Introduction
We are a global investor and Canada's largest single-profession pension plan. Before we describe our tax approach, it is vital to first understand how the taxation of Ontario Teachers' fits within the larger Canadian framework.
Pension taxation in Canada
Promoting the retirement income security of Canadians is an important goal of the Government of Canada. Private employment-related registered pension plans like Ontario Teachers' are essential to meet that goal.
Canada's retirement income system has four main programs: Universal government benefits (such as the Universal Old Age Security); the Canada Pension Plan/Quebec Pension Plan (i.e., social security); employment pension plans (such as registered pension plans); and individual retirement savings (such as registered retirement savings plans (RRSPs)). Ontario Teachers' is an employment pension plan and, as such, is integral to supporting and fostering retirement savings.
Similar to a RRSP, our working and retired teachers pay taxes when they receive their pension payments. Canadian pension funds, including Ontario Teachers', are exempt from tax on investment income in Canada, allowing investments to grow on a tax deferred basis. This mechanism was intentionally designed so that retirement income is only taxed once.
Tax approach
Pension plans in Canada have diversified globally to earn the best possible risk adjusted returns in order to ensure adequate funding of pension obligations. Ontario Teachers' currently invests in more than 50 countries around the world. As a global investor, Ontario Teachers' is subject to the laws of Canada, as well as the laws and regulations of every jurisdiction where we invest or have an office. We comply with all applicable tax laws and regulations.
When we engage with tax authorities worldwide, we are transparent and disclose all relevant facts regarding our investments. Tax laws around the world are complex are often subject to a broad range of interpretations. We apply a prudent approach to our interpretation with a view to ensure that our investing position is reasonable. In the event of a difference of opinion, we endeavor to positively engage with the tax authorities and will be persistent in our defence where we believe we are applying the legislation appropriately.
We believe it is important for governments to pursue clarity and predictability in tax laws as it encourages investment. We engage and constructively contribute to public consultation by tax authorities and policy makers in order to ensure that the pension fund perspective is well understood and our ability to meet our pension obligations is not compromised.
We also support and contribute to Organisation for Economic Co-operation and Development (OECD) global initiatives to create a single set of consensus-based international tax rules to protect tax bases while offering increased certainty and predictability to taxpayers.
Tax governance framework
Ontario Teachers' adopts a prudent approach to tax planning and our appetite for tax risk is aligned with and integrated into our overall approach to investment risk management. This in turn adheres to the enterprise risk appetite set by the Board. Ontario Teachers' aim is to mitigate risk to an acceptable level that is within that risk appetite through effective risk management approaches, including adherence to the controls and procedures embedded in our tax governance framework.
The Chief Legal & Corporate Affairs Officer has ultimate responsibility for the management of tax risk and is supported by an in-house team of tax professionals that manage this on a day-to-day basis, using their experience and judgement in assessing the tax implications of proposed investment transactions and ensuring that tax compliance obligations are met. Where the tax treatment of transactions may be uncertain, we engage external advisors in order to understand the potential options and the associated non-tax implications.
We recognize that the global tax landscape is constantly evolving. Emerging tax trends and changes in tax laws are monitored in order to understand any potential impacts and to confirm that our investments remain in compliance.
Our expectation of portfolio companies
Our portfolio companies contribute to the communities in which they operate in various ways, including collecting and paying taxes where they are due.
Depending upon our investment stake, Ontario Teachers’ could have board nomination rights. In those cases, our nominee directors consider governance best practices as they undertake the stewardship role. This includes oversight of tax policies of the investee companies. We expect our investee companies to adopt prudent tax policies and act in a transparent manner, disclosing all relevant facts to the tax authorities when engaging with them.
This document is regarded as complying with the duty under Schedule 19 of the UK Finance Act 2016 for 2024 on behalf of all relevant entities within the Ontario Teachers' group.