST changes for 2013
The elimination of the B.C. HST and the introduction of the new P.E.I. HST in 2013 will affect the calculations of the taxes that qualifying employers must remit. You will need to carefully review the transitional rules for these changes to determine how they apply to your particular facts and circumstances.
You will also have to review the 2013 QST changes as your organization and pension entities may face new QST calculations, new filing requirements and new rules, and a significant reduction of the QST pension plan rebate.
The 2013 QST changes will significantly affect some employers and pension entities across Canada, not only pension entities located in Quebec. While these QST changes apply now, some related rules still need to be clarified and some related amendments are still pending. To apply some of the QST changes with little or no related legislation, employers and pension entities need to clearly understand the GST/HST rules to be able to adapt and apply these rules for QST purposes in a provincial context.
Pension entities across Canada will have to carefully review how they calculate and claim pension plan rebates for 2013. The 2013 B.C. HST, QST and P.E.I. HST changes have created challenges for many entities, including new calculations, new rules, new filing requirements and transitional rules to calculate the SAM adjustments. Most significantly, the QST pension plan rebate was reduced to 33% (from 100%, 88% and 77%).
Pension entities face information sharing requirements and related penalties
Certain pension entities are required as investors to provide specific information to certain investment plans no later than November 15, 2013. If you are an employer acting as administrator of a pension entity, you should carefully review the GST/HST information sharing requirements to determine whether the pension entity is required to provide information without notice from investment plans to help minimize significant penalties associated with these requirements.
Pension plans — What’s your SLFI status?
Different rules and calculations for SLFI and non-SLFI pension entities
Pension entities of pension plans must determine whether they qualify as SLFIs for GST/HST purposes and as SLFIs for QST purposes in order to apply the correct rules under the GST/HST and QST pension plan rules and the general rules. The SLFI status can affect, among other issues:
- The requirement to apply the special attribution method (SAM) formula which includes complex adjustments
- GST/HST and QST registration
- Certain filing requirements
- Calculations of the pension plan rebates
- Rebate amounts shared with qualifying employers.
New rules for SLFIs under QST
Quebec further harmonized the QST rules with the GST rules on January 1, 2013, which affects the QST SLFI status of some pension entities. It is worth noting that the 2013 QST changes did not make Quebec a participating province like the provinces that have adopted the HST. While the QST rules were further harmonized with the GST rules, there are still significant differences. For instance, a pension entity may qualify as a SLFI for QST purposes and not for GST purposes or vice versa. A single pension plan with more than one pension entity could have pension entities with different SLFI status for GST/HST and QST purposes. Each pension entity must determine its GST/HST SLFI status and its QST SLFI status separately. Significantly different rules and compliance requirements may apply where a pension entity is a SLFI only under either the GST/HST or QST regime.
Details still to come for Quebec SLFIs
While Quebec has released a bulletin and some legislative amendments relating to the QST changes, most QST SLFI related regulations (or related law provisions) are still pending. These upcoming amendments include many of the rules for QST SLFIs, including how to calculate and claim QST pension plan rebates, the provincial attribution percentages, when and how to file elections with the plan manager for compliance requirements, and information sharing requirements.
Prior to January 1, 2013, the QST system did not have the notion of SLFI. Effective January 1, 2013, most pension entities must determine whether they qualify as a QST SLFI to determine the proper QST pension plan rebate rules, registration rules, and who administers their account now (CRA or Revenu Québec).
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We can help
Employers and pension entities face significant challenges over the next few weeks to deal with all the 2013 indirect tax changes. The new taxes, the lack of final legislation and clarity on certain administration issues have increased the complexity of already very complicated rules.
Your KPMG adviser can help you manage the impact of these and other federal or provincial indirect tax deadlines and changes that may affect your business. We can help you manage your indirect tax compliance obligations in all relevant jurisdictions and also help you ensure that you are not missing refund opportunities. For details, contact your KPMG adviser.
Information is current to November 1, 2013. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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