Flaherty also unveils some welcome news for pension plan sponsors
On March 21, Finance Minister Jim Flaherty unveiled the federal government’s 2013 budget — and there were a few nuggets HR professionals and employers need to pay attention to in its pages.
The biggest change, from an employment perspective, is the transformation of the current skills and development plan through the introduction of the Canada Job Grant.
And while there are no major proposals with respect to employment benefits or retirement savings arrangements, pension plan sponsors will welcome measures to simplify excise tax administration and allow for the correction of over-contributions.
Canada Job Grant: The government will negotiate changes to the current Labour Market Agreements with provinces and territories by introducing the Canada Job Grant. The federal government would contribute $5,000 per person if the grant is matched by both the province or territory and the employer. The grant would go directly to businesses with a training plan.
Apprentices: A total of $4 million will be reallocated over three years to harmonize apprenticeship requirements across Canada. Federal government procurement practices will support the use of apprentices.
Supporting underrepresented groups: Supports have been proposed for underrepresented groups, such as persons with disabilities, youths, Aboriginal Peoples and newcomers.
Extension of hiring credit for small business: The temporary Hiring Credit for Small Business has been extended one year. Businesses whose total employment insurance premiums are $15,000 or less in 2012 will receive up to $1,000 in credits against the increase in the small business’s EI premiums in 2013.
Temporary Foreign Worker Program: The government will amend the program so it is only used when Canadians cannot be found to fill the job, to increase the efforts to recruit Canadians before relying on the program, to ensure employers that use the program have a plan to transition to Canadian employees, and to restrict knowledge of a non-official language as a job requirement. Employers will also be subject to new user fees.
Distressed pension workout schemes: Since April 1, 2011, employers that have sponsored federally regulated defined benefit (DB) pension plans could defer special payments if they met prescribed conditions, including financial distress. So far, the Ministry of Finance has approved only one such workout scheme — involving Air Canada. The government will undertake consultations on changes to the distressed pension plan workout scheme to increase the flexibility for plan sponsors entering the scheme, increase its effectiveness and promote outcomes that improve pension plans’ funding status.
Correcting contribution errors in RPPs: The Income Tax Act will be amended to permit registered pension plan (RPP) administrators to refund over-contributions due to reasonable errors without Canada Revenue Agency (CRA) approval, provided the refund is made no later than Dec. 31 of the year following the year of the error. CRA approval will be required for refunds made after that deadline.
Refunds will generally be reported as income to the member in the year received and the associated deductions in prior years will not be adjusted. For employers that use the accrual method to calculate income, a refund of pension over-contributions will normally reduce contribution expenses for the year to which it relates.
This measure will assist plan sponsors in addressing administrative errors, provided they are identified within the time limits imposed. Those with systems in place for regular monitoring of employee and employer contributions will be best positioned to take advantage of this relief.
It should be noted, however, that corrections to pension adjustments require an amended T4 slip (for example, arising from contribution errors in money purchase plans). Also, pension standards legislation may require notice to or approval by the pension regulator before refunds can be made.
This measure applies to over-contributions made on or after the later of Jan. 1, 2014, and the date the budget bill receives royal assent.
GST/HST pension plan rules: The budget proposes two measures to simplify the GST/HST rules for employers that participate in RPPs:
• Employers can jointly elect with the pension entity (the pension trust or corporation for the plan) so they no longer have to account for GST/HST twice — once for actual supplies and once for deemed supplies — and then make a tax adjustment to avoid double taxation.
• Employers will be able to fully or partially account for tax on deemed taxable supplies if the amount of tax paid is below certain thresholds.
New debt strategy: The government plans to extend its issuance of longer-dated debt. Specifically, the government plans to issue additional 10- and 30-year bonds, cease buyback operations for a portion of the outstanding 30-year debt and is evaluating the merits of issuing 40-year debt. While there was no mention of real-return bonds, additional long-term debt supply should be welcome news for DB plan sponsors.
Pooled registered pension plans (PRPPs): The budget reiterates the need for provinces to introduce harmonized enabling legislation before PRPPs can be fully implemented in Canada.
Federal public service and Crown corporations: The government will seek further federal public sector cost reduction through measures to bring compensation more in line with the private sector. Consistent with the 2012 amendments to the Public Service Superannuation Act, the government will work with Crown corporations to move to a 50-50 pensions cost-sharing arrangement between the employer and employees by 2017.
Canada Pension Plan Investment Board (CPPIB): Because of the CPPIB’s increased investments outside Canada, the government will consult with provinces to remove the restriction of CPPIB’s directors to Canadian residents, and allow a limited number of non-residents to sit on the board.
Contributions to Quebec Pension Plan (QPP): The government will ensure the CRA can accurately identify, calculate and reimburse overpayments made to the QPP by QPP contributors living outside Quebec.
Simon Laxon and Paul Timmins are senior consultants and Evan Shapiro is a consultant at Towers Watson in Toronto. This article was prepared with a team of colleagues who worked with them to analyze the budget documents and potential implications in partnership with Canadian HR Reporter.