13 May 2009 External T.I. 2009-0314851E5 F - Frais d'administration, régimes de pensions
Principal Issues: [TaxInterpretations translation] Is the payment of an amount equivalent to ITCs and ITRs received for pension plan administration expenses, by the employer to the pension plan trust, a deductible amount under paragraph 18(1)(a)?
Position: Question of fact
Reasons: The courts have interpreted paragraph 18(1)(a) as requiring, inter alia, that the expenses be made because of a legal obligation to pay the amount.
2009-031485 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc. May 13, 2009
Dear Madam,
Subject: IT-105 Pension plan administration expenses
This is further to your letter of March 19, 2010, in which you asked our opinion on the deductibility of the payment by an employer of an amount representing the amounts it receives as input tax credits (ITCs) and input tax refunds (ITRs) in the situation described below.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the Directorate’s practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
Facts
A registered pension plan agreement provides that the fees and expenses related to the administration of the pension plan and incurred by the employer in carrying on its business will be paid from the plan trust funds, unless the employer chooses to pay them directly. The employer wishes to pay to the plan trust the amounts of ITCs and ITRs it has received in respect of those fees and expenses.
Your Question
You wish to know if the payments described above are deductible in accordance with the position in Interpretation Bulletin IT-105 Administrative Costs of Pension Plans.
Our Comments
Paragraph 18(1)(a) provides that expenses are not deductible in a year except to the extent that they were made or incurred by the taxpayer for the purpose of gaining or producing income from a business or property. The courts have interpreted this paragraph as requiring, inter alia, a legal obligation to pay an amount in the year. This principle has been invoked on a number of occasions, including in R. v. Burnco Industries Ltd. [1984] 2 F.C.218, Wawang Forest Products Ltd. v. The Queen 2001 FCA 80 and Newfoundland Light and Power Co. v. R. [1990]1 C.T.C. 229.
The payment by the employer of an amount to the pension plan trust equivalent to ITCs and ITRs received could, in our view, be deductible to the employer by virtue of paragraph 18(1)(a) to the extent that the employer can demonstrate that it has a legal obligation to pay that amount to the pension plan trust.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.