New and Modified GST/HST Rules for Pension Plans

The year 2010 presented a major challenge for many pension plans as several amendments and additions were made to the Excise Tax Act (ETA). Some of these provisions alter the amounts a pension plan must report on their GST/HST return, while others impact the amount of GST/HST that an employer who offers a pension plan must pay to the Canadian government. These new and modified rules can generally be grouped into three headings:

New SAM Reporting Requirements
New Deemed Supplies Rules, and
Expanded Pension Plan Rebates.

Without careful consideration and review of these rules, pension plans and their related employers might find themselves subject to significant tax liabilities on a subsequent audit.

Note: The significant changes are briefly outlined below, however readers are cautioned not to rely on the descriptions contained herein for a complete statement of the law, and readers are encouraged to seek out tax advice specific to their individual situation.

New SAM Reporting Requirements

Previously, only Selected Listed Financial Institutions (“SLFIs”) – a narrowly defined group – were required to apply the Special Attribution Method (“SAM”) to determine their actual net tax liability or HST purposes. With the varying HST rates across the country after July 1, 2010 changes to the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations were proposed which significantly broaden the test for a SLFI. As a result of these proposed changes, most pension plans will now be classified as SLFIs, and required to use SAM to determine their net tax liability for provincial HST purposes.

A pension plan will generally be deemed a SLFI if the plan has a “permanent establishment” in an HST province (i.e. Ontario) and in any other province in Canada. The draft regulations have expanded the definition of permanent establishment in a province to any province where any pension plan member lives, at any time during the year.

There are, however, exceptions for pension plans where nearly all of their plan members live in non-HST provinces, or where the plan is a “qualifying small investment plan”.

The SAM calculation itself has also been revised, with the addition of 26 potential adjustments which SLFIs will have to review to determine which adjustments, if any, may be required.

Pension plans which use the SAM calculation must report these calculations annually and ensure that any additional tax owing is paid. Penalties will apply if the filings deadlines are missed.

There are related information disclosure requirements which may require a pension plan, at the request of an investment plan, to disclose certain information about their plan members. Failure of the investment plan to make the appropriate request, or failure of the pension plan to respond in a timely manner, may result in penalties being assessed against the offending party.

Additionally, recently proposed draft regulations would impose obligations on some pension plans to proactively provide information to investment plans, with penalties for non-compliance.

New Deemed Supply Rules

New rules in the Excise Tax Act will deem a taxable supply in respect of the fair market value of “employee resources” (including staff time) provided to a pension plan for their use, with the exception of certain “excluded resources”.

This deemed taxable supply will increase the employer’s GST/HST return, irrespective of whether or not the employer has already billed and reported the GST/HST on these taxable supplies.

Careful compliance is required with these rules and specific tax advice is usually required.

Expanded Pension Plan Rebates

Previously the pension plan rebate under the ETA was only available to Multi-Employer Pension Plans (“MEPPs”). Amendments to the ETA made in 2010 have expanded this rebate so it is now available to all “qualifying pension entities”.

Qualifying pension entities are entitled to a rebate of 33% of all “eligible amounts” of tax, which generally include all non-recoverable tax that is paid or payable by the pension entity, including any amounts of tax deemed paid by the pension entity. However, these new rules operate hand-in-hand with the “deemed supply” rules referred to above, and may be subject to certain required adjustments – again usually requiring tax advice before fully implementing them.

New and Modified GST/HST Rules for Pension Plans