GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
February 27, 1998
Dear XXXXX
Thank you for your letter of January 5, 1998 regarding the availability of rebates of the Goods and Services Tax (GST)Harmonized Sales Tax (HST) with respect to expenses incurred in the operation of a registered pension plan.
Our understanding of the facts is as follows:
Statement of Facts
The XXXXX is the plan sponsor of the x "Pension Plan XXXXX. Academic staff, administrative employees and clerical and technical employees are eligible to contribute after meeting various criteria. The plan, which is administered by an insurance company, has several different investment vehicles; there are Guaranteed Interest Accounts and various marketbased funds (i.e. segregated funds) managed by the insurance company. The insurance company charges an "Investment Management Fee" which is deducted from the segregated fund on each "Valuation Date" at a rate equivalent to an annual percentage of the value of the segregated fund.
Interpretation Requested
Section 131 of the Excise Tax Act (the "Act"), deems a segregated fund of an insurer to be a trust. Subsection 123(1) of the Act defines a segregated fund as a specified group of properties that is held in respect of insurance policies all or part of the reserves for which vary in amount depending on the fair market value of the properties.
In your letter you state that the definition of a segregated fund would exclude Guaranteed Interest Accounts since insurance companies are not required to have reserves for these types of accounts. Therefore, if these types of accounts are not considered to be segregated funds (i.e. a trust), then part of the pension plan would not be considered to be "in trust". You ask whether a proportion of the GST paid in administering the pension plan could be recovered by the university by way of rebate.
Technical Information Bulletin B032R "Registered Pension Plans" outlines employer expenses and plan trust expenses. You ask if the Bulletin applies to universities and, if not, how should universities treat these expenses and the implications with respect to resupplies.
Interpretation Given
Based on the information contained in your letter and the supporting documentation, it is our interpretation that the XXXXX is not eligible for a rebate of the GST paid with respect to the Investment Management Fee. Your other questions are addressed in the analysis below.
ANALYSIS
Since the Investment Management Fee is charged to and paid for by the segregated fund, it is the segregated fund that is considered to be the recipient of the supply. Therefore, the university cannot claim a rebate for the GST paid by the segregated fund.
In order to be considered a registered pension plan pursuant to the Income Tax Act, the pension plan must be funded through specific funding media. Included as a funding medium is a contract for insurance with a company authorized to carry on a life insurance business in Canada.
A contract described as a segregated fund or deposit administration contract will be treated as a contract for insurance if certain conditions are met. As the Pension Plan XXXXX is already registered pursuant to the Income Tax Act, the conditions will not be discussed.
It is necessary to consider the funding medium since Technical Information Bulletin B032R only applies to single employer pension plans (including an employer who is a university) where the funding medium is a trust resident in Canada. The Pension Plan XXXXX is funded through a contract for insurance (notwithstanding that it contains segregated funds which the Excise Tax Act deems to be a trust). Therefore, TIB B032R does not apply.
With respect to resupplies, where a university makes a taxable supply in the course of its commercial activities it is entitled to claim an input tax credit for the GST incurred in making the taxable supply. Where the university makes an exempt supply it will be eligible to claim a rebate of the noncreditable tax paid provided that it meets all the requirements under section 259 of the Act.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.
Yours truly,
Tim A. Krawchuk
Rulings Officer
Financial Institutions Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate
| Legislative References: |
ss. 123(1) s.259 |
NCS Subject Code(s) R 32
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