Provide clients of your accounting practice with a valuable service by assisting them in properly managing the latest payment and reporting requirements for GST/HST on pensions. GST and HST are the terms for “goods and services tax” and “harmonized sales tax”, respectively. Because the most recent changes to GST/HST regulations are rather complicated, you can be a big help to your clients by breaking down the requirements into simple, easy to understand language for them.
Providing a Taxable Supply to the Pension Plans
Basically, pension plans exist as distinct entities from the businesses they’re associated with, even though the associated businesses often do a lot of work for the pension plans. To better explain things, imagine Company A sets up a pension plan for its employees. The pension plan is a trust and a separate entity from Company A, a small corporation.
Throughout the year, Company A’s employees do data entry and provide a few other services for the pension plan. Those services are all considered part of a taxable supply that Company A is providing to the pension. Assume Company A pegs the fair market value – which is the value the tax authorities require using – of the services it provides the pension plan at $10,000. The Canada Revenue Agency essentially assumes that the pension has paid Company A $10,000 for the services, and because those services are taxable, the CRA further assumes that Company A has collected sales tax on the $10,000 amount.
Reporting GST/HST to the CRA
Continuing with the same example, at the end of the year Company A needs to calculate the GST/HST it has collected from the pension and report those amounts to the CRA. As their accountant, your job is to help clients account for the taxes, report them to the CRA, and remit any necessary payments. If your clients do not remit these payments to the CRA, they may face fees and penalties. Fortunately, you can show clients how Canadian versions of programs such as QuickBooks Online can track GST/HST for every applicable transaction and generate GST/HST reports for them at any time.
Calculating GST/HST Collected
To calculate how much GST/HST a client has collected in relation to pension plans they operate, multiply the FMV of services by the applicable GST/HST rate, and then multiply that amount by the master pension factor. For instance, if you are calculating GST/HST for a business operating in Nova Scotia, the GST/HST rate is 15 percent as of 2017. If calculating GST for Alberta, the rate is only five percent. The master pension factor is the total value of the units, or shares, of your client’s pension plan on the first day of the year, divided by the total value of the master pension entity.
A master pension entity is a business entity that holds multiple pension plans. For example, imagine Company A operates pension plans A, B, and C, and Company B has pension plans D and E. These companies put their A,B, C, D, and E pension together in a master pension entity. To calculate the master pension factor for pension A, Company A takes the value of pension A’s shares and divides that by the total value of the master pension entity.
Claiming GST/HST Rebates for Pension Plans
Your client’s pension plan may qualify for a partial rebate of GST/HST paid. As of 2017, the rebate is 33 percent. Make sure clients understand they’re only eligible for the rebate, in the form of Input Tax Credits, if they both report and pay GST/HST as required by the CRA.
As a professional accountant, it serves both you and your clients well for you to stay on top of the CRA’s changes to GST/HST guidelines, particularly in relation to pension plans. Use your knowledge to help your clients efficiently meet GST/HST obligations and receive whatever GST/HST rebates they qualify for.