Canada: GST/HST Filing Compliance For Pension Plans: Should You Register For GST/HST?

Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Tax, October 2011

Pursuant to draft legislation and regulations to the Excise Tax Act (ETA) that the Canada Revenue Agency (CRA) is currently implementing as though they are in force, a "pension entity" (i.e., a trust or corporation that is governed by a registered pension plan) is a selected listed financial institution (SLFI) if the plan has members resident in a participating HST province and any other province.

There is currently no statutory requirement for an SLFI to register for GST/HST purposes unless it has filed particular elections with the CRA. However, there may be an administrative advantage for a pension entity to register for GST/HST purposes even without having filed such elections. In its May 2011 GST/HST Notice No. 265, the CRA published its interpretation of the filing requirements for SLFIs, and they are potentially onerous, especially for SLFIs that are not registered for GST/HST. This may come as a surprise to many who think that non-GST/HST registrants are generally exempt from filing GST/HST returns with the CRA.

In particular, a non-registered SLFI is required to file monthly GST/HST returns and a final annual return (Form GST494) – 13 returns in all each year. The monthly returns are filed on Form GST62, a non-personalized GST/HST return that until recently was only available from the CRA in paper format – electronic copies are now available on the CRA website. Although these monthly returns will likely report nil GST/HST collected and no input tax credits claimed, a failure-to-file penalty may result if the return is not filed. If an SLFI registers for GST/HST, on the other hand, it is only required to file a single, annual final return (Form GST494), six months after its fiscal year-end. On the final return, the SLFI reports all the GST/HST it paid on inputs across Canada, and effectively calculates a "blended" rate of GST/HST which can result in either a refund or an amount payable at year-end, depending on various factors. It is therefore critical that a pension entity file its GST/HST returns and it is generally advantageous for a pension entity to register for GST/HST to reduce its filing requirements.

There is an exception to the SLFI rules for certain "qualifying small investment plans" (QSIPs), which includes pension entities where the GST (i.e., the 5% federal portion of the HST only) paid by the pension entity in the preceding fiscal year that was not recoverable by way of input tax credit is less than C$10,000. Note that this C$10,000 threshold includes all GST that is deemed to have been paid by the pension entity to a "participating employer" as defined in the ETA, pursuant to section 172.1 of the ETA. A QSIP is generally not an SLFI and is therefore not subject to the SLFI filing requirements, although detailed rules regarding a QSIP's recent past status under the regulations may place it within the SLFI regime. A QSIP can also elect to be treated as an SLFI if it wishes to take advantage of the effective "blended" GST/HST rate described above.

Note that a pension plan that is funded by an insurance contract is not caught within the definitions in the ETA regarding pension entities and pension plans, and the deeming rules in section 172.1 of the ETA are therefore not currently applicable to such plans. These pension plan arrangements are currently under review by the Department of Finance.

There is further relief from the SLFI regime for pension entities that have 10% or less of the total number of members of the plan resident in participating (i.e., HST) provinces at every point in the taxation year, and where the value of the assets of the pension plan (or in the case of a pension entity of a defined benefit pension plan, the value of actuarial liabilities of the pension plan) that are reasonably attributable to members resident in HST provinces was less than C$100-million during its preceding fiscal year. If both of these conditions are satisfied, the pension entity would not be considered an SLFI and would not be subject to the SLFI filing requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.