Federal Budget 2013
Date: March 25, 2013
On March 21, 2013, the Minister of Finance, the Honourable James M. Flaherty, tabled the 2013 Federal Budget “Jobs, Growth and Long Term Prosperity – Economic Action Plan 2013.”
In this FTR Now we review those Budget items that are of most interest to employers, human resources professionals and pension plan administrators. These include:
- Amendments to the Income Tax Act to permit the correction of reasonable pension plan contribution errors;
- Simplified GST/HST pension plan rules;
- GST/HST changes affecting certain health-related services;
- An announcement that a consultation and changes are forthcoming to provide options for federally regulated distressed pension plans; and
- An update on the status of Pooled Registered Pension Plans.
The following is a more detailed summary of these key Budget announcements, followed by a brief description of some additional initiatives of interest to employers.
PENSION PLAN CONTRIBUTION ERRORS
The Budget proposes amendments to the Income Tax Act to permit the refund of registered pension plan (“RPP”) contributions made as a result of reasonable error without advance approval of the Canada Revenue Agency (“CRA”). Currently, these refunds are permitted only at the discretion of the CRA on a case-by-case basis.
This measure is proposed to apply if the refund is made no later than December 31 of the year following the year in which the contribution error was made. Where a deduction for the contribution has been taken, there would be a corresponding requirement to include the amount of any refunded contributions in the income of the employer or member, as applicable. The proposal would apply to RPP over-contributions made on or after the later of January 1, 2014 or the date the enacting legislation receives Royal Assent.
RPP administrators will still need to comply with applicable minimum standards legislation and regulatory policies. For example, the Ontario Pension Benefits Act requires the Superintendent’s consent prior to the refund of any overpayments from a RPP, including refunds of overpayments made as a result of a contribution error.
SIMPLIFIED GST/HST PENSION PLAN RULES FOR EMPLOYERS
Currently, GST/HST rules provide that, where an employer that participates in a RPP that is funded through a pension trust or corporation uses employer property or services in RPP-related activities, it is deemed to have made a “taxable supply” to the plan and to have collected GST/HST on that deemed supply. These rules do not generally apply to RPP’s funded through an insurance contract only. Where the employer also makes an actual taxable supply, the existing GST/HST rules require the employer to account for both the deemed and actual taxable supplies. The employer is then permitted to make certain adjustments.
The Budget includes two alternative measures intended to simplify compliance with these GST/HST rules, each described below.
1. ELECTION TO NOT ACCOUNT FOR GST/HST ON ACTUAL TAXABLE SUPPLIES
Effective for supplies made after March 21, 2013, an employer and a pension entity can jointly elect to treat actual taxable supplies as being for no consideration. The types of actual taxable supplies the measure is aimed at would include internal costs of the employer incurred for plan administration activities for which the employer is reimbursed from the pension fund. Once made, this election remains in effect until it is either jointly revoked by the employer and the pension entity, or revoked by the Minister of National Revenue if there is a failure to remit GST/HST on deemed taxable supplies.
This measure simplifies GST/HST compliance for employers who are no longer required to account for tax on both deemed and actual taxable supplies to the pension entity and make subsequent filings to mitigate double taxation.
2. RELIEF FROM ACCOUNTING FOR TAX ON DEEMED TAXABLE SUPPLIES
Effective for fiscal years beginning after March 21, 2013, the Budget proposes a minimum threshold that allows relief from the obligation to account for GST/HST on deemed taxable supplies for RPP activities. This applies if the GST/HST that was (or would have been but for this relief) accounted for in the preceding year on the deemed supplies is:
- less than $5,000; and
- less than 10% the total net GST/and the federal component of the HST paid by all pension entities of the RPP in the preceding fiscal year.
This full relief will not be available for employers who have a joint election in effect to not account for tax on actual taxable supplies made in that same fiscal year, as described above.
However, even if an employer does not satisfy these thresholds, partial relief from the deemed supply rules will be available if the employer engages in internal activities related to the pension plan that are not supplied to the pension plan (e.g., time spent by a payroll employee determining an employer’s pension contribution deductions) and the GST/HST under the deemed taxable supply rules in respect of those activities which fall below the $5,000 and 10% thresholds. The relief will apply only to those internal activities and is available even if the joint election described above is in effect.
GST/HST CHANGES AFFECTING CERTAIN HEALTH-RELATED SERVICES
Provincial and territorial governments subsidize certain services provided to elderly, infirm or disabled individuals. These services include homemaker services (e.g., cleaning, laundry) and personal care services (e.g., bathing, feeding, assistance with dressing and taking medication). Some employer-sponsored private health plans may reimburse an employee for the portion of the cost of these services not covered by his or her government health insurance.
While homemaker services have enjoyed GST/HST-exempt status, personal care services have not. The Budget proposes to extend this exemption to personal care services starting March 21, 2013. To the extent a private health plan tops-up government coverage for these personal care services, it will no longer bear the cost of associated GST/HST.
The Budget also clarifies that reports, examinations and other health-related services obtained for purposes of determining insurance coverage or legal liability (rather than for therapeutic purposes) are subject to GST/HST starting March 21, 2013.
NEW OPTIONS FOR “DISTRESSED” PENSION PLANS
The Pension Benefits Standards Act, 1985 (“PBSA”) was amended in 2010, with supporting regulations enacted in 2011, to introduce the distressed pension plan workout scheme (“workout scheme”) for federally regulated pension plans. The workout scheme is intended to facilitate the resolution of plan-specific problems when the plan sponsor is facing funding issues by permitting the key stakeholders to negotiate alternative funding arrangements for the pension plan. As of December 31, 2012, only one plan sponsor had successfully implemented a workout scheme.
The Budget proposes to introduce changes to increase the flexibility for plan sponsors to enter a workout scheme, increase its effectiveness, and promote outcomes that improve the funded status of pension plans and enhance benefit security. The Government will be undertaking consultations on this initiative.
UPDATE ON POOLED REGISTERED PENSION PLANS
The Budget confirmed that all legislation and regulations necessary to support Pooled Registered Pension Plans (“PRPPs”) for federally regulated employees, self-employed individuals and employees in the Yukon, Northwest Territories and Nunavut were implemented in 2012. To date, no province has passed similar legislation for provincially regulated employees. The Government confirmed its intention to work closely with the provinces to encourage the implementation of PRPPs.
In addition to the measures above, the Budget contains a number of other measures that may be of interest to employers generally, including:
- the creation of the Canada Job Grant, a program intended to provide matching federal funding for short-duration training initiatives for employees (funding of up to $5,000 to be matched by the provincial governments and employer);
- various proposed measures to encourage the use of apprentices, including addressing barriers to accreditation for skilled trades and adjusting federal procurement processes to increase the use of apprentices on federal projects;
- the extension of the temporary Hiring Credit for Small Business which provides employers with total employment insurance premiums of less than $15,000 with a credit of up to $1,000 against increases in 2013 premiums over those paid in 2012;
- support for recent post-secondary graduates to gain working experience through paid internships;
- the continuation or undertaking of a range of measures aimed at increasing employment in underrepresented groups, including persons with disabilities and Aboriginal peoples; and
- the reform of the Temporary Foreign Worker Program to, among other things, increase the likelihood that qualified Canadian workers will obtain jobs before foreign workers are engaged.
We will continue to monitor the Budget initiatives and keep you informed of program details as they emerge and the introduction of any implementing legislation.
For more information on this Budget and its implications to your workplace, please contact your regular Hicks Morley Lawyer.
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