File: 11585-32
May 30, 1997
This letter is in response to your facsimile received April 07, 1997 with respect to the registered pension plans of XXXXX[.] As stated in your memorandum, XXXXX is a sponsor of the XXXXX (the "Fund"). The Fund is a registered pension plan as defined in the Income Tax Act. It administers two pension plans. Expenses are paid directly from the Fund. The Fund is not registered for GST purposes.
XXXXX has been claiming a GST rebate under section 259 of the Excise Tax Act (ETA) on the expenses allocated as Employer Expenses and has been giving the rebate back to the Fund. You have provided a copy of a letter from XXXXX to XXXXX instructing them as to which expenses are eligible as Employer Expenses as outlined in TIB-032R. XXXXX has also instructed XXXXX to allocate XXXXX of "Asset & Fund Administration Fees" as Plan Trust Expenses and the remaining XXXXX as Employer Expenses.
Interpretation Requested
You ask whether there is any basis to allow an allocation as outlined by XXXXX and whether the rules in TIB-032R should be extended to employee pension plans that are sponsored by an employer who is a public service body?
Interpretation Given
Please note that the draft policy statement P-167 dated January 04, 1996 referred to in your memorandum was released in error and should not be relied upon.
Allocation Method
Our understanding is that Asset & Fund Administration Fees (AFA Fees) are charges for both trustee and custodial services provided by the trust company. XXXXX has suggested using a fixed percentage, i.e. XXXXX for custodial services and XXXXX for trustee services, to apportion the AFA Fees. In our view, using a fixed percentage does not necessarily reflect the actual amount of services rendered by the trust company. In general, trust companies may use any relevant method to apportion the fees as a long as the method used is reflective of the amount of the services rendered (e.g. based on the time spent by their employees in providing the services, etc.) and that the method selected is fair and reasonable. The allocation method used should be verified by Audit to determine if it fairly reflects the services rendered.
Public Service Body's Eligibility for Rebate
The comments in TIB-032R apply to a single-employer (including an employer who is public service body) pension plan where the funding medium is a trust resident in Canada. The expenses listed in XXXXX XXXXX have been correctly classified as Employer and Plan Trust Expenses. As detailed in the TIB, the XXXXX (the employer) is entitled to claim input tax credits on the Employer Expenses to the extent that the related property or services are acquired for consumption or use in the course of its commercial activities. Where the XXXXX cannot claim an input tax credit, it will be eligible to claim a rebate of the non-creditable tax paid provided it meets all the requirements under section 259. The XXXXX (the employer) is not eligible to claim input tax credits or a rebate on the GST paid in respect of the Plan Trust Expenses.
I trust the foregoing comments will be of assistance to you. Should you have any questions, please do not hesitate to call me at (613) 952-9577.
Marilena Guerra,
C.M.A. Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch
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