As the federal Department of Finance consults on proposed amendments to Canada’s Income Tax Act, the Association of Canadian Pension Management has responded with a call to clarify the “extraordinarily complex” GST/HST rules that apply to pension plans and pension investment entities.
In a letter to the Department of Finance’s tax policy branch, Bryan Hocking, chief executive officer of the ACPM, wrote that the association supports clarifying the application of the GST/HST rules, noting the proposed changes will also eliminate some double taxation.
According to Andrew Harrison, a partner in the pension and benefits practice at Borden Ladner Gervais LLP in Toronto, who was involved in the ACPM letter, the proposals are an attempt to fix the HST system as it applies to pension plans because it wasn’t entirely clear how they were treated under the system. “In some ways, they’re like financial institutions. On the other hand, they’re essentially units of operating companies … [employers] run a pension plan because it supports their core business but they’re not really running a financial institution,” he says.
Read: Pension changes among issues in consultations on GST rules
“The main thrust of these rules is to make the system work a little bit more clearly, avoid some instances of double taxation, and really bring some of these pension investment entities within the HST net in a way that works,” says Harrison. “Broadly speaking, these are intended to be positive changes … from the perspective of the pension industry.”
The draft legislative and regulatory proposals were published in July and are open to comments until Nov. 30, 2016. The proposals that relate to pensions include:
- Revising the GST/HST rules applicable to pension plans to ensure they apply fairly and effectively to pension plans that use master trusts or master corporations.
- Improving the clarity and effectiveness of the GST/HST rules applicable to certain pension plans and financial institutions by introducing clarifications and technical improvements.
Read: Retooling pension custody for GST/HST reporting
The ACPM’s letter also questions why the application of the new provisions to master trusts is limited to master trusts in section 149 of the Income Tax Act. “There are pension master trusts that do not make the election contemplated by that section, and we see no policy reason why they should be treated differently,” wrote Hocking.
Harrison agrees that the application to master trusts is narrower than it needs to be in terms of the way some companies structure their trusts. “We don’t see any tax leakage, it’s just that it applies to some trusts and not others,” says Harrison. “So we just wondered why it shouldn’t be the broader definition.”