April 25, 2013
Employers and registered pension plans may want to take advantage of some changes to the GST/HST pension plans rules announced in the recent federal budget. Employers should carefully assess their situations because they may actually benefit more if they make a new election for their 2014 fiscal year instead of 2013.
The 2013 federal budget proposes two measures that could reduce some employers’ compliance requirements: an election to allow qualifying employers not to account for GST/HST on actual taxable supplies made to pension entities and a relief measure for some employers with limited amounts of deemed taxable supplies.
Employers should determine whether they qualify for the two new rules. If an employer is eligible to make the election, they should determine whether making it will be beneficial for them and if so, whether they should make the election for their 2013 fiscal year or wait until their 2014 fiscal year.
It’s important for employers to understand that although the proposed budget measures may reduce some compliance requirements for eligible employers, the measures do not completely eliminate the need to comply with the pension plan rules for either the employers or the pension entities.
As such, employers and pension entities who take advantage of the relief measures will likely still have to apply many of the pension plan rules. They may have to:
- Calculate either actual supplies or deemed supplies and remit an amount of GST/HST relating to those supplies
- File GST/HST returns for pension entities, if registered
- File and claim pension plan rebates.
This TaxNewsFlash-Canada provides an overview of some key points employers may want to consider as they evaluate whether they can benefit from the proposed measures.
Under the GST/HST pension plan rules, many 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. The 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.
In many cases, the current GST/HST pension plan rules require several calculations and adjustments to help reduce the double taxation that arises from actual supplies made by employers to their pension plans during the year and the supplies the employers are deemed to have made at the end of their fiscal year under the pension plan rules. The 2013 federal budget proposed measures to help simplify some of these rules for some employers.
A new election for GST/HST on actual supplies
The 2013 federal budget proposes that an eligible employer may jointly elect with a pension entity to treat an actual taxable supply made by the employer to the pension entity as being made for no consideration where the employer accounts for and remits tax on the deemed supply.
This measure will apply to supplies made after March 21, 2013.
Employers should note two key issues related to the new election for eligible actual supplies:
- If the election is made for 2013, how will the employer deal with tax on actual supplies up to March 21, 2013 and deemed supplies for the full year?
- Employers who make the election will need to have measures in place to ensure the tax on the deemed supplies is calculated as required and remitted on time. Otherwise, the CRA could revoke the election.
Employers and pension entities will need to review the budget measure carefully based on their own facts and circumstances to determine whether they are eligible to make the election and whether they will benefit from it. Along with the issues above, points employers should consider before making the election include:
- What will be the effect of the reduced actual supplies for 2013 on the calculations of the tax adjustment note (TAN)?
- What will be the effect of the new rules on the total tax paid related to pension plans?
- Will there be any real reduction of compliance requirements for 2013?
New thresholds related to deemed supplies
The 2013 federal budget proposes that a participating employer be fully or partially relieved from accounting for GST/HST on deemed supplies where the employer’s deemed supplies fall below certain thresholds.
However, an employer will not be permitted to benefit from the full relief proposed under this measure if the employer and the pension entity have elected not to account for GST/HST on actual supplies.
This measure will apply for employers’ fiscal years that begin after March 21, 2013.
Currently, under the GST/HST pension plan rules, an employer is required to calculate and remit an amount of GST/HST on deemed supplies in respect of the employer’s resources acquired, used or consumed in the course of pension activities, even where the employer’s involvement in the pension plan is minimal.
An employer would generally be relieved from the rule for deemed supplies under the GST/HST pension plan rules if they meet the following two thresholds:
- The amount of GST related to deemed supplies in the preceding fiscal year by the employer and other related employers is less than $5,000, and
- That same amount of GST on deemed supplies is less than 10% of the total net GST paid and deemed paid by all pension entities in the pension plan.
If an employer does not qualify under the above two thresholds, the employer may qualify under another rule for limited relief but only for some specific deemed supplies (i.e., internal supplies). The rule for this limited relief includes other thresholds to meet.
Employers will have to carefully consider the following when reviewing this new measure for deemed supplies:
- The $5,000 threshold includes GST on deemed supplies of all related employers
- The 10% threshold includes GST paid or deemed paid by all pension entities of the same registered pension plan
- The calculations are done on a yearly basis
- This new measure does not appear to allow an employer to elect out of its application
- The budget measure applies only for fiscal years that begin after March 21, 2013
- The applicable taxes on actual supplies still have to be remitted
Based on the 10% threshold test, it appears that this budget measure may apply more frequently when a pension plan is significantly independent from the participating employers (e.g., pension plans formerly known as multi-employer plans for GST/HST purposes).
Quebec Sales Tax
Quebec announced that it is currently studying some GST/HST measures in the 2013 federal budget. QST harmonization decisions are expected at a later date.
Have you met your GST/HST compliance requirements?
As a reminder, employers and pension plans should also make sure they have fulfilled their 2012 compliance requirements, including filing the GST494 return for many pension entities that qualify as selected listed financial institutions by June 30, 2013.
For more information on pension plan filing deadlines, see KPMG’s TaxNewsFlash-Canada, “Pension Plans — Your GST/HST Filing Deadlines Are Fast Approaching”, dated December 13, 2012.
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We can help
Your KPMG adviser can help you understand and apply these proposed budget measures. We can also help you keep up-to-date on developments and help you assess possible opportunities that may be available to your business. For details, contact your KPMG adviser.
Information is current to April 24, 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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