December 13, 2012
Pension Plans — Your GST/HST Filing Deadlines Are Fast Approaching
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.
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.
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.
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.
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.
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.
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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