December 13, 2012
As 2012 draws to an end, many corporations’ tax directors and pension plan administrators must once again review their obligations and options under the GST/HST and QST pension plan rules. For many employers and their registered pension plans, the deadlines for tax calculations and reporting requirements are fast approaching. This year’s review is particularly important as pension plan rebates for 2010 are becoming statute-barred.
Even though this is the third year that the pension plan rules apply, employers and qualifying pension entities of registered pension plan (pension entities) still have issues to consider. For example, many pension entities across Canada have become selected listed financial institutions (SLFIs) in 2012 and will be subject to the complex special attribution method (SAM) that recalculates the HST liability of these entities, among other new rules.
In addition, 2013 will bring changes to the GST/HST and QST pension plan rules that may increase both the costs for employers and pension entities and the time and effort required for administration. Other changes include Quebec further harmonizing the QST rules to the GST rules on January 1, 2013, B.C. returning to a GST and provincial sales tax (PST) system (from an HST system) and P.E.I. adopting an HST on April 1, 2013.
Mark your calendar for upcoming deadlines
Companies and pension entities may have to meet one or more of the following selected deadlines or address some of the following 2013 GST/HST and QST changes:
- December 31, 2012 — Deadline to file rebate application for claim period of July 1, 2010 to December 31, 2010 for pension entities that are not registered for GST/HST and QST purposes
- January 1, 2013 — Changes to QST pension plan rules under the amended QST
- January 31, 2013 — Deadline to calculate and remit amount of deemed tax for employers with a December 31 year-end
- April 1, 2013 — Changes to the GST/HST pension plan rules due to B.C.’s new PST and P.E.I.’s new HST
- June 30, 2013 — Deadline for many pension entities to file form GST494 for the first time, which requires special calculations
- June 30, 2013 — Deadline for some pension entities to file form GST111.
Employers and pension plans basic checklist
With some transitional rules no longer applying to many pension plans and with the two-year statute-barred period for rebates, many employers and pension entities should review their obligations to make sure they fully comply with the law and benefit from the available rebates and elections to help alleviate their compliance burden.
As an employer that provides one or more employee pension plans, have you recently reviewed your obligations and considered:
- Whether your pension entities are now SLFIs and if so, whether they must comply with new SLFI rules for 2012?
- Whether your pension entities are required to register for GST/HST and QST or whether they should voluntarily register?
- How a voluntary registration could affect claim periods of your pension entities and other filing requirements?
- Whether your pension entities are claiming rebates in the appropriate rebate claim periods?
- Whether you, as an employer, are making actual sales to your pension plans?
- Whether you are reimbursed for any expenses by the pension entities and if so, whether the reimbursements may be considered supplies?
Employers — Remit taxes on deemed supplies to pension plans
Under the GST/HST pension plan rules, qualifying employers with registered pension plans as defined for income tax purposes (“pension plans”) are deemed to make taxable supplies, known as “deemed supplies”, to the pension entities of the pension plans on the last day of their fiscal year. As such, they are required to remit the amount of GST/HST on these deemed supplies that include certain costs relating to these registered pension plans. These costs may include external costs, such as actuarial, management and audit fees, as well as internal costs such as salaries of employees with pension plan-related responsibilities.
Employers must remit the GST/HST in their reporting period that includes that last day of their fiscal year. For example, an employer with a December 31 year-end that is a monthly GST filer will have to remit the deemed GST/HST in its December 2012 GST return due at the end of January 2013.
The Excise Tax Act (ETA) requires employers to remit “prescribed information” to the pension entities that will help substantiate the pension entities’ claims for the pension plan GST/HST rebate.
The CRA has released an interpretation letter which lists detailed information that employers must provide to the pension entities.
Expenses paid out of pension plan assets — CRA’s administrative policy
The CRA is currently taking the position that where pension-related expenses incurred by the employer are paid out of assets of the pension plan trust, such payments are consideration for supplies of property or services made by the employers to the plan trusts. The CRA’s position applies to any of the following circumstances:
- The plan trust paid the third party supplier directly
- The employer invoiced the plan trust for the costs of the input, or
- The plan trust reimbursed the employer.
In such circumstances, the GST registrant qualifying employer is required to collect and remit the GST/HST on the supply to the plan trust (where the supply is not exempt). The employer would generally be entitled to claim an input tax credit for the GST/HST paid on such expenses and a qualifying pension entity may be entitled to a pension plan rebate.
The CRA’s administrative policy on expenses paid out of the pension plan trust further complicates the GST/HST pension plan rules. In many cases, employers are required to issue tax adjustment notes (TANs) to reduce the double taxation situation arising from both GST/HST on an actual supply based on the CRA’s policy and GST/HST on the deemed supply based on the pension plan rules.
The CRA’s administrative policy creates several additional steps for some employers, including:
- Remittance by the employer of two amounts of GST/HST for the actual and the deemed supplies
- Calculation and issuance of the TAN
- Remittance of an amount of tax under the TAN rules
- Remittance of an amount of tax under the TAN rules
We understand that the Department of Finance is currently reviewing the issue of the “two” supplies (i.e., actual and deemed supplies).
Also, the CRA’s administrative policy can create a situation where an employer must charge GST/HST to a master trust of a pension plan that has reimbursed an employer or paid a supplier directly and that master trust may not qualify as a “pension entity” for the pension plan rebate.
In addition, the employer will also have to pay tax for the same supplies under the deemed supply rules, for which the pension entities may be entitled to a 33% partial rebate. We understand that Finance is also studying the issues related to master trusts in registered pension plans.
GST/HST pension plan rules
Different rules and calculations for different types of pension plans
Pension entities of pension plans must determine whether they qualify as SLFIs in order to apply the appropriate rules under both the GST/HST pension plan rules and the general GST/HST rules. Pension entities that qualify as SLFIs are generally pension entities with members residing in an HST province and in another province. (Exceptions may apply for small pension entities.) Under draft regulations for financial institutions, many pension plans have become SLFIs as of January 1, 2012.
This SLFI determination can affect, among other issues, the GST/HST registration, filing requirements, calculations of the pension plan rebates as well as calculations of the pension plan rebates shared with qualifying employers.
Based on the draft FI regulations, many pension entities became SLFIs on January 1, 2012. As such, these entities will not be able to simply follow the same procedures they used for 2011.
SLFI pension entities face, among other challenges, complex rules to calculate their tax liability for 2012 and to calculate the pension plan rebate for the provincial component of the HST.
Pension plan rebates
Under the GST/HST pension plan rules, a qualifying pension entity may be entitled to a partial rebate, which generally equals 33% of the GST/HST paid on goods and services purchased or acquired directly from a third party supplier and the tax deemed to have been paid under the pension plan rules (i.e., GST/HST paid by the employer on “deemed supplies”).
To apply the appropriate rules, the pension entities must determine whether they qualify as SLFIs. The pension plan rebate for a qualifying pension entity that is not a SLFI will generally include the GST/HST paid or deemed paid by the pension entity. However, the pension plan rebate for a qualifying SLFI pension entity will only include the GST component of the tax paid or deemed paid. The rebate related to the provincial component of the HST paid or deemed paid would be claimed by other means: either in the pension plan rebate elected to be transferred to a qualifying employer or as an adjustment in the SAM calculations under the draft FI regulations.
Employers and pension plans must carefully review their structures and their circumstances to apply the appropriate rules. For example, under the CRA’s administrative policy noted above, an employer may make a supply to the pension plan if the plan entity paid a third party supplier directly. As such, the employer would have to remit the applicable taxes on the supply and the pension entity may be eligible to include those taxes in its pension plan rebate calculations.
Also, the SLFI status of a pension entity will determine how the provincial component of any HST related to the pension plan rebate may be claimed.
GST/HST registration affects deadline for rebate claims
A qualifying pension entity may file only one rebate application for any particular claim period. If the pension entity is registered for GST/HST, its claim period is its normal GST/HST reporting period. If the pension entity is not registered for GST/HST, the claim periods during a year are the first six months of its fiscal year and the last six months.
The deadline to claim a rebate is generally two years. So if a pension entity is registered, the entity must claim its rebate for a claim period within two years of the day the pension entity has to file its GST/HST return for the claim period. If the pension entity is not registered for GST/HST, the entity must file its application within two years of the last day of the claim period.
For example, if a qualifying pension entity with a December 31 year-end is not registered for GST/HST and has not claimed any rebates in the past, the rebate application related to tax paid or deemed paid for the claim period of July 2010 to December 2010 must be filed no later than December 31, 2012. If the rebate is transferred to a qualifying employer with monthly filing reporting periods, the application form should be sent to the CRA no later than December 31, 2012, even if the employer will include the amount is its December 2012 return which is due no later than January 31, 2013.
QST pension plan rules
Quebec has adopted QST pension plan rules similar to the GST/HST rules with the necessary adaptations to deal with the current QST zero-rating of financial services and the provincial aspect of the rules. However, the QST pension plan rules will significantly change as of January 1, 2013 when financial services will become QST-exempt supplies.
For 2012 and prior years, the pension plan rules include three QST rebate rates: 100%, 88% and 77%. The 88% and 77% pension plan rebates apply to pension entities with participating employers that are public service bodies while the 100% pension plan rebate applies to all other qualifying pension entities.
For 2013 and subsequent years, pension entities face significant QST changes, including:
- The QST pension rebate rate will be reduced to 33% (from 100%, 88% and 77%)
- Some pension entities in Quebec may be required to cancel their QST registrations as of January 1, 2013 while other pension entities in Canada may be required to register for QST purposes
- Many pension entities will see changes to their QST claim periods
- Pension entities with members in Quebec and another province may become Quebec SLFIs under the new QST-exempt financial services rules
- Quebec SLFI pension plans should be administered by the CRA while others should be administered by Revenu Québec
- Qualifying Quebec SLFI pension entities may have to make new calculations and potentially make new elections.
The QST pension plan rules have a similar two-year time limitation to claim QST pension plan rebates. Employers and qualifying pension entities should review the QST pension plan rules to determine their obligations and rebate entitlements.
Employers may also want to review the impact of the upcoming 2013 QST changes on their operations and on their pension plans. Some pension entities may have to take action as soon as January 1, 2013 to comply with the 2013 QST changes.
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We can help
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 December 12, 2012. 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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