Confusion over pension GST/HST

The GST place-of-supply rule changes became effective in conjunction with the introduction of the HST in Ontario and B.C. as of July 1, 2010. Prior to this, the number of selected listed financial institutions (SLFIs) was relatively small, constrained to financial institutions that earned revenue in any of New Brunswick, Newfoundland/Labrador or Nova Scotia, and certain federal crown corporations. The new draft SLFI Attribution Method (GST/HST) Regulation broadly expands the number of SLFIs, primarily by capturing thousands of “investment plans” that have beneficiaries in multiple provinces—including mutual funds, pooled investment funds, segregated funds and virtually every kind of trust, including those associated with RPPs.

A fairly common problem encountered by many RPP administrators is denial of a pension entity rebate claim, on the basis that there is not a trust governed by the RPP. This problem is associated with the existence (past or current) of an insurance contract filed at some time with CRA’s Registered Plans Directorate (RPD). Insurance contracts issued directly to an employer plan sponsor (e.g., not issued to a trustee of a plan) in respect of an RPP are not captured by the definition of “pension entity” and are thus ineligible for the pension entity rebate. Sometimes, though, insurance contracts in respect of an RPP are issued to a trustee governed by the RPP, and the trust is eligible to claim the pension entity rebate on amounts paid by the trust. Also, it is not uncommon for an RPP to have multiple funding media with assets under both a trust and an insurance contract—particularly when the plan features both DB and DC provisions.

The problem arises when the CRA department that handles the rebate claims attempts to verify the presence of a trust with the RPD. Apparently, there is only one field on the RPD database to show the funding media, so a trust agreement may not appear even though a trust exists. As the CRA department processing rebates operates in a silo separate from the RPD, resolving a simple question of fact may require the formal process of filing a notice of objection to an assessment denying a pension entity rebate.

CRA reviews on tax returns filed by SLFIs can also become problematic, particularly if the review originates in a tax services office other than the one in Summerside, P.E.I. According to a CRA appeals officer, until recently, there was no database housing the information collected by way of the Form GST494 GST/HST Tax Return that SLFIs must complete. Instead, a portion of the data was finding its way into the GST34 Tax Return system (used by regular commercial filers), and reviews were then sometimes commenced with information that was incomplete and out of context. The appeals officer in question was dealing with a notice of objection filed consequent to such an “out-of-context” review. The taxpayer pension entity was verbally advised of the appeals decision in favour of the taxpayer, and informed that they may have to re-file the return as the new database did not yet allow corrections.

I have found that the CRA is open to reason when its information requests and reviews might result in a compliance burden that is not commensurate with the amounts under review. However, it takes patience, a willingness to empathize with the agency’s challenges and persistence in reaching the right people at CRA who can help fast-track resolution of issues before they become complicated disputes.