Pension and benefit plans: demystifying GST/HST and QST filing requirements

May 07, 2021

Understanding how the Goods and Services Tax/Harmonized Sales Tax (GST/HST) and Quebec Sales Tax (QST) apply to pension and benefit plans can be very complicated.

It's important that certain pension and benefit plans do not miss an opportunity to claim a refund that may result from the plan incurring expenses in a province with a higher tax rate to the extent the plan is eligible to attribute a percentage of those expenses to a province with lower tax rates. As well, pension and benefit plans must be compliant with their remittance requirements. It can be a costly mistake where the tax authorities assess the plan for GST/HST or QST liabilities, interest, and failure to file penalties.

With that in mind, here are some considerations related to GST/HST and QST filing requirements with respect to pension and benefit plans.

What should be filed?

Pension and benefit plans deemed to be Selected Listed Financial Institutions (SLFIs) are subject to special filing requirements. Specifically, GST494 GST/HST Final Return for Selected Listed Financial Institutions or, alternatively, RC7294 GST/HST and QST Final Return for Selected Listed Financial Institutions must be filed where the plan is an SLFI for QST purposes or is registered for QST, in addition to GST. SLFIs are required to file the annual return within six months following the pension and benefit plan's year-end.

So how do you determine if your plan needs to file the GST494 or RC7294? The following four steps will help you make this determination.

Step 1: Is the pension or benefit plan governed by a trust or corporation formed to administer the plan? If not, the plan is not a pension entity and different rules apply. If yes, go to Step 2.

Step 2: Does the pension or benefit plan have at least one plan member (active or retiree) in a participating province (i.e. HST province as opposed to a GST province) and at least one plan member in any other province? If yes, go to Step 3.

Step 3: Does the plan have less than 10% of the total members in a participating province and total assets (defined contribution pension plan or employee benefit plan) or actuarial liabilities (defined benefits pension plan) attributable to plan members in participating provinces of less than $100 million in its preceding year? If no, go to Step 4.

Step 4: Does the plan have total unrecoverable 5% GST (or the 5% federal portion of HST) in excess of $10,000? If yes, the plan is considered to be an SLFI and is required to file a GST494 or RC7294 within six months after its year-end. Please note that if certain conditions are met, a plan can voluntarily elect to be an SLFI where it does not meet the criteria outlined in Step 4.

Where the responses above suggest that the pension or benefit plan appears to be an SLFI, the plan should consider registering for GST/HST (and possibly QST) to minimize its filing obligations. Unregistered SLFIs typically have to submit monthly returns in addition to the annual return, a requirement that significantly increases compliance obligations.

Securing a tax rebate

Registered pension plans governed by a trust are generally eligible to receive a rebate of 33% of the GST/HST and QST paid. Unlike the annual SLFI filing obligations noted above, the pension rebate is not predicated on an entity's status as an SLFI. This means the rebate may be available to both non-SLFI and SLFI pension plans, albeit SLFIs calculate the rebate differently than non-SLFIs.

Keep in mind that pension rebate claims are time-sensitive, which introduces a degree of urgency. Qualifying pension entities that are registrants must claim the rebate within two years after the filing due date for the entity's GST/HST and/or QST return for the related claim period. Non-registrants must file within two years after the end of the actual claim period. An additional consideration for SLFI pension plans, the 33% recovery on the provincial component of the HST is deferred and generally claimed on the SLFI return in the following year.

The pension rebate can be claimed by filing the RC4607 GST/HST Pension Entity Rebate Application and Election or RC7207 GST/HST Rebate Application and Election for GST/HST and QST Purposes for Pension Entities that are Selected Listed Financial Institutions, as applicable.

File prep

The majority of pension and benefit plans have year-ends of December 31, resulting in a June 30 filing deadline. Prior to filing, it's important to ensure you have a complete list of expenses that were either incurred or were deemed to be incurred by the pension and benefit plan. Once all details needed to file are in hand, it's recommended that pension and benefit plans file the required returns as soon as possible to avoid incurring costly late filing penalties and interest that come with late filing.

Get started with GST494/RC7294 clarity

BDO can help. Our indirect tax team will guide you through the four steps outlined above, then prepare and submit your returns and rebate applications.

Brian Morcombe, Partner, Indirect Tax Practice Leader

Jason MacNeil, Director, Indirect Tax

The information in this publication is current as of May 4, 2021.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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