FCA decisions in two important GST cases confirm Deloitte’s views
Canadian Indirect Tax News, April 2009 (09-3)
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On April 16, 2009, the Federal Court of Appeal (FCA) released decisions in General Motors and the Canadian Medical Protection Association ( CMPA), in both cases dismissing the Crown’s appeals. The decisions also confirm Deloitte’s views on these issues.
In General Motors, the FCA confirmed the Tax Court of Canada’s analysis that GM, as employer/sponsor of its defined benefit employee pension plans, was entitled to claim input tax credits on pension management expenses, and rejected the Canada Revenue Agency's argument that GM was not acting in the course of its commercial activities when acting as administrator of the plans.
In CMPA, the FCA confirmed the Tax Court’s decision that truly discretionary investment management services are GST-exempt financial services, entitling the CMPA to a rebate of tax paid in error on its fees paid for those services. (In the General Motors case, the Tax Court found that GM kept significant control and direction over the investment managers it appointed to manage its pension plan funds, so that their services were not GST-exempt “financial services.”)
It is too early to determine whether the Canada Revenue Agency will appeal the decisions. It is unknown whether Finance will introduce amendments to overrule either the General Motors or the CMPA decision, specifically whether it will proceed with the proposal announced in January 2007 that would reduce any GST recovery to a 33% rebate claimable by the pension plan trust.
The FCA’s two decisions support the advice we have been providing to our clients: every employer pension plan arrangement must be looked at on its particular facts to determine the employer’s input tax credit entitlement, and every investment management agreement must be analysed to determine whether the manager has true discretion.
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