GST/HST Pension Plan Rules for Master Trusts

GST/HST Notices - Notice 304
April 2017

On July 22, 2016, Finance Canada released draft legislative amendments proposing to make the GST/HST treatment of master pension entities (master trusts)Footnote 1 consistent with the rules governing pension entities. This GST/HST Notice explains these proposed amendments. Any commentary in this publication should not be taken as a statement by the Canada Revenue Agency (CRA) that the proposed amendments will become law in their current form. All legislative references are to the Excise Tax Act (the Act) unless otherwise indicated.

Introduction

A master trust may be established when an employer sponsors more than one pension plan and generally provides for the collective investment of the assets of the pension plans.

Generally, under the existing rules a registrant participating employer of a pension plan is deemed on the last day of its fiscal year to have made taxable supplies of specified and employer resources (other than excluded resources) that are for consumption, use, or supply in the course of pension activities in respect of the pension plan and to have collected tax in respect of those supplies. Under section 261.01, a pension entity of the pension plan is generally eligible to claim a pension entity rebate on eligible amounts that include this deemed tax as well as tax actually paid by the pension entity in respect of expenses incurred for the management and administration of the pension plan. A full explanation of these rules can be found in GST/HST Notice 257, For Discussion Purposes Only: The GST/HST Rebate for Pension Entities, and in GST/HST Technical Information Bulletin B-108, Changes to GST/HST Rules for Pension Plans – New Section 157 and Amendments to Section 172.1.

As master trusts are not considered to be pension entities, the rebate provisions for pension entities do not apply to master trusts. Certain self-assessment provisions requiring a participating employer to account for tax on deemed taxable supplies of specified and employer resourcesFootnote 2 acquired, consumed or used for the purpose of making a supply to a pension entity also do not apply.

Under the proposed rules governing master trust arrangements, in certain additional circumstances, a participating employer that is a registrant would be deemed on the last day of its fiscal year to have made taxable supplies of specified and employer resources (other than excluded resources) that are for consumption, use, or supply in the course of master trust activities in respect of the pension plan and to have collected tax in respect of those supplies. It is proposed that a pension entity of each pension plan in the master trust arrangement would be deemed to have paid tax on the resource and be generally eligible to claim a rebate on that deemed tax paid. Additionally, a pension entity would also be deemed to have paid tax that a master trust has actually paid in respect of actual taxable supplies and would also be generally eligible to claim a rebate on that actual tax deemed paid by the pension entity.

Definitions

New key definitions outlined below for “master pension entity” and “master pension factor” are proposed to be included in subsection 123(1) and new definition for “master pension group” is proposed to be added to subsection 172.1(1).

A “master pension entity” of a pension plan means a person that is not a pension entity and that is either

  • a corporation described in paragraph 149(1)(o.2) of the Income Tax Act, one or more shares of which are owned by a pension entity of the pension plan; or
  • a trust described in paragraph 149(1)(o.4) of the Income Tax Act, one or more units of which are owned by a pension entity of the pension plan.

This definition would be deemed to have come into force on September 23, 2009, the effective date for earlier amendments expanding the rules providing a pension entity rebate under the Excise Tax Act.

A “master pension factor”, in respect of a pension plan for a fiscal year of a master pension entity, is the percentage determined by:

  • the total value, on the first day of the fiscal year, of units or shares of the master pension entity that are held by the pension entities of the pension plan on that day divided by
  • the total value, on the first day of the fiscal year, of the units or shares of the master pension entity.

This definition would be deemed to have come into force on July 22, 2016, the announcement date for the proposed amendments.

A “master pension group” means every pension plan, (that is, a group of one or more) that has in common a participating employer of the pension plan and a master pension entity of that pension plan.

This definition would be deemed to have come into force on July 22, 2016, the announcement date for the proposed amendments.

Example 1

Employer 1 participates in pension plans A, B and C and Employer 2 participates in pension plans D and F. The assets of the pension plans are invested in a master pension entity (that is, master trust). In this scenario, we have two master pension groups:

  • master pension group 1 in respect of Employer 1 and the master pension entity made up of pension plans A, B and C; and
  • master pension group 2 in respect of Employer 2 and the master pension entity made up of pension plans D and F.

It is proposed that the definition of “pension activity” in subsection 172.1(1) be extended to also include master pension entities. Pension activity in respect of a pension plan, would be an activity (other than an excluded activity) that relates to:

  1. the establishment, management or administration of the pension plan or of a pension entity or master pension entity of the pension plan; or
  2. the management or administration of assets in respect of the pension plan, including assets held by a pension entity or master pension entity of the pension plan.

This definition would be deemed to have come into force on July 22, 2016, the announcement date for the proposed amendments.

Specified pension entity

For the purposes of section 172.1, where a pension plan has only one pension entity, that pension entity would be the “specified pension entity” of the pension plan in respect of the participating employer. If there are two or more pension entities, the employer and one of the pension entities may jointly elect for that pension entity to be the specified pension entity of the pension plan. This specified pension entity of the pension plan would be eligible to claim any available rebate. The employer and the pension plan would maintain evidence of this election in their books and records. There is no CRA form for making this election.

Deemed taxable supplies by participating employers

In certain master trust arrangements, a registrant participating employer would be deemed on the last day of a fiscal year of the employer to have made a taxable supply of a specified or an employer resource to a specified pension entity and would be deemed to have collected tax in respect of that supply in the following circumstances:

  • under proposed subsection 172.1(5.1), where the employer acquires at any time in the fiscal year a specified resource (other than an excluded resource) for the purpose of making a supply of all or part of the resource to a master pension entity for consumption, use or supply by the master pension entity in the course of pension activities of any pension plan in the master pension group in respect of the employer and the employer is not a selected qualifying employerFootnote 3 of any pension plan in the master pension group;
  • under proposed subsection 172.1(6.1), where the employer consumes or uses at any time in the fiscal year an employer resource (other than an excluded resource) for the purpose of making a pension supply (that is, supply of a property or a service) to a master pension entity for consumption, use or supply by the master pension entity in the course of pension activities of any pension plan in the master pension group in respect of the employer and the employer is not a selected qualifying employer of any pension plan in the master pension group; or
  • under proposed subsection 172.1(7.1), where the employer consumes or uses at any time in the fiscal year an employer resource (other than an excluded resource) in the course of pension activities in respect of any pension plan in the master pension group in respect of the employer, if the employer is not a qualifying employer of any pension plan in the master pension group, if the pension activities relate exclusively to the establishment, management or administration of the master pension entity or the management or administration of its assets, and the consumption or use is not for the purpose of making a pension supply under subsection 172.1(6) or (6.1).

These deeming rules would apply to fiscal years of an employer beginning on or after July 22, 2016.

Calculation of tax deemed collected by the employer under proposed subsection 172.1(5.1)

For the particular fiscal year, it is proposed that the amount of tax deemed collected under subsection 172.1(5.1) would be calculated based on the fair market value (FMV) of the specified resource at the time that the employer acquired it for the purpose of making a supply of all or part of the specified resource to the master pension entity. The tax deemed collected would be the total of all amounts, each of which is the sum of the federal and provincial parts of the tax determined under proposed paragraph 172.1(5.1)(c) for each pension plan in the master pension group.

The federal part of the tax determined for each pension plan would be the amount determined by multiplying the following three elements:

  1. the FMV of the specified resource or part at the time it was acquired by the employer;
  2. the rate of tax set out in subsection 165(1) (that is, 5%); and
  3. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer acquired the specified resource.

The provincial part of the tax determined for each pension plan would be the total of all amounts, each of which is determined for a participating province by multiplying the following three elements:

  1. the FMV of the specified resource or part at the time it was acquired by the employer;
  2. the “provincial factor”Footnote 4 in respect of both the pension plan and the particular participating province for the fiscal year in which the employer acquired the specified resource; and
  3. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer acquired the specified resource.

Deemed tax paid by a specified pension entity under proposed subsection 172.1(5.1)

To ensure that a pension entity may, where eligible, claim an input tax credit (ITC) or a rebate in respect of the deemed taxable supplies made by the employer and for purposes of a tax adjustment note (TAN)Footnote 5, paragraph 172.1(5.1)(d) proposes to deem, for each pension plan in the master pension group that has a specified pension entity, the specified pension entity of the pension plan to have received a supply of the specified resource (or part) on the last day of the fiscal year of the employer. The specified pension entity would also be deemed, to have paid on that day, a portion of the tax deemed collected by the employer as determined above in relation to the pension plan in the master pension group. Where the specified pension entity is not entitled to claim an ITC, the tax deemed to have been paid forms part of the eligible amounts upon which the specified pension entity would calculate its rebate amount.

Where the specified pension entity is not a selected listed financial institution (SLFI) at the time it is deemed to have received a supply of the specified resource (that is, the last day of the fiscal year of the employer), the amount of tax that the specified pension entity would be deemed to have paid would be equal to the amount of tax that the employer is deemed to have collected in relation to the pension plan; that is, the sum of the federal and provincial parts of the tax determined for the pension plan under proposed paragraph 172.1(5.1)(c). However, where the specified pension entity is an SLFI at the time it is deemed to have received the supply of the specified resource, it would be deemed to have paid tax equal only to the amount of the federal part of the tax that the employer is deemed to have collected in relation to the pension plan under proposed paragraph 172.1(5.1)(c). In either case, amounts not included in determining the employer’s net tax or amounts that the employer has otherwise previously recovered (or is entitled to recover) would not form part of the tax deemed to have been paid.

For ITC purposes, the specified pension entity would be deemed to have acquired the specified resource or part for consumption, use or supply in the course of its commercial activities to the same extent that the specified resource or part was acquired by the employer for supply to the master pension entity for pension activities that are commercial activities of the master pension entity.

Calculation of tax deemed collected by the employer under proposed subsection 172.1(6.1)

For the particular fiscal year, it is proposed that the tax deemed collected by the employer under subsection 172.1(6.1) for the deemed supply of an employer resource would be the total of all amounts, each of which is the sum of the federal part and the provincial part of the tax determined under proposed paragraph 172.1(6.1)(c) for each pension plan in the master pension group.

The federal part of the tax determined for each pension plan would be the amount determined by multiplying the following four elements:

  1. the FMV of the employer resource (refer to Calculation of FMV below);
  2. the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply;
  3. the rate of tax set out in subsection 165(1) (that is, 5%); and
  4. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer consumed or used the employer resource.

The provincial part of the tax determined for each pension plan would be the total of all amounts, each of which is determined for a participating province by multiplying the following four elements:

  1. the FMV of the employer resource (refer to Calculation of FMV below);
  2. the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply;
  3. the provincial factor in respect of the pension plan for the particular participating province in respect of the fiscal year; and
  4. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer consumed or used the employer resource.

Calculation of FMV

If the employer resource was consumed during the fiscal year for the purpose of making the pension supply, it is proposed that the FMV of the employer resource would be determined at the time the employer began consuming the employer resource in the fiscal year. However, where the employer resource is used but not consumed, the FMV would be based on the use of the employer resource during the fiscal year, as determined on the last day of the fiscal year.

Deemed tax paid by a specified pension entity under proposed subsection 172.1(6.1)

To ensure that a pension entity may, where eligible, claim an ITC or a rebate in respect of the deemed taxable supplies made by the employer and for purposes of a TAN, paragraph 172.1(6.1)(d) proposes to deem, for each pension plan in the master pension group that has a specified pension entity, the specified pension entity of the pension plan to have received a supply of the employer resource on the last day of the fiscal year of the employer. The specified pension entity would also be deemed to have paid, on that day, a portion of the tax deemed collected by the employer as determined above for each pension plan in the master pension group. Where the specified pension entity is not entitled to claim an ITC, the tax deemed to have been paid forms part of the eligible amounts upon which the specified pension entity would calculate its rebate amount.

Where the specified pension entity is not an SLFI at the time it is deemed to have received a supply of the employer resource (that is, the last day of the fiscal year of the employer), the amount of tax that the specified pension entity is deemed to have paid would be equal to the amount of tax that the employer is deemed to have collected in relation to the pension plan; that is, the sum of the federal and provincial parts of the tax determined for the pension plan under proposed paragraph 172.1(6.1)(c). However, where the specified pension entity is an SLFI at the time it is deemed to have received the supply of the employer resource, it would be deemed to have paid tax equal only to the amount of the federal part of the tax that the employer is deemed to have collected in relation to the pension plan under proposed paragraph 172.1(6.1)(c). In either case, amounts not included in determining the employer’s net tax or amounts that the employer has otherwise previously recovered (or is entitled to recover) would not form part of the tax deemed to have been paid.

For ITC purposes, the specified pension entity would be deemed to have acquired the employer resource for consumption, use or supply in the course of its commercial activities to the same extent that the property or service supplied in the pension supply was acquired by the master pension entity for pension activities that are commercial activities of the master pension entity.

Calculation of tax deemed collected by the employer under proposed subsection 172.1(7.1)

For the particular fiscal year, it is proposed that the tax deemed collected by the employer under subsection 172.1(7.1) for the deemed supply of an employer resource would be the total of all of all amounts, each of which is the sum of the federal part and the provincial part of the tax determined under proposed paragraph 172.1(7.1)(c) for each pension plan in the master pension group.

The federal part of the tax determined for each pension plan would be the amount determined by multiplying the following four elements:

  1. the FMV of the employer resource (refer to Calculation of FMV below);
  2. the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year in the course of pension activities in respect of a pension plan in the master pension group;
  3. the rate of tax set out in subsection 165(1) (that is, 5%); and
  4. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer consumed or used the employer resource.

The provincial part of the tax determined for each pension plan would be the total of all amounts, each of which is determined for a participating province by multiplying the following four elements:

  1. the FMV of the employer resource (refer to Calculation of FMV below);
  2. the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year in the course of pension activities in respect of a pension plan in the master pension group;
  3. the provincial factor in respect of the pension plan for the particular participating province in respect of the fiscal year; and
  4. the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the last day of the fiscal year in which the employer consumed or used the employer resource.

Calculation of FMV

If the employer resource was consumed during the fiscal year in the course of pension activities, it is proposed that the FMV of the employer resource would be determined at the time the employer began consuming the employer resource in the fiscal year. However, where the employer resource is used but not consumed, the FMV would be based on the use of the employer resource during the fiscal year, as determined on the last day of the fiscal year.

Deemed tax paid by a specified pension entity under proposed subsection 172.1(7.1)

To ensure that a pension entity may, where eligible, claim a rebate in respect of the deemed taxable supplies made by the employer, paragraph 172.1(7.1)(d) proposes to deem, for each pension plan in the master pension group that has a specified pension entity, the specified pension entity of the pension plan to have paid, on the last day of the fiscal year of the employer, a portion of the tax deemed collected by the employer on its deemed taxable supply of the resource as determined above for each pension plan in the master pension group. The tax deemed to have been paid forms part of the eligible amounts upon which the specified pension entity would calculate its rebate amount.

Where the specified pension entity is not an SLFI at the time it is deemed to have paid tax, the amount of tax that the specified pension entity is deemed to have paid would be equal to the sum of the federal and provincial parts of the tax determined for the pension plan under proposed paragraph 172.1(7.1)(c). However, where the specified pension entity is an SLFI at the time it is deemed to have paid tax, it would be deemed to have paid tax equal only to the amount of the federal part of the tax that the employer is deemed to have collected in relation to the pension plan under paragraph 172.1(7.1)(c). In either case, amounts not included in determining the employer’s net tax or amounts that the employer has otherwise previously recovered (or is entitled to recover) would not form part of the tax deemed to have been paid.

Determination of qualifying employer and selected qualifying employer status

The amounts of tax deemed collected by an employer under proposed subsections 172.1(5.1), (6.1) and (7.1) in a fiscal year of the employer would be included in determining under the proposed amendments to subsection 172.1(9) whether the employer is a selected qualifying employer of the pension plan for the subsequent fiscal year of the employer. Similarly, the amounts of tax deemed collected by an employer under proposed subsection 172.1(7.1) in a fiscal year of the employer would be included in determining under the proposed amendments to subsection 172.1(10) whether the employer is a qualifying employer of the pension plan for the subsequent fiscal year of the employer

These proposed amendments would apply to fiscal years of an employer beginning on or after July 22, 2016.

Designated pension entity

Proposed subsection 172.2(2) sets out rules for determining the designated pension entity of a pension plan in respect of a master pension entity of the pension plan. The term “designated pension entity” is a new term introduced at the same time as the introduction of pension plan rules for master trusts. Under proposed subsection 172.2(2), where a pension plan has only one pension entity, that pension entity would be the designated pension entity of the pension plan in respect of the master pension entity. If the pension plan has two or more pension entities, the master pension entity and one of those pension entities could elect jointly under proposed subsection 172.2(4) to make that pension entity the designated pension entity of the pension plan in respect of the master pension entity. A designated pension entity of a pension plan would be eligible to claim a rebate in respect of tax deemed to have been paid in respect of tax actually paid by the master pension entity.

It is possible that a pension entity could be a specified pension entity in respect of an employer for purposes of section 172.1 while a different pension entity could be a designated pension entity in respect of a master pension entity for purposes of proposed section 172.2.

Deemed tax paid by designated pension entity under proposed subsection 172.2(3)

Under proposed subsection 172.2(3), where an employer or a third party makes an actual supply to a master pension entity of one or more pension plans, a particular amount of actual tax becomes payable, or is paid without having become payable, by the master pension entity at any time in the fiscal year of the master pension entity and the particular amount of actual tax is not an excluded amount (refer to the following paragraph) of the master pension entity, a designated pension entity of each pension plan at that time in respect of the master pension entity would be deemed to have paid a portion of the amount of actual tax for purposes of the pension rebate under section 261.01. For this subsection to apply the amounts of actual tax would have to become payable, or be paid without having become payable, by the master pension entity on or after July 22, 2016.

Proposed subsection 172.2(1) provides that an excluded amount of a master pension entity would generally be an amount of tax that

  • is deemed to have been paid by the master pension entity under Part IX of the Act, other than under section 191;
  • became payable, or was paid without having become payable by the master pension entity when it was entitled to claim a public service bodies’ rebate under section 259; or
  • is payable under subsection 165(1), or is deemed under section 191 to have been paid, by the master pension entity in respect of a taxable supply to it of a residential complex, an addition to a residential complex or land if, in respect of that supply, the master pension entity is entitled to claim a new residential property rebate under section 256.2, or would be so entitled after paying the tax in respect of that supply.

The amount of tax deemed paid by a designated pension entity of a pension plan in respect of a particular amount of actual tax would be determined by first subtracting from the particular amount any amount that the master pension entity is entitled to recover as an ITC, a rebate, a refund, or that was the subject of a credit/debit note. This amount is then multiplied by the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the time the amount of actual tax became payable or when it was paid without having become payable. Where the designated pension entity is an SLFI, only the federal part of the particular amount of actual tax would be included in determining the amount of tax deemed paid by the designated pension entity. This deemed tax paid would be considered to be an eligible amount upon which the designated pension entity may claim a rebate.

Election for designated pension entity

Proposed subsection 172.2(4) provides for an election that may be made if a pension plan has two or more pension entities and if there is a master pension entity of the pension plan. The master pension entity can jointly elect with one of the pension entities of the pension plan for that pension entity to be the designated pension entity in respect of the master pension entity while the election is in effect.

Form of election

Proposed subsection 172.2(5) provides that a joint election made under proposed subsection 172.2(4) must be made in prescribed form containing prescribed information, must set out the day on which the election is to come into effect. The election would be filed using Form RC4618, Election or Revocation of an Election for GST/HST Purposes to Designate a Pension Entity in Respect of a Master Pension Entity, and Form RC7218, Elections or Revocation of Elections for GST/HST and/or QST Purposes to Designate a Pension Entity that is a Selected Listed Financial Institution in Respect of a Master Pension Entity.

Cessation of election

Under proposed subsection 172.2(6) an election made under proposed subsection 172.2(4) by a master pension entity of a pension plan and a pension entity would cease to have effect on the earliest of:

  • the day the master pension entity ceases to be a master pension entity of the pension plan;
  • the day the pension entity ceases to be a pension entity of the pension plan;
  • the day on which a new joint election under subsection 172.2(4) made between the master pension entity and another pension entity of the pension plan comes into effect; and
  • the day on which the election is jointly revoked by the master pension entity and the pension entity under proposed subsection 172.2(7).

Revocation

A joint election made under proposed subsection 172.2(4) by a master pension entity and a pension entity may be jointly revoked under proposed subsection 172.2(7).The notice of revocation must be made in prescribed form containing prescribed information (Form RC4618 or Form RC7218). The notice must also specify the date the revocation takes effect.

Tax adjustment notes

Existing sections 232.01 and 232.02 allow a participating employer to issue a tax adjustment note (TAN) to a pension entity of a pension plan to address the situation that occurs when the employer is deemed to have collected tax on a deemed supply of a resource and also collects actual tax on an actual supply of the same resource.

Proposed amendments to sections 232.01 and 232.02 would allow a participating employer to also issue, on a particular day, a TAN in respect of a deemed supply of a resource to a pension entity specifying a federal component amount and a provincial component amount where the following conditions are met:

  • the participating employer of a pension plan is deemed under proposed paragraph 172.1(5.1)(a) or 172.1(6.1)(a) to have made a taxable supply of a resource and is deemed under proposed paragraph 172.1(5.1)(b) or 172.1(6.1)(b) to have collected tax in respect of the deemed supply;
  • the pension entity is deemed under proposed subparagraph 172.1(5.1)(d)(i) or 172.1(6.1)(d)(i) to have received a supply of the resource and is deemed under proposed subparagraph 172.1(5.1)(d)(ii) or 172.1(6.1)(d)(ii) to have paid tax in respect of that supply; and
  • an amount of tax also becomes payable, or is paid without having become payable (otherwise than by operation of section 172.1) by the master pension entity of the pension plan on an actual supply made by the participating employer either of all or part of the specified resource or of property or a service where the employer resource was used or consumed by the employer for the purpose of making the actual supply.

Under the proposed amendments, where the taxable supply referred to under paragraph 232.01(3)(a) or 232.02(2)(a) is deemed to have been made under proposed paragraph 172.1(5.1)(a) or 172.1(6.1)(a), the federal component amount of a TAN issued to the pension entity would be determined on a particular day by the formula:

A – B

where

A is the lesser of

  • the deemed federal amount of tax determined for the pension plan in respect of the specified resource under proposed paragraph 172.1(5.1)(c) or in respect of the employer resource under proposed paragraph 172.1(6.1)(c); and
  • the amount determined by the formula A1 × A2
      • A1 is all actual amounts of GST or the federal part of the HST payable or paid without having become payable by the master pension entity to the employer (otherwise than by operation of section 172.1), on or before the particular day, in respect of an actual supply in respect of the same specified or employer resource;
      • A2 is the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the particular day;

B is the total of all of the federal component amounts of another TAN previously issued under subsections 232.01(3) or 232.02(2) in respect of the specified or employer resource.

Under the proposed amendments, where the taxable supply referred to under paragraph 232.01(3)(a) or 232.02(2)(a) is deemed to have been made under proposed paragraph 172.1(5.1)(a) or 172.1(6.1)(a), the provincial component amount of a TAN issued to the pension entity would be determined on a particular day by the formula

C – D

where

C is the lesser of:

  • all deemed provincial amounts of tax determined for the pension plan in respect of the specified resource under proposed paragraph 172.1(5.1)(c) or in respect of the employer resource under proposed paragraph 172.1(6.1)(c); and
  • the amount determined by the formula C1 × C2
      • C1 is all actual provincial amounts of tax under subsection 165(2) payable or paid without having become payable by the master pension entity (otherwise than by operation of section 172.1) on or before the particular day in respect of an actual supply in respect of the same specified or employer resource;
      • C2 is the master pension factor in respect of the pension plan for the fiscal year of the master pension entity that includes the particular day; and

D is the total of all the provincial component amounts of another TAN previously issued under subsections 232.01(3) or 232.02(2) in respect of the resource.

The proposed amendments to sections 232.01 and 232.02 would be deemed to have come into force on July 22, 2016.

Effects of a TAN

A TAN issued by a participating employer generally would have the following effectsFootnote 6:

  • the participating employer could claim a net tax deduction for the total tax amount of the TAN on the return for the reporting period that includes the day the TAN was issued;
  • the pension entity would have to add, in determining its net tax for the reporting period that includes the day the TAN was issued, all input tax credits that the pension entity is entitled to claim in respect of the deemed tax;
  • a rebate previously claimed on any part of the deemed tax that is an eligible amount for a particular claim period would have to be repaid by the pension entityto the Receiver General on or before the day that is the later of the day the application for the rebate was filed and the last day of the pension entity’s claim period following the claim period in which the TAN was issued; and
  • the qualifying employer of the pension plans would have to repay the net tax deduction previously claimed as a result of an election with the pension entity to share the rebate. The repayment should be made as an upward adjustment to their net tax in the return for the reporting period that includes the day that is the later of the day the TAN was issued and the day the election was filed with the Minister.

Election for nil consideration

Under proposed subsection 157(2.1) a participating employer of a pension plan and a master pension entity of the pension plan would be permitted to jointly elect to have every actual taxable supply made by the participating employer to the master pension entity be deemed to have been made for no consideration. However, the election can only be made if the total of all master pension factors, each of which is in respect of a pension plan of the participating employer for the fiscal year of the master pension entity that includes the day on which the election is to become effective, is equal to or greater than 90%.

Effect of the election

Under proposed subsection 157(2.2) where the joint election is in effect for a fiscal year, the participating employer would not charge tax on actual taxable supplies made to the master pension entity.

Although it is proposed that an election between an employer and a master pension entity would apply to supplies made on or after July 22, 2016, even if an election is made, an actual supply of property or a service would not be considered to be made for nil consideration if

  • the employer acquired the property or service before its first fiscal year beginning on or after July 22, 2016; or
  • the employer consumed or used any employer resource, for the purpose of making the actual supply, before its first fiscal year beginning on or after July 22, 2016.

In these circumstances the employer would be required to charge and collect GST/HST from the master pension entity based on the consideration for the actual supply. This would always be the case in the fiscal year that begins before July 22, 2016.

Restrictions

Proposed subsection 157(3.1) provides that the election would not apply to the following supplies:

  • a supply deemed to have been made by the participating employer under section 172.1;
  • a supply of property or a service not acquired by a master pension entity for consumption, use, or supply by the master pension entity in the course of pension activities in respect of the pension plan;
  • a supply made by the participating employer to the master pension entity of property or a service if at the time the participating employer acquires the property or service, the participating employer is a “selected qualifying employer” of the pension plan;
  • a supply made by the participating employer to the master pension entity of property or a service if at the time the participating employer consumes or uses any employer resource of the participating employer for the purpose of making the supply, the participating employer is a “selected qualifying employer” of the pension plan; or
  • a supply made in prescribed circumstances or made by a prescribed person (currently no circumstances or persons are proposed to be prescribed).

Joint revocation

Proposed amendments to subsection 157(4) allow a participating employer of a pension plan and a master pension entity of the pension plan to jointly revoke an election made under proposed subsection 157(2.1). Subsection 157(5) provides that the revocation must become effective on the first day of a fiscal year of the participating employer.

Form of election and revocation

Subsection 157(5) sets out the requirements of a joint election or a joint revocation made by a participating employer of a pension plan and a master pension entity of the pension plan. The election would be made in prescribed form containing prescribed information and be filed on or before the first day of the fiscal year in which it takes effect. The election would be filed using Form RC4615, Election or Revocation of the Election to Not Account for GST/HST on Actual Taxable Supplies, or Form RC7215, Elections or Revocation of the Elections to Not Account for GST/HST and QST on Actual Taxable Supplies for Participating Employers that are Selected Listed Financial Institutions.

Cessation of election

Proposed amendments to subsection 157(6) provide that a joint election made under proposed subsection 157(2.1) between a participating employer of a pension plan and a master pension entity of the pension plan would cease to have effect on the earliest of:

  • the day on which the employer ceases to be a participating employer of the pension plan;
  • the day on which the master pension entity ceases to be a master pension entity of the pension plan;
  • the day on which a joint revocation of the election becomes effective;
  • the day specified in a notice of revocation of the election sent by the Minister in accordance with proposed subsection 157(9); and
  • the first day of a fiscal year where the total of all master pension factors in respect of the pension plans of the participating employer for the fiscal year of the master pension entity is less than 90%.

The proposed amendments to section 157 would apply in respect of supplies made by a participating employer on or after July 22, 2016.

Example 2

An employer participates in 3 pension plans (that is, plan A, plan B and Plan C) whose assets are collectively invested in a master pension entity (that is, a master trust). Plan A has two pension entities: one holding 30% and the other 15% of the units of the master pension entity. Each of plan B and plan C have a single pension entity holding respectively 10% and 40% of the units of the master pension entity.

In this example the total of all master pension factors in respect of the plans of the employer is ≥ 90% [30% + 15% + 10% + 40% = 95%]. Therefore, the employer would be eligible to make the election to deem actual supplies made to the master pension entity as being made for no consideration.

Example 3

Employer A participates in pension plan A funded with pension entity A. Employer B participates in pension plan B funded with pension entity B. The funds are invested collectively in a master pension entity. Pension entity A holds 65% and pension entity B holds 35% of the units of the master pension entity.

In this example the total master pension factors in respect of plan A of employer A is less than 90% and the total master pension factors in respect of plan B of employer B is also less than 90%. Therefore, neither employer would be eligible to make the election to deem actual supplies made to the master pension entity as being made for no consideration.

In this example, if instead the total master pension factors in respect of plan A were 92% and the total master pension factors in respect of plan B were 8%, then employer A would be eligible to make the election with the master pension entity but employer B would not.

Provision of information

In addition to the existing information requirements imposed on a participating employer of a pension plan relating to subsections 172.1(5) to (7), pursuant to proposed changes to subsection 172.1(8), where a pension entity of a pension plan is deemed to have paid tax under proposed subsections 172.1(5.1), (6.1) or (7.1), the participating employer of the plan would also have to provide prescribed information to the pension entity in prescribed form and in a manner satisfactory to the Minister so that the pension entity could meet its GST/HST obligations.

Pursuant to proposed subsection 172.1(8.1), a master pension entity of a pension plan would be required to provide, in a manner satisfactory to the Minister, the master pension factor in respect of the pension plan for a fiscal year of the master pension entity to each participating employer of the pension plan on or before the day that is 30 days after the first day of the fiscal year.

Retroactive relief under subsection 172.1(7)

A separate retroactive relieving amendment is proposed for subsection 172.1(7) which currently requires an employer to self-assess the deemed tax collected on a deemed taxable supply of an employer resource that was consumed or used (otherwise than for supply) in the course of pension activities in respect of a pension plan.

The amendment excludes retroactively, from the application of the deemed tax by the employer, employer resources consumed or used in respect of pension activities of the pension plan that are the establishment, management or administration of a master pension entity of the pension plan and management or the administration of assets in respect of the pension plan held by a master pension entity of the pension plan.

This proposed amendment to subsection 172.1(7) would apply in respect of any fiscal year of a person that begins on or after September 23, 2009, but before July 22, 2016.

Request for assessment or reassessment

A participating employer of a pension plan that has included such an amount of deemed tax in its net tax calculation for prior reporting periods for fiscal years beginning on or after September 23, 2009, but before July 22, 2016 could, within one year of when these proposed changes receive Royal Assent, request in writing an assessment or reassessment of its net tax on the basis that the amount was not deemed to have been collected by the employer under subsection 172.1(7). The Minister would then be obligated to consider the request and to assess or reassess the net tax solely for the purpose of taking into account the retroactive relieving amendment to subsection 172.1(7).

Further, if the employer makes this request and if the amount of deemed tax were included in the pension rebate amount of a pension entity of the pension plan for a claim period of the pension entity on the basis that the pension entity was deemed by subsection 172.1(7) to have paid this amount, then additional consequences would follow:

  • If a rebate under subsection 261.01(2) for the claim period were paid to the pension entity, it is proposed that the Minister would be required to reassess the rebate of the pension entity solely to take into account the amount that was not deemed to have been paid by the pension entity as a result of the relieving amendment to subsection 172.1(7).
  • If the pension entity made an election in effect under subsections 261.01(5), (6) or (9) for the claim period and as a result a qualifying employer of the pension plan claimed a net tax deduction in its return, it is proposed that the Minister would be required to assess or reassess the net tax of the qualifying employer solely to take into account the amount that was not deemed to have been paid by the pension entity as a result of the relieving amendments to subsection 172.1(7).

Further information

All GST/HST technical publications are available on the CRA website at cra.gc.ca/gsthsttech.

To make a GST/HST enquiry by telephone:

  • for general GST/HST enquiries, call Business Enquiries at 1-800-959-5525
  • for technical GST/HST enquiries, call GST/HST Rulings at 1-800-959-8287

If you are located in Quebec, call Revenu Québec at 1-800-567-4692 or visit their website at revenuquebec.ca.

If you are a selected listed financial institution (whether or not you are located in Quebec) and require information on the GST/HST or the QST, go to cra.gc.ca/slfi or

  • for general GST/HST or QST enquiries, call Business Enquiries at 1-800-959-5525
  • for technical GST/HST or QST enquiries, call GST/HST Rulings SLFI at 1-855-666-5166
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