October 25, 2011

No. 2011-31

GST/HST Reporting for Pension Plans — Deadlines Looming

Many corporations’ tax directors and pension plan administrators will soon be required to review their entities’ obligations and options under the new GST/HST pension plan rules. Under these rules, some employers and their pension plans may be subject to fast-approaching deadlines for tax calculation and reporting requirements, possibly as early as November 2011.

In particular, companies should be aware that certain information sharing requirements may apply with a deadline as early as November 15, 2011. Penalties may apply if they don’t comply. Similarly, certain tax calculation and related reporting requirements may apply as early as January 31, 2012. 

Even though this is the second year these new rules have applied, employers and pension plans may still have issues to consider. As the tax calculations required for pension plans have become even more complex and time-consuming under the new rules, it’s imperative for companies to start reviewing their data and planning various filings with the CRA as soon as possible.  

Background — New GST/HST rules for pension plans
Under the new pension plan rules, qualifying employers with registered pension plans are deemed to make taxable supplies to their pension plans on the last day of their fiscal year and to have collected GST. As such, they are required to remit the amount of GST on certain costs, known as “deemed supplies”, relating to these registered pension plans. These costs may include external costs, such as actuarial, management and audit fees, and internal costs such as salaries of employees with pension plan-related responsibilities.

Employers must remit that tax 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 tax in its December 2011 GST return due at the end of January 2012.

On the other hand, a pension plan that is a qualifying pension entity may be entitled to claim a partial rebate, generally equal to 33 percent of the GST paid by the employer on the “deemed supplies” and GST paid on goods and services acquired directly by the pension entity. The partial rebate is subject to numerous conditions. An election is available to transfer that rebate to the employer in some cases but the effects of making this election should be carefully considered.

Some pension entities are also subject to other complex rules, known as the new draft rules for selected listed financial institutions. These other new rules generally apply to pension entities with members residing in an HST province and in another province. These draft rules are meant to adjust the tax costs for some pension entities regardless of whether they are located in an HST or non-HST province. Under these draft rules, pension entities face complicated tax adjustments, new reporting requirements and certain new elections. To make these draft rules even more complicated, some of the tax adjustments include components that take into account the new pension plan rules.

For more details, see KPMG’s TaxNewsFlash-Canada 2010-42, “Countdown to December 31 QST and Pension Plan Changes”.

CRA’s new administrative policy
The CRA’s recently released administrative policy on these rules may affect employers and their registered pension plans.

For purposes of claiming input tax credits (ITCs) on pension-related expenses incurred by an employer, the CRA has taken the position that the employer (i.e., the person liable to pay the consideration under the agreement for the supply) may incur such expenses and still be entitled to claim an ITC, provided that all of the legislative requirements are satisfied.

It should be noted that where pension-related expenses incurred by the employer have been paid out of trust assets due to all or any of the following circumstances, the CRA generally considers such payments to be consideration for a supply of property or services made by the employer to the plan trust:

·      The plan trust paid the third party supplier directly

·      The employer invoiced the plan trust for the costs of the inputs, or

·      The plan trust reimbursed the employer.

In other words, a GST registrant employer would be required to charge, collect and remit GST on the supply to the plan trust where the supply is not exempt. However, as discussed above, the employer would be entitled to claim an ITC for the taxable supply made to the plan trust. 

If, on the other hand, the plan trust is a GST registrant, it would be entitled to claim ITCs in respect of the GST to the extent that the taxable supply has been acquired by the plan trust in the course of its commercial activities. Otherwise, the plan trust may not claim ITCs.

Consider making elections
In situations where selected listed financial institution elections related to pension plans are optional but have not been made, companies should determine whether such elections would be beneficial in terms of recovering ITCs or simplifying the administration of the new pension plan rules.

Examples of such elections to consider include:

·      Reporting entity election

·      Consolidated reporting election

·      Tax adjustment transfer election

·      Election to exclude non-residents from the calculation of the provincial attribution percentage

·      Election for a pension plan to be a selected listed financial institution.

Outstanding issues
While some GST issues have been clarified since the implementation of the new pension plan rules, many outstanding issues still remain including master trusts, pension plans without a trust (i.e., insurance contracts) and whether any actual supplies are made to the pension plan.

Regulations to go with the new rules have not yet been released. We hope these regulations will help to clarify these and other outstanding technical issues. For example, we understand that the CRA has been denying rebate claims when it believes the pension plan is not a separate entity that qualifies as a trust.

We can help
Your KPMG adviser can help you manage these complex rules on a timely basis and understand the effect of the CRA’s new administrative policy on your company. We can also 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 October 24, 2011. 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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