Tax memo: Changes to GST/HST rules for pension plans

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Memo No. 2013-12

The 2013 federal budget introduced changes to the GST/HST rules for pension plans. Businesses, pension plan administrators and advisors have awaited measures that would help simplify the rules and ease the compliance burden for employers and pension plans.

Two budget measures provide some relief:

  • A proposed election will allow an employer to avoid having to charge GST/HST on actual supplies that the employer makes to the pension entity if the employer “accounts for and remits tax on the deemed taxable supplies” made between the parties. This election will allow the employer to avoid the complicated procedures related to the adjustment of its net tax (i.e., the issuance of Tax Adjustment Notes).
  • A proposed change will permit an employer participating in a registered pension plan to be fully or partially relieved from accounting for tax on deemed taxable supplies if the employer’s pension plan-related activities fall below certain thresholds.

These new rules, discussed in more detail below, could provide relief to two main categories of employers:

  • those currently reporting the amount of actual tax collected from their pension plan in their GST/HST returns on an ongoing basis; and
  • those administering a small pension entity.

Before implementing the changes and/or making the election, employers and pension entities must examine the new measures carefully to assess their effect on current and future years.

An employer that participates in a registered pension plan is required to account for GST/HST under the general GST/HST rules on actual taxable supplies that it makes to a pension entity (i.e., pension trust or corporation). However, on an annual basis, the employer is also required to account for tax on deemed taxable pension supplies. The employer is deemed to have made a taxable supply and to have collected GST/HST to the extent that the employer has acquired property or services for use in activities related to the pension plan.