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On April 16, 2013, Stan Struthers, Manitoba Finance Minister, introduced his 2013 Budget where he announced changes to the Manitoba (MB) retail sales tax (RST) in addition to other taxation changes outside of sales tax.

Retail Sales Tax

Rate Changes

Effective July 1, 2013, the following RST rates will change for a ten-year period ending June 30, 2023:

• General sales tax rate will increase from 7% to 8%,
• Sales tax rate on mobile, modular and ready-to-move homes will increase from 4% to 4.5%,
• The reduced sales tax rate for electricity used by qualifying manufacturers, mining companies and oil well operations will increase from 1.4% to 1.6%, and
• Prorate vehicle tax (PVT) rates will increase for registration periods that commence after June 30, 2013 and before July 1, 2023.  Please see MB Notice RST 13-04 for the specific rates. http://www.gov.mb.ca/finance/taxation/bulletins/noticerst1304.pdf.

Manitoba has confirmed that the already reduced sales tax rate of 1.4% will remain in place for home heating, heating and cooling farm buildings, and operating farm grain dryers.

RST Exemptions

The following RST exemptions will be also be effective as of July 1, 2013:

• Baby supplies, e.g., diapers, strollers, items for nursing and feeding,
• Child safety restraints systems used in vehicles, e.g., car and booster seats,
• Bicycle helmets for all ages,
• Sand & salt mixtures (containing at least 80% sand) currently exempt for municipalities for flood-related activities will be expanded to include any municipal works.

The MB government has also announced changes to the corporation capital tax, fuel taxes, and tobacco taxes and in addition to introducing other tax measures.   These taxation changes, along with the RST changes described above, can be found in the MB Information Bulletin No. 113, “Taxation Changes – 2013 Budget”. http://www.gov.mb.ca/finance/taxation/bulletins/2013budget.pdf

Transitional Rules

MB Finance has issued formal guidance on the RST transitional rules for the July 1, 2013 RST rate changes.  We have summarized the more relevant rules as follows.

Taxable goods

The 7% RST rate will apply to goods purchased before July 1, 2013.  This applies where goods are purchased on credit or by deferred payment arrangements where payment is made after June 30, 2013 or where goods are fully paid for prior to July 1, 2013 but delivered on or after that date. The 8% RST rate will apply to goods purchased on or after July 1, 2013, including situations where a deposit is paid prior to July 1, 2013.  The same transitional rules will apply to the mobile, modular and ready to move homes at their respective rates of tax.

Taxable services (other than telecommunication)

The 7% RST rate will apply to services completed prior to July 1, 2013 and the 8% RST rate will apply on contracts for services that commence after June 30, 2013.

The transitional rule for prepaid service arrangements bought and paid for prior to April 17, 2013 are subject to the 7% RST rate, regardless of when the service is performed.  However, the RST rate on prepaid services bought and paid for after April 16, 2013, will generally be based on when the service is performed.  For example, if a periodic maintenance agreement is purchased after April 16, 2013, and the service period starts prior to July 1, 2013, the service will be subject to 7% RST rate.  The 8% RST rate would apply if the service period starts after June 30, 2013.

The transitional rules for prepaid service packages bought and paid for prior to July 1, 2013, and redeemed prior to July 1, 2013, are subject to the 7% RST rate.  Prepaid packages that can only be redeemed after June 30, 2013 are subject to the 8% RST.

The transitional rules for services to be provided over a period that straddles July 1, 2013, will be based on when the service is performed.  Specifically, the 7% RST rate will apply to the service performed prior to July 1, 2013 and the 8% RST rate will apply to service performed on or after July 1, 2013. This is not the case where the contract is executed and fully paid for prior to July 1, 2013 – the full charge is taxable at 7%.  Similar transitional rules apply to services billable by the hour, day or other periodic measure.

Insurance

The transitional rule for definite term insurance contracts is based on the effective date of the contract.  The 7% RST rate will apply to contracts effective before July 1, 2013.  Contracts effective after June 30, 2013 are taxable at 8% RST rate.  The 7% RST is grandfathered for multi-year contracts, with an effective date prior to July 1, 2013, where instalments  are paid and the RST is collected annually.

The transitional rule for indefinite term and group contracts is based on the date of the premium paid, regardless of the coverage period.  The 7% RST rate will apply to premiums paid prior to July 1, 2013.  The 8% RST rate will apply to premiums paid after June 30, 2013.

The transitional rules described above and other transitional rules on utilities (including telecommunication services), leased goods, real property contracts, refunds and credit, can be found in the MB Information Notice RST 13-05, “Retail Sale Tax Rate Change – Transitional Rules”.  http://www.gov.mb.ca/finance/taxation/bulletins/noticerst1305.pdf

For additional information, please contact our client support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

April 1, 2013 is fast approaching for BC’s transition back to the Provincial Sales Tax (PST) and PEI’s transition to HST harmonization. Both BC and PEI have recently released further information regarding these major tax changes.

British Columbia

On February 28, 2013, BC issued two regulations with respect to the new Provincial Sales Tax (PST) Act, namely, the Provincial Sales Tax Regulation and the Provincial Sales Tax Exemptions and Refunds Regulation.  BC has divided the former Social Services Tax (SST) Regulations into two separate regulations, with one regulation addressing exemptions and refunds and the other regulation addressing more administrative rules.

The PST Exemption and Refund Regulation brings back into effect all the permanent PST exemptions that were in place under the SST.  However, the exemptions are now more structured and organized than under the SST Regulations.  Some of the PST exemptions that have been introduced in the PST Exemption and Refund Regulation are noted below, followed with a brief overview of some of the more significant exemptions and refunds provided in the Regulation.

• Production machinery and equipment;
• Tangible personal property (TPP) purchased for resale or lease;
• Custom software or custom-modified software;
• Services to TPP;
• Related party asset transfers;
• Children’s clothing and footwear;
• School supplies;
• Magazines, newspapers and books;
• Fuel, energy and energy conservation; and
• Gifts, prizes, draws and awards;

Production machinery and equipment (PME)

Purchases of PME are generally exempt if they are acquired by a qualifying person (includes a manufacturer, a software developer, an oil and gas producer, or a mine operator under certain conditions) and used primarily (more than 50%) and directly in the “qualifying part” of a manufacturing site.  The qualifying part of a manufacturing site will generally include the point the raw material is received to the point at which the finished product is first stored or transported from the site.

Certain PME, such as pollution control and waste management equipment must meet a higher percentage of use to be PST exempt, by being used substantially (defined in the Regulation as meaning more than 90%) and directly by the qualifying person in a prescribed activity.

TPP purchased for resale or lease

If TPP is purchased for the purpose of resale or lease, there is a requirement for the vendor to show the purchaser’s PST registration number on the purchase document, e.g., invoice (pursuant to section 86 of the PST Regulation). However, if the purchaser is not registered for the BC PST, the purchaser must provide and the vendor must retain a declaration in a form that is acceptable to the Ministry.

Custom software or custom modified software

Most software, such as packaged or prewritten software programs, or the right to use such programs, is taxable.  As BC PST is applied on the use of taxable software in BC, there is the potential for double taxation where there is proportional use of software in BC, as was the case under the SST regime.

The exemption for custom and custom modified software is generally the same as in the former SST.  To qualify as exempt custom modified software, the cost of modifications must be at least double the price of the software in unmodified form and modifications must involve changes to source code.  This requirement for exempt custom modified software has not changed under the new PST.

Services to TPP

“Related services” are defined in the PST Act, and are generally considered to be taxable services in respect of TPP, such as repair, adjustment, restoration, reconditioning, refinishing and maintenance services, and services provided to install goods. However, related services do not include services to install TPP that becomes an improvement to real property, employee services and most manufacturing services.

The Regulation provides several PST exemptions in respect of related services. Examples include services in respect of TPP purchased for resale or lease, motor vehicle modifications for individuals with disabilities, certain software services, services in relation to certain farming and fishing equipment purchased by qualifying purchasers, and many more.

Related Party Asset Transfers

These particular provisions generally refer to related parties as a corporation and its wholly owned subsidiaries (95% or more ownership).  TPP, including software, may be transferred PST-free between related corporations, provided that either the PST or SST was previously paid on the TPP.  The rules apply to both purchases and leases of TPP.  In addition, there is a new exemption that would allow TPP to be transferred to a new corporation in exchange for shares, regardless of whether the new corporation is wholly owned.

Gifts, prizes, draws and awards

This is a new area of exemption as the new legislation includes specific provisions for the imposition and exemption of PST on gifts. In general, gifts between family members and gifts to charities are exempt, as long as non-recoverable PST has been paid, unless a specific exemption applies.

Refund provisions

In addition to exemptions, the Regulation includes several refund provisions.  There is a PST refund for charity-funded purchases of medical equipment by a health facility, e.g., a hospital.  The refund provisions also include a refund or deduction for PST on bad debts and a refund of PST for a change of use where vehicles cease to be multijurisdictional vehicles.

The separate PST Regulation includes provisions that are more administrative in nature and include the following:

• Details on the determination of purchase price, particularly when property is bundled or brought into BC;
• Prescribed dates and manner for payment of the PST (which is generally the last day of the following month), the requirement for registrants with annual revenue exceeding $1.5 million to file their PST returns electronically, and vendor compensation for collecting the PST to a maximum of $198 per month;
• Tax collection, remittance, filing and documentation requirements, including the requirement for the purchaser’s PST registration number to be shown on the receipt, bill, invoice or written agreement (as previously noted);
• Records, including the types of records that must be retained and the retention period for these records; and
• Penalties and interest that can be levied for providing incorrect information or failure to remit or pay the PST.

Link to the BC PST Act and Regulations (scroll down to bottom of web page), as well as recently released forms, bulletins and notices:

BC PST Act, Regulations, Forms, Bulletins and Notices

PEI Harmonization

Effective April 1, 2013, PEI will be a harmonized province with an HST rate of 14%. The PEI HST will have a common tax base with the current GST/HST, except for items eligible for point of sale rebates, and will include the recaptured input tax credit requirement on certain specified property and services.  The following covers some transitional issues to assist you with winding down the PEI PST and implementing the PEI HST:

Winding down the PEI Revenue Tax (PST)

• Final PST return due on or before April 20, 2013.
• Refunds and rebates of PST will continue to be available until the existing legislated time limits for claiming them have expired or March 31, 2017, whichever is earlier.
• Assessment, objection, appeal and enforcement provisions will apply to transactions where the applicable limitation periods have not expired.  Businesses will continue to be subject to PST audits for a period of 60 months after March 31, 2013.
• Vendors must obtain written permission from the Provincial Tax Commissioner before any records can be destroyed.
• All current PST vendor accounts will be closed on March 31, 2013 by the Taxation and Property Record Division.  Vendors should not destroy their vendor registration certificates.

Returns and exchanges of goods

Where goods that were acquired prior to April 1, 2013, on which the PEI PST was paid, are returned after March 31, 2013 for goods of the same value, no adjustment to the tax is required.

• Where goods that were acquired prior to April 1, 2013, on which PEI PST was paid, are returned after March 31, 2013 for goods of a lesser value, the customer is entitled to a refund of the related PST.
• However, if the recipient exchanges the returned item for an item with a higher value after March 31, 2013, HST at 14% will apply to the additional consideration paid.

General Information

• All PEI government departments, agencies, boards, commissions and Crown Corporations will pay HST on their purchases of taxable property and services as of April 1, 2013.
• PEI has introduced a public services body rebate for the provincial component of the PEI HST.  However, in general, only charities and qualifying non-profit organizations resident in PEI will be entitled to claim the 35% rebate on the PEI provincial component of the HST.
• A rebate is available for PST paid on construction materials that are held in inventory immediately prior to April 1, 2013 and, under a contract to repair or make an improvement to a residential complex on or after April 1, 2013.

Links to PEI harmonization information:

PEI Harmonization Information

GST/HST Notice 278: HST for PEI – General Transitional Rules for Personal Property and Services

GST/HST Notice 279: HST for PEI – Transitional Rules for Housing and Other Real Property

Effectively managing the change

The best way to effectively manage sales tax implementation changes is with a strong and well-executed plan, which includes thorough systems and transactions testing prior to and after the sales tax implementation change date.  As part of the BC and PEI tax change process, organizations will need to consider the following issues:

• Registration with BC Ministry of Finance to collect the PST;
• Impact on sales and purchasing systems to incorporate sales tax rate changes taking into account the respective provincial transitional rules (and related issuance of credit notes), and changes to the tax status of supplies;
• Changes required to employee expense reporting systems to accommodate rate changes, reimbursements straddling the transitional period and changes to input tax credit calculations;
• IT and other internal resource requirements to make system changes on a timely basis, including training and communication to internal and external customers; and
• Review of document and contract wording and tax disclosure to incorporate the changes, including:
  • Sales invoices, purchase orders, expense reports, purchase invoices, etc.
  • Review new and existing contracts that straddle the implementation dates.

Effectively managing the BC and PEI tax changes on April 1, 2013, will help organizations ensure ongoing sales tax compliance and minimize potential exposures on audit.

For additional information, please contact our client support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

Many taxpayers still do not understand the true nature of the imminent measures to further harmonize the QST system with the federal GST/HST.

Effective January 1, 2013, the current QST will become the “Amended QST”, to further harmonize certain QST provisions to fall in line with the GST/HST legislation.  However, as is implied with the term “Amended”, the QST will still be a separate provincial sales tax (PST) administered by Revenu Québec, and Québec will continue to have the authority to decrease or increase its QST rate.  This is very different from the full harmonization that both British Columbia and Ontario implemented as of July 1, 2010, where these two provinces effectively relinquished their respective PST systems to fully adopt the HST.

For most taxpayers outside the financial services sector, the Amended QST will look much like the current QST.  The QST rate will no longer be levied on a GST-included amount (9.5% stated rate with an effective rate of 9.975%), but the actual stated rate for the Amended QST will become the current effective rate of 9.975%, to ensure no revenue loss to the province.  In addition, the ITR restrictions for large businesses will remain in place; however, following an initial period of not more than five years from January 1, 2013, Québec has committed to a three-year phase-out period ending in 2020.

The Comprehensive Integrated Tax Coordination Agreement Between the Government of Canada and the Government of Québec (Canada – Québec CITCA), signed in March 2012, is a detailed agreement that governs the rights and obligations of both Quebec and the federal government with respect to the Amended QST.  By signing the CITCA, the Québec government has agreed to ensure that the Amended QST tax base, as well as the administrative, structural and definitional parameters produce results identical to those produced under the federal GST/HST system.  Although not full harmonization, the Canada- Québec CITCA does contain some significant changes to further harmonize the QST with the GST/HST.  Two critical areas of dispute between the Federal and Québec governments that previously prevented progress towards further harmonization have been resolved in the CITCA.

The first main change is that the QST will no longer be levied on a GST-included amount (described above).  The second and more significant change is that the Amended QST will mirror the GST/HST legislation with respect to the treatment of financial services and financial institutions.  This will result in generally treating the supply of financial services as exempt instead of zero-rated.  Effective January 1, 2013, financial institutions supplying financial services under the Amended QST will no longer be entitled to claim an input tax refund (ITR) for the QST paid or payable on purchases made to support their exempt supplies of financial services.  As a partial offset, the compensatory tax on financial institutions will be partially eliminated effective January 1, 2013 and fully eliminated by April 1, 2014.  Effective January 1, 2013, the compensatory tax on financial institutions will no longer apply to paid-up capital, and the tax rate applied to other parts of the tax base will be reduced to:

• for amounts paid as wages, 1.9% for banks, trusts, loan corporations or securities traders, 1.3% for savings and credit unions, and 0.5% for any other financial institutions (excluding insurance corporations and certain insurance funds); and
• 0.2% for insurance premiums and amounts related to insurance funds.

As financial institutions will be restricted from recovering most of the QST paid, there are a number of other implications that arise as a consequence, including ITR allocation rules, self-assessment on imported taxable supplies, and the special attribution method (SAM) for newly minted “Quebec Selected Listed Financial Institutions” (SLFIs).  The change to the tax status of financial services will have far-reaching effects on not-only “traditional” financial institutions such as banks and insurance companies, but also investment plans, such as certain registered pension plans (RPPs) that have plan members in Québec.  Specifically, these RPPs will bear additional costs as the QST pension entity rebate will be reduced from 100% to 33% of eligible amounts, for claim periods starting January 1, 2013.  As an additional consequence, we expect to see an increase in the number of SLFI RPPs that have plan members mainly in Québec.  An RPP with plan members that reside in both a participating province and any other province would generally be considered a SLFI and subject to the SAM formula to compute the provincial portion of HST payable.  The Amended QST should give Quebec similar status to the participating provinces, for purposes of the SLFI RPP rules.

There are a number of transitional rules that will be of particular interest to financial institutions.  Click on the link below for the May 31, 2012 Québec Ministry of Finance Information Bulletin.

For additional information or support on this or any other sales tax issue, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

Quebec Finance May 2012 Information Bulletin

This information is produced with the understanding that the author is not responsible for any errors or omissions or actions taken based on this information.  Readers are advised to obtain further information by contacting their professional advisors.

Over the last couple of years, taxpayers have had to endure a plethora of indirect tax changes, from tax rate adjustments to new pension legislation to adjusting systems and processes for HST harmonization.  Much to everyone’s surprise, in the midst of all of this indirect tax hysteria, no one would have suspected that the next wave of changes would include the “de-harmonization” of the British Columbia (BC) HST that only became effective July 1, 2010!    

BC will transition from HST back to GST and a new PST effective April 1, 2013, the same time that Prince Edward Island (PEI) will be harmonizing its PST (currently 10%) with the 5% GST to create a new HST at the reduced rate of 14% (from an effective combined GST/PST rate of 15.5%).  Does this make any sense?  Businesses that had to revamp their systems when the BC HST was introduced will now have to reverse the process to go back to GST and adopt any new changes to accommodate the new 7% PST provisions, all the while trying to harmonize its systems for PEI HST.  Our IT support teams must be wondering by now whether we, indirect tax specialists and government officials, are purposely sending them into a whirlwind of system changes just for the fun of it.

Despite the plan to have the new PST be similar to the pre-existing PST, the new PST will vary in some ways following the province’s pledge to make the new PST law clearer and easier to administer for both the government and taxpayers alike.

The province has enacted legislation to meet its commitment to return to the PST.  The legislation essentially reduces ambiguity by updating the former legislation with current practices and technology and incorporating recommendations from the Expert Panel on Business Taxation established in January 2012.  The Ministry of Finance intends to publically release the final legislation including regulations that will fully establish the exact nature of the PST exemptions along with consequential and transitional amendments as early as this fall.

 PST Legislation

The new PST legislation was introduced on May 14, 2012 in its first draft as Bill 54, Provincial Sales Tax Act (the Act), and received Royal Assent on May 31, 2012. 

The new legislation and as yet unpublished regulations are expected to maintain all of the permanent exemptions that were in place as of June 30, 2010; however, as stated above, they incorporate a number of administrative improvements and tax policies that were previously applied only administratively, thereby reducing ambiguity and varying interpretations.  The new Act will bring changes together in one statute that will be easier to follow, helping simplify business compliance and reduce costs.  As an example, the Hotel Room Tax (eight per cent, as it was before July 2010) will now be incorporated into the PST; as a result, no more separate registration, remittance or returns — a welcome reduction in paperwork.

Registration of approximately 100,000 businesses using a new online system will begin in January 2013 where businesses will benefit from new e-services such as online registration, account update, remittance and other self-service options.  PST registration would be processed under the business’s current federal Business Number.  Provincial programs, including business outreach seminars, to help businesses understand their responsibilities in administering the PST are currently under development.

In addition to the administration changes discussed above, the following are further measures incorporated into the draft legislation:

• “Carrying on business” provision in Part I, Division I of the new Act that will assist organizations in evaluating the registration requirements noted under Part 8, Division 1.
• Introduction of the definition “small seller” defined by a number of criteria including a threshold of $10,000, to relieve small businesses from the requirement to register for PST purposes.  Related provisions with respect to small seller purchases/acquisitions and dealings with small sellers have also been incorporated into the new legislation.
• Other new definitions have been added e.g., affixed machinery, as well as revisions to existing definitions including “purchase price” and “lease price” for purposes of determining the tax base to calculate PST.
• Due dates for filing returns and making remittances has been moved to the end of the month, consistent with the GST/HST.
• Retailers are provided with more latitude with respect to the refund of PST to customers in a broader range of circumstances, as noted in Part 7, Division I of the Act, where refunds can be netted against current PST liabilities.
• Collectors will be entitled to a periodic allowance (commission) under section 185, Division II of Part 8 of the Act.  Specifically, businesses that collect and remit tax will again receive commission of up to $198 per reporting period (typically monthly).
• Part 4 of the Act is specifically dedicated to the “Taxes in relation to software” that essentially consolidates specific provisions and previous administrative policies respecting software.

Taxpayer Fairness and Service Code

Back in 2005, the province partnered with small business organizations such as the Chartered Accountants of BC and the BC Chamber of Commerce, to create the Taxpayer Fairness and Service Code which was a set of core values to guide government in dealing with the public and business owners.  The updated code that was recently released by the province preserves a set of principles detailing customers’ rights to courtesy, respect, and confidentiality in their dealings with the government, and commits to a number of standards.  Details of the updated code can be accessed at Taxpayer Fairness and Service Code

To access the new BC PST legislation, please click on the link below:

Bill 54 – 2012 BC Provincial Sales Tax Act

For additional information or support on this or any other sales tax issue, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

A significant new source of retail sales tax (RST) revenue was introduced by the Government of Manitoba in its 2012 Budget.  Effective July 15, 2012, the province will widen the scope of taxable supplies to include the taxation of insurance contracts. Manitoba (MB) has designed the applicable legislation to essentially mirror the provisions on the taxation of insurance in Ontario.  We predict that this will become a focal point in the upcoming MB sales tax audits.

Taxable insurance contracts include most types of property, liability and group insurance, where the insured is a resident of MB or the premiums paid are in respect of property located in Manitoba.  Taxable property insurance on land and building takes many forms.  Examples include property damage insurance, fire and flood insurance and the related business interruption insurance (which is generally an add-on to property insurance for businesses).  In addition, there are many forms of taxable liability insurance.   Examples include commercial general liability, premises liability, directors’ and officers’ liability and professional liability insurance.  The new MB tax on insurance also includes most types of group insurance, including group life, optional and dependant life, creditor insurance, accidental death and dismemberment, disability, and critical illness; however, unlike the Ontario RST on group insurance premiums, MB treats group insurance contracts for health care costs (see description below) as exempt.

Exempt insurance premiums are similar to Ontario’s list of exempt premiums.  Examples include reinsurance contracts, trip interruption insurance (but not trip cancellation insurance), insurance for vehicles registered under The Drivers and Vehicles Act, property insurance for property located outside MB, liability insurance covering risks located outside MB, certain types of insurance for commercial fishing boats and marine vessels, and insurance contracts purchased by Status Indians or Indian Bands covering their property situated on a reserve or for risks, perils or that related wholly to the reserve.  Exempt group insurance contracts for health care costs include insurance covering health care equipment, dental care, prescription drugs, vision care, ambulance, hospital room, counseling and therapy services, and long term care.  Where insurance contracts include both taxable and exempt insurance coverage, the exempt coverage must be shown separately on the billing to the customer; otherwise RST applies to the entire contract value.  Note that certain types of exemptions are only granted where the customer provides supporting documentation, e.g. exemption for Status Indians.

 The RST on group insurance contracts and those with an “indefinite” term is applicable to premiums that are both payable and relate to a coverage period after July 14, 2012; the RST is payable when the premium becomes payable.  The RST on contracts with a “definite” term (excluding group insurance) is applicable on all new or renewal contracts that come into effect after July 14, 2012; the RST is considered collected by the vendor on the full contract price on the first day that the new or renewal contract is effective. 

Insurance companies that sell taxable premiums and insurance agents and brokers that invoice for taxable premiums must register to collect the RST on these premiums.  However, an insurance company’s obligation to collect tax may be fulfilled where a MB RST registered agent or broker collects and remits the RST on the insurance company’s behalf.  Where a purchaser purchases taxable insurance contracts from a non-registered vendor, the MB RST registered purchaser must self-assess the tax on its regular RST return.  An unregistered purchaser must submit the RST owed on a casual return.  Where insurance covers risks partly inside and outside the province, MB will allow a reasonable proration of tax on the portion of the insurance premium that relates to risks in MB.

As insurance costs soar, related RST audit assessments will rise in tandem for businesses that neglect to recognize their sales tax obligations on insurance risks in MB.  We frequently see significant RST assessments for the Ontario tax on insurance (and where applicable, Federal Excise Tax assessments raised in GST/HST audits) where Canadian subsidiaries purchase insurance from their non-resident parent companies and neglect to self-assess the Ontario RST.  Now with the introduction of the MB RST on insurance, the MB RST auditors will be on a treasure hunt for this new category of RST exposure.

To access Manitoba’s new RST bulletin on insurance that provides a complete list of taxable and exempt insurance premiums, please click on the link below:

Information Bulletin No. 061, “Insurance”

For additional information or support on this or any other sales tax issues, please contact our Client Support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.

The Department of Finance continues to “study” the impact of the use of Master Trusts that are frequently used by employers to administer their employee registered pension plans. Contrary to previous guidance from the Canada Revenue Agency (CRA) to simply look through a Master Trust, recent discussions with the CRA and recent client experience with CRA audit practices have revealed that the CRA has changed its view such that the use of a Master Trust may create double taxation for GST/HST on pension plans that was certainly not intended by the legislation.

A Master Trust is generally established by an employer to facilitate the collective investment of amounts paid to the Trustee in respect of the individual participating pension plan trusts. A Master Trust generally consists of money and other property paid to the Trustee of the participating pension plan trusts, together with any earnings and profits, less authorized pension related expenses.

The GST legislation on deemed tax and pension plan rebates in respect of registered pension plans does not specifically address the treatment of Master Trusts; however, the CRA has indicated that its “interpretive position” on pension related expenses paid out of trust assets for which the employer is the recipient of supply (i.e., liable to pay) in GST/HST Technical Interpretation Bulletin B-032, “Registered Pension Plans”, is as follows:

“Where pension related expenses incurred by the employer (i.e., the person liable to pay the consideration under the agreement for the supply) have been paid for out of trust assets because of the following situations [paid directly to third party service providers or reimbursed to employer], the CRA generally considers the payment made by the plan trust to be consideration for a supply of property or services made by the employer to the plan trust….. If the employer is a GST/HST registrant, it would be required to charge, collect and remit GST/HST on the supply to the plan trust where the supply is not exempt.”

Under the CRA’s interpretive position, the employer would be required to charge non-recoverable GST/HST to the Master Trust. However, the Master Trust is not entitled to claim a pension rebate because it is not considered a “pension entity”.

To make matters worse, the deemed tax rules deem the employer to have made a deemed supply directly to the pension entities (and not to the Master Trust), on which the employer is required to remit GST/HST. As a result, there may be significant double taxation, which appears not to be resolved with the tax adjustment note (TAN) provisions in the GST legislation, as the TAN provisions only apply where the supplies are actually made directly to the pension entities.

The double taxation result is not the intent of the legislation and accordingly, the Department of Finance has indicated that changes are to come. Please stay tuned for further updates.

For additional information or support on this or any other sales tax issues, please contact our client support team at clientsupport@definitiveconsultingservices.com or at 905 829-8877.