What You Need to Know About the Pension Investment Landscape in 2024

The new year brings new considerations for pension fund and sovereign investors. Below are a few key topics to keep in mind going into 2024:

1. What was not in Bill C-59: Alternative Minimum Tax (AMT) and Pillar Two. The status of proposals in the 2023 Canadian Federal Budget to broaden the AMT base, and draft legislation issued on August 4, 2023 to expand exceptions to the AMT, remain uncertain as the amendments were not contained in Bill C-59. These amendments may become relevant to pension fund and sovereign investors who use taxable Canadian trusts when structuring their investments. The Canadian legislation implementing Pillar Two (the Global Minimum Tax Act) also was not included in Bill C-59. It is expected that the Global Minimum Tax Act generally will take effect as announced. Pension fund and sovereign investors may wish to review any potential impact of the Pillar Two top-up tax or the new minimum tax on their investment structures.

2. United States Corporate Transparency Act (USCTA). We understand that this piece of legislation generally imposes new reporting requirements on certain U.S. companies and similar entities, as well as certain non-U.S. companies and other entities registered to do business in the U.S. It is our understanding that the USCTA imposes new reporting of “beneficial owners” who directly or indirectly exercise substantial control over, or own, or control at least 25% of the ownership interests in such reporting entities. It is our understanding that reporting obligations could be triggered in early 2024 in some cases. Canadian pension funds and other Canadian-based investors may wish to seek U.S. legal advice concerning the application of the reporting requirements under the USCTA.

3. Trust reporting. Amendments to the trust T3 tax return rules, which include the disclosure of information regarding beneficial owners, are applicable for taxation years ending after December 30, 2023. The first potential reporting date is March 30, 2024. Please note that these rules potentially require bare trusts to file tax returns.

4. New U.S. withholding form for QFPFs (W-8EXP). A new version of the U.S. withholding form W-8EXP was released in October 2023, which we understand is now appropriate for Qualified Foreign Pension Fund (QFPF) investors. Before this, no prescribed form had been available for investors to certify themselves as QFPFs. Accordingly, fund managers often provided investors with their own standard QFPF certification forms or asked investors to provide their own, as part of the subscription documents. We expect fund managers will increasingly adopt the new W-8EXP as the certification for QFPF status. Canadian pension funds that claim QFPF status may wish to consider obtaining U.S. tax assistance to fill out the new W-8EXP forms.

5. 30% rule. The Canadian government announced in its 2023 Fall Economic Statement, that it will explore removing the "30 per cent rule" from investments in Canada. The rule restricts pension administrators from investing the moneys of a plan in the securities of a corporation to which are attached more than 30% of the votes that may be cast to elect the directors of a corporation. The stated intention of this change is to enable pension funds to more fully participate in Canada's economic growth.

Have more than five minutes? Contact any member of our Pensions, Benefits & Executive Compensation group or our Tax group to learn more.