As we blogged on here, CRA has recently taken steps to reverse what was generally understood to have been their historical position on employer eligible ITCs in pension plan situations involving insurance segregated fund products.

In a recent Excise News Publication, CRA doubles-down on this position in a very public way, seemingly setting the stage for audits in this area to come.

Background

As referenced in our previous blog, a CRA ruling in 2012 had previously left the door open for employers with pension plans funded through an insurer’s segregated funds to claim ITCs on any GST/HST paid on investment management fees taken directly out of those funds.

In 2023, CRA interpretation reversed that view, stating that employers were in fact not entitled to claim ITCs on any investment management fees taken out of an insurer’s segregated funds, a potentially unexpected change for those who had claiming ITCs per the previous ruling.

The recent Excise News Publication linked above re-states that position, potentially opening the door for increased Audit and Assessment activity for employers who had made ITC claims on those investment management fees.

These are fees that may be referenced in the Policy, but which the employer is not otherwise liable to pay and are instead deducted from funds owned by the insurer.  In CRA’s opinion, in these circumstances, the employer is not a recipient of services, has not received a supply from the insurer, and is therefore not eligible to claim ITCs. Whether CRA’s interpretation would withstand a court challenge remains to be seen.

It is important to note, however, that the application of GST/HST and eligibility to claim ITCs is fact-dependant. CRA acknowledges in its publication that the application of GST/HST can vary, and employers should familiarize themselves with the specific terms of their policies and obtain legal advice to determine eligibility for ITC claims.

Takeaways

CRA has had a long history of administrative policy reversals, and when those occur, they are usually quickly followed by Audits, Assessments, and drawn-out court challenges to see who is ultimately right from a technical GST perspective.

CRA’s most recent change in heart of Seg Fund ITCs may not fully address all situations, and specialized legal advice is usually going to be required to determine situations where ITCs are going to be disallowed under CRA’s new policy position, and situations where they might still be allowed.

Want a PDF copy of this blog?