News and Insights

Ontario Notice, “Proposed Amendments to Taxation of Benefit Plans”

Tax Development Nov 19, 2010

The province of Ontario has issued this backgrounder to outline the current rules and proposed amendments to the Retail Sales Tax Act (RSTA) regarding the classification of benefit plans, and in turn the timing of the Retail Sales Tax liability.  The proposed amendments to the RSTA and Corporations Tax Act would allow plan holders that provide significant pre-funding to a qualifying trust to pay tax when benefits are paid out to plan members, instead of at the time the funds are contributed to the trust.

Under the current rules, benefit plans are classified as either funded or unfunded plans.  However, under the proposed amendments, the RSTA would provide a new form of benefits plan called a “qualifying trust”.  A “qualifying trust” would be defined to include conditions similar to an “employee life and health trust” as outlined in federal Bill C-47.  A trust would become a ‘qualifying trust” when the contributions in the trust exceeded 3 years worth of benefits payable to its member, unless otherwise prescribed.  The plan holder of a qualifying trust would pay tax in respect of benefits paid to the members, or based on contributions made by members of the plan to receive benefits from the plan.  A qualifying trust under the Act cannot be designated as a funded or unfunded benefits plan.  

ON Notice Taxation of Benefit Plans