Osler’s Pensions and Benefits Alert of December 22, 2010, alerted pension plan administrators, trustees and participating employers to new GST/HST obligations and rebate entitlements which, in most cases, applied for the first time in respect of the 2010 fiscal year.

Among the new obligations is a requirement to file an annual HST return in respect of certain pension plan trusts. The first of these returns is due on June 30, 2011, for the fiscal year ended December 31, 2010.  This return is used to report either an additional amount owing, or a net tax refund, for the provincial component of the HST (PVAT) on plan-related expenses incurred throughout the preceding fiscal year.  The computation generally involves taking a calculated minimum PVAT liability for the plan trust for the year and subtracting the total PVAT that was actually paid on certain plan-related expenses during the year, including amounts determined at year-end that were required to be remitted by participating employers in respect of the plan.

Officials at the Department of Finance have just unofficially confirmed that the HST regulations setting out the above computation, which were last released in draft form on January 28, 2011 (the Draft Regulations), contain an error. They fail to properly take into account the fact that the HST only came into effect in Ontario and British Columbia as of July 1, 2010.  As the Draft Regulations currently read, the minimum PVAT liability of the trust in respect of those provinces is based on the entire fiscal year ended December 31, 2010, while the actual PVAT paid or remitted is correctly based on only the portion of that year that is after June 2010.  Consequently, the Draft Regulations result in either an overstatement of the net amount owing by the trust, or an understatement of the net refund due to the trust.  Finance officials have indicated that they will recommend a corrective change to the Draft Regulations before those regulations are enacted.  However, it appears that an official announcement (i.e., in the form of a press release) is not currently imminent.

Plan administrators or trustees responsible for complying with these new HST rules should review their computations under the Draft Regulations in light of the proposed correction.  If you are such an administrator or trustee and are uncertain as to how these HST rules apply in your circumstances, it is recommended that you consult a tax professional.  Osler’s GST/HST specialists are able to provide advice and direction tailored to your particular needs and circumstances.