News and Insights

Tax Alert | Pension Plan Deadline Approaching

Tax Development Jan 17, 2023

Participating employers of most registered pension plans are reminded that they must include GST/HST and QST deemed tax liabilities in their December sales tax returns.

Background

Under the GST/HST and QST legislation (Section 172.1 of the Excise Tax Act (ETA) and Sections 289.5 to 289.7 of an Act respecting the Québec Sales Tax (QSTA)), participating employers are deemed to have made supplies to a pension entity, resulting in a deemed tax liability for the participating employer. In addition, actual supplies made by a participating employer to a pension entity create a requirement for the employer to charge GST/HST (and potentially QST) to the pension entity. As interpreted by the Canada Revenue Agency, “actual supplies” include pension expenses that are paid by a pension entity for which the employer is the recipient. 

To eliminate any double taxation on pension expenses, under Sections 232.01 and 232.02 of the ETA, an employer may issue a Tax Adjustment Note (TAN) to reduce its net tax, unless the employer and the pension entity make an election to not account for tax on the actual supplies (i.e., a “nil consideration” election under Section 157 of the ETA). Both the actual tax and deemed tax can generally be partially recovered when the pension entity files its 33% pension entity rebate application.

Filing and Reporting Obligations

A key provision in the ETA affects all pension entities and their participating employers by restricting the recovery of tax where the employer does not remit the deemed tax by including it in the appropriate GST/HST return filed on time. A similar provision exists for QST purposes. This includes reductions to the eligible pension rebate amount and TAN amount, where a deemed tax liability is not remitted in the return, which includes the last day of the participating employer’s fiscal year.

Many employers use a master trust (or “master pension entity,” as defined in the ETA) in their pension plan structure. The ETA deeming provisions also apply to certain pension expenses paid by master trusts.

For those pension plans that are considered a Selected Listed Financial Institution (SLFI), additional filings are required, and various other elections are available. The ETA defines a trust governed by a registered pension plan to be a financial institution. If that trust has plan members in both an HST province or Québec and another province, then the trust would generally be considered an SLFI pension plan. An unregistered SLFI pension plan is required to make monthly GST/HST filings; however, if the plan voluntarily registers, it may choose an annual filing period. The GST/HST and QST deemed tax and SLFI rules for participating employers and their pension plans are intertwined and complex. 

In summary, if any deemed tax is not remitted on time, it will not be considered an eligible amount for purposes of the pension rebate and it may not be included as part of a TAN. To preserve the full amount of the pension rebate and TAN, it is imperative that employers include amounts for deemed tax in respect of pension activities in their net tax for the return that includes the last day of their fiscal year. If the information to make the calculation is not available, we suggest using an estimate for the deemed tax amount. For those participating employers with a December 31 year-end, the deemed tax must be included in the December 2022 return, which is due on January 31, 2023.

More Information

If you have any questions about your GST/HST or QST compliance with the specialized rules for pension plans, please do not hesitate to contact the Ryan TaxDirect® line at 1.800.667.1600 or taxdirect@ryan.com.