REASONS
FOR JUDGMENT
Owen J.
I.
Introduction
[1]
These reasons address two appeals by The
Great-West Life Assurance Company (“Great-West”), court file numbers
2013-123(GST)G and 2014-1159(GST)G. The appeals were heard on common evidence.
[2]
The first appeal is from an assessment under the
Excise Tax Act, R.S.C. 1985, c. E-15 (the “ETA”) by
notice of assessment dated November 24, 2011 for the reporting
periods ending between January 1, 2008 and November 30, 2009
(the “First Period”). The second appeal is from two assessments under the ETA by notices
of assessment dated July 18, 2012 and November 12, 2013 for
the reporting periods ending between December 1, 2009 and
November 30, 2011 (the “Second Period”) and December 1, 2011
and December 31, 2012 (the “Third Period”) respectively. I will
refer to these three assessments as the Assessments.
[3]
Great-West seeks a rebate of goods and services
tax (“GST”) in the amounts of $1,534,768.36, $1,718,575.32 and $992,839.64 that
it says was paid in error during the reporting periods covered by the
Assessments, less any input tax credits (“ITCs”) that have already been claimed
by Great-West for the same reporting periods. Great-West filed two applications
for the rebate of these amounts under section 261 of the ETA. The applications
were filed within the two-year time limit specified in subsection 261(3) of the
ETA. Great-West takes the position that the supply in respect of which the GST
in issue was collected constituted a “financial service” as defined in
subsection 123(1) of the ETA and therefore that the GST was paid to the
supplier in error.
[4]
Mr. Michael Stephen Schwartz testified for
Great-West. Mr. Schwartz is the senior vice-president of group benefits at
Great-West, a position that he has held since 2006. Mr. Schwartz oversees
the group claims and call centre operations at Great-West. Mr. Schwartz
obtained a chartered accountant designation in 1982 and a certified management
accounting designation in 1984. He has been employed in the insurance industry
for 30 years and with Great-West since it acquired his previous employer,
London Life, in 1997.
[5]
Mr. Michael James Roszak
testified for the Respondent. Mr. Roszak has been the vice-president of
business development at Telus Health Solutions (“Telus Health”)
since Telus acquired Emergis Inc. (“Emergis”) in 2008. Mr. Roszak
was the vice-president of strategy at Emergis from 2004 to 2007. Mr. Roszak
is a chartered professional accountant and holds a master’s degree in business
administration.
[6]
I found both witnesses to be straightforward and
credible.
II. Facts
[7]
The parties filed an Agreed Statement of Facts
(Partial). The first paragraph states:
The Great West
Life Assurance Company (“Great West”) entered into two consecutive agreements
with respect to the period under appeal. The first agreement between Great West
and Emergis Inc. was dated February 1, 2007. The second agreement between Great
West, Telus Health Solutions and Emergis Inc. was dated February 1, 2012.
Copies of the agreements and certain price lists are attached at Tabs 1, 2 and
3. The parties to the agreements acted in accordance with the agreements at all
relevant times.
[8]
I will refer to the two agreements together as
the “Agreements” and individually as the “2007 Agreement” and the “2012 Agreement”. For ease of reference, I will refer to Emergis and Telus Health
as Emergis. The parties agreed during the course of the hearing that the terms
of the Agreements are essentially the same except for changes reflecting the change
of ownership after the 2007 Agreement was signed. The balance of the paragraphs
in the agreed statement of facts reference various documents that the parties
agreed to enter into evidence.
[9]
Great-West is a major Canadian insurance company
that offers, among other things, group health benefits plans to employers. These
plans typically include coverage for prescription drugs and dental care. An
employer that enters into such a plan is called the plan sponsor and the
employees who are entitled to benefits under the plan are called plan members.
[10]
The plans may be insured, in which case
Great-West assumes in exchange for an insurance premium the risk associated
with the obligation to pay benefits under the plan, or uninsured, in which case
that risk falls on the plan sponsor and Great-West charges a fee for the
services provided by it under the plan. The latter are called administrative
service only (ASO) plans in the insurance industry. According to Mr. Schwartz,
the name is intended to distinguish the function of the insurance company under
an ASO plan from its role in the risk management (i.e., insurance) side of the
business.
[11]
The only material distinctions between insured
and ASO plans are with regard to the party bearing the risk and to the flow of
funds in the background that reflects this allocation of risk. Under an insured
plan, Great-West collects a premium from the plan sponsor and is required to
pay the benefits under the plan to the plan members. Under an ASO plan, at the
end of each day, Great-West reports to the plan sponsor the claims paid that
day under the plan and the plan sponsor is required to pay Great-West the
amount so paid. Great-West also charges the plan sponsor a fee for the ASO plan
(an “ASO fee”). The ASO fee paid to Great-West may be a flat fee per claim or it
may be a percentage of paid claims.
[12]
The terms of a particular group health plan are
determined by the plan sponsor. The plan sponsor may or may not consult with
Great-West when establishing the terms of the plan.
[13]
The terms of the prescription drug component of
a plan address the benefits to be paid to plan members for prescription drugs. One
key term concerns the drugs covered by the plan. An “open” plan
covers all drugs that require a prescription while a “formulary”
plan covers a specific list of drugs set out in a formulary. Formularies
may vary from province to province. According to Mr. Schwartz, open plans
are much more prevalent in the Great-West portfolio of plans.
[14]
Emergis has pharmacists on staff who develop
custom formularies. These formularies would be available to Great-West for use
in its plans. However, it was up to the plan sponsor to decide whether to have
an open plan or to use one or more formularies in its plan.
[15]
The terms of the prescription drug component of
a plan may also include:
1. Limits
on the amount paid for a particular drug. For example, if there is a brand name
and a generic version of a drug, the amount paid to the plan member may be
limited to the cost of the generic version of the drug.
2. A limit
on the amount paid in respect of a particular claim to what is considered
“reasonable and customary”. This amount may vary from province to province
because of different pricing regimes and definitions. As well, the “reasonable
and customary” standard may be applied separately to the two elements of the
pharmacy bill, which are the ingredient (drug) cost and the dispensing fee.
3. The
fixing of deductibles, which might apply on a lifetime basis, a yearly basis or
on a per-prescription basis, or some combination of these three.
4. The
factoring in of co-insurance, which addresses the scenario where a plan member
has prescription drug coverage under more than one plan (for example, under a
Great-West plan and under a spouse’s plan).
[16]
Under the 2007 Agreement, Great-West retained
Emergis to perform services in relation to the determination and payment of
benefits under the prescription drug and dental components of its group health
benefits plans. Only the services relating to the prescription drug benefits are
in issue in these appeals. The parties agreed that the services provided by
Emergis to Great-West under the 2007 Agreement and under the 2012 Agreement
constitute a single compound supply for the purposes of the ETA. The issue lies
in how to characterize that single supply.
[17]
As the Agreements are essentially the same, I
will concentrate on the terms of the 2007 Agreement. However, before I recite
the relevant provisions of the 2007 Agreement, it is helpful to understand the
functions associated with the payment of benefits under the prescription drug
component of a plan, the general conduct of Great-West and Emergis in this area
and the role of the Assure Card system, all as described by the witnesses.
[18]
Prior to the introduction of systems such as the
Assure Card system approximately 25 years ago, a plan member would take his or
her prescription to the pharmacy, pay for the prescription and then send in a
paper claim form to the plan administrator to obtain the available benefit
under the plan. This approach had two main downsides. First, the plan member
had to fund the purchase of the drug, which could impose a material financial
burden on the individual. Second, the paper-based approval process was time-consuming
and costly.
[19]
The Assure Card system addresses these downsides.
In a typical scenario, the plan member takes his or her prescription to the
pharmacy and presents the prescription and the Assure Card to the pharmacist,
the pharmacist sends the claim to Emergis electronically using the pharmacy’s
own hardware and software, and Emergis communicates to the pharmacist how much
will be paid to the pharmacist in respect of the claim. If the claim is
approved the pharmacist delivers the prescription drug to the plan member and
collects any balance not covered by the plan from the plan member. If the claim
is rejected then no coverage is provided and the plan member must pay the full
cost of the drug. A claim that is approved may subsequently be voided at the
request of the pharmacy.
[20]
Mr. Roszak testified that 99% of Canadian
pharmacies have signed agreements with Emergis that allow them to connect to
the Emergis network so that they can submit claims electronically through the
Assure Card system. The exceptions are pharmacies that do not have an Internet
connection. The electronic transmission by a pharmacy of the information
associated with a claim is called “switching”. Mr. Roszak testified
that Emergis does provide stand-alone switching services to some customers. However,
the services consisting in the assessment or vetting of the claim and the
payment of the claim are always provided together by Emergis.
[21]
Under the agreement between Emergis and the
pharmacy, Emergis agrees to pay to the pharmacy the amount covered by the plan.
This payment is made in accordance with the terms of the particular agreement. In
Québec, the pharmacy is paid the next day while in other provinces it may be paid
in 15 or 30 days. The payment covers all claims paid during the relevant period
and the pharmacy is given reconciliation information so that the payment can be
tied to the drugs dispensed by the pharmacy during the relevant period.
[22]
Emergis is not an insurer and makes the payments
to the pharmacies under Great-West plans on behalf of Great-West. Emergis
communicates the transactions to Great-West daily and is reimbursed by
Great-West for all amounts paid on behalf of Great-West during the previous
day. Emergis does not use any of its own funds to satisfy claims by plan
members. In other words, Emergis does not take on the financial risk associated
with the payment of benefits through the Assure Card system.
[23]
Emergis is paid a fee for each drug transaction
completed under a Great-West plan regardless of whether the claim is approved,
rejected or voided. The fee is charged per drug and not per prescription. Each
drug is identified by its unique drug identification number or DIN.
[24]
The Assure Card itself is simply a plastic card
with a string of numbers that identifies the holder of the card and the
individual’s employer group. More recently, to reduce costs, there has been a
move away from the use of plastic cards to “cards” that can be printed at home.
Mr. Schwartz testified that 83% of Great-West’s plans are card-based plans.
As most large plans are card plans, this percentage represents more than 83% of
plan members.
[25]
The process of assessing or vetting a claim for
prescription drug benefits under a plan is called adjudication and involves the
application to each claim of the rules specified in the plan and industry
standard rules. The steps involved in the adjudication process will vary
according to the terms of the particular plan. Mr. Schwartz described the
main steps as follows:
1. Confirmation
that the plan is in force.
2. Confirmation
that the individual has a valid plan membership.
3. Confirmation
that the particular drug is covered under the plan.
4. Determination
of the level of payment and the deductible.
5. Determination
of whether the plan member has reached any limit imposed by the plan such as an
annual limit.
6. Determination
of whether the amount charged by the pharmacist meets the “reasonable and
customary” standard given the location of the claim.
7. Coordination
of plan benefits where the plan member is covered under more than one plan; for
example, the application of rules addressing which plan pays first and which
plan pays any residual benefit.
[26]
Mr. Roszak testified that the adjudication
process conducted by Emergis also includes a drug utilization review or
analysis to determine if there are any concerns associated with dispensing the
drug to the plan member. For example, is the plan member taking other drugs
that may interact with the drug being vetted? The results of this review are
communicated to the pharmacist so that they can be taken into account before
the prescription is filled.
[27]
For each plan, Great-West transmits
electronically to Emergis the plan terms, including the list of plan members,
the coverage of the plan members, the employer of the plan members and the
unique identifier assigned by Great-West to each of the plan members. In
adjudicating a claim, Emergis relies on the information provided by Great-West
as well as general information (e.g., industry standards and legislative
requirements) and information that it has collected through the Assure Card
system (e.g., the prescription history of the plan members). The adjudication
is performed in real time on Emergis’ dedicated computer system and the result
is immediately communicated to the pharmacy computer.
[28]
Emergis collects and retains information regarding
each drug transaction, including whether it was approved or rejected, the
amount paid and the plan member’s prescription history. This last piece of
information allows Emergis to perform the drug utilization review.
[29]
Emergis has no independent discretion and must
accept or reject a particular claim in accordance with the terms of the plan
communicated to Emergis by Great-West. Mr. Roszak testified that Emergis’
overall experience (not limited to Great-West) was that 85% of claims would be
accepted and paid, 10% of claims would be rejected and 5% would be voided. A
voided claim is a claim that has been approved by Emergis but that the pharmacy
subsequently requests be voided. The amount of a voided claim may have been
paid to the pharmacy before the claim was voided.
[30]
Emergis provided reports to Great-West related
to the adjudication and payment of benefits. As well, Emergis provided other
reports to Great-West that would allow it to analyze transactions on a micro or
macro level. The reports were made weekly, monthly or on an ad hoc basis,
depending on the type of report.
[31]
Emergis conducts random audits of pharmacies to
confirm that the claims being submitted are valid. As well, an audit might be
triggered by the types of drugs being dispensed. For example, narcotics and
high-cost drugs would be monitored carefully.
[32]
Mr. Roszak described Emergis as a pharmacy
benefit manager. In that role, it would conduct market research and provide
that information to all its customers. As well, it would create specific
capabilities for customers. For example, in the case of Great-West, it created
an Internet-based drug look-up capability that individuals could use to obtain
information about a drug, including its cost.
[33]
Emergis maintains call centres for its insurance
company customers as well as for the pharmacies that connect to its network. The
call centres are there to address technical issues.
A. The Agreements
[34]
The descriptions provided by Mr. Schwartz
and Mr. Roszak of the services provided to Great-West by Emergis are
consistent with the Agreements. However, as one would expect, the Agreements
provide considerably more detail. Unless otherwise noted, the capitalized terms
used hereunder are defined in the 2007 Agreement.
[35]
The preamble to the 2007 Agreement states:
A. Great–West is
engaged in the business of marketing certain extended health care benefit
plans;
B. Emergis has
developed and is the owner of a point-of-service network and system for health care
processing, including, without limitation, drug and dental claims in
association with the trade-marks ASSURE CARD and ASSURE CARTE;
C. The system
enables Emergis to provide claims capture including eligibility of the
claimant, transmission, adjudication, payment and other services more
specifically described below; and
D. Great-West
entered into an agreement dated November 1, 2002 with Emergis (formerly known
as BCE Emergis Inc.), as amended, to access the system and use the services
which the Parties now wish to amend and restate.
Mr. Roszak
testified that he agreed with the description in each of these four paragraphs.
[36]
The terms “Charges“, “Emergis Trade Marks”, “Fees”, “Provider”, “Services” and “Transaction” are defined in section 2 of the 2007 Agreement as follows:
“Charges” means
all other amounts payable by Great-West to Emergis for the provision of the
Services, excluding the Fees, as described in the Schedule D attached hereto.
“Emergis Trade
Marks” means ASSURE CARD, ASSURE CARTE and such other trade-marks, trade names,
domain names, designs and logos of Emergis which it may use in connection with
the operation of the Assure System and the provision of Services hereunder.
“Fees” means the
transactional price payable by Great-West to Emergis under this Agreement for
provision of certain Services (processing and adjudication) in accordance with
Section 7 hereof, as more specifically described in Schedule D attached hereto.
“Provider” means
a licensed or otherwise accredited provider of a health benefit service,
including but not limited to, a dentist, optometrist, pharmacist or medical
doctor, or such other party as may be agreed upon by the Parties.
“Services” has
the meaning set forth in Section 3 and Schedule A attached to this Agreement,
as it may be amended from time to time.
“Transaction”
means: (i) with respect to a Benefit Plan which provides drug coverage, the
dispensing of one prescription item including a rejected claim and successfully
voided claim; and [balance addresses dental claims].
[37]
Section 3 of the 2007 Agreement, titled “Services”,
states:
3.1 Emergis has
agreed to perform the Services for each Benefit Plan identified by Great-West
to Emergis, as applicable. Emergis shall use commercially reasonable efforts to
provide and perform the Services in accordance with the Service Levels set
forth in Schedule C. The description of the Services that shall apply to a
Benefit Plan shall be included in the Benefit Plan Design provided by
Great-West to Emergis and referred to in Section 4.2 hereof.
3.2 Great-West
shall have the right, at any time and from time to time, to amend, alter,
delete or enhance the application of the Services as they relate to any
particular Benefit Plan, by amending the Benefit Plan Design.
3.3 Great-West
may make non-fundamental changes to a Benefit Plan Design at any time during the
Term of this Agreement on thirty (30) days prior written notice to Emergis. If
any changes are requested by Great-West to a Benefit Plan Design which are
fundamental and require changes in the logic of the Assure System, and such
changes are reasonably required, Emergis will make such changes in accordance
with the Change Management Procedure set out in Schedule E.
[38]
Section 4 describes the responsibilities of
Great-West. Sections 4.1, 4.2. 4.4, 4.6, 4.9 and 4.10 state:
4.1 Great-West
has provided, and throughout the Term of this Agreement shall continue to
provide on a timely basis, Emergis with such information as Emergis may
reasonably require in order to fulfill its obligations under this Agreement.
4.2 Great-West
shall enter and maintain a Benefit Plan Design for each Benefit Plan on the
Assure System. Great-West may provide an Exception to Emergis for exceptions
applicable to the Benefit Plan Design for a particular Benefit Plan on the
Assure System.
. . .
4.4 Great-West
acknowledges that it and its Sponsors shall be responsible for providing, at
its or their expense, the telecommunications equipment and Internet access that
is required for it or such Sponsors to access and utilize the Services.
. . .
4.6 Great-West
shall be solely responsible for the use and compatibility of its own equipment,
software and applications and shall be liable for all Great-West costs required
to troubleshoot difficulties in the Services caused by Great-West's equipment,
software or applications.
. . .
4.9 Great-West
will not reverse compile, reverse assemble, disassemble or translate any
portion of the System Software of which it may at any time come into
possession, except as may be permitted elsewhere in this Agreement.
4.10 Great-West
shall be solely responsible for CAIL software licenses required by Great-West
to access and utilize the Services.
[39]
Section 5 describes the responsibilities of
Emergis. Sections 5.1 to 5.8, 5.14, 5.15, 5.22 and 5.25 state:
5.1 Emergis shall
maintain a sufficient number of Providers to meet the needs of the Claimants.
5.2 Emergis shall
use its commercially reasonable efforts to maintain levels of service in
accordance with the Service Levels set out in Schedule C and to keep the Assure
System industry leading and competitive.
5.3 Emergis shall
provide Great-West with the appropriate number of Assure Cards for Claimants,
as requested by Great-West.
5.4 Emergis shall
perform the Services in a good and professional manner, in accordance with best
practices in the market, in English and French as appropriate.
5.5 Emergis
shall, in accordance with Section 20 hereof, provide Great-West with access to data
associated with Great-West’s business at the end of each Business Day.
5.6 Emergis shall
provide the standard reports referred to in Schedule A and the Service
Performance Reports referred to in Schedule C in the frequency set forth in
Schedule C, and such further reports as may reasonably be requested by
Great-West from time to time (the "Special Reports"). The Charge, if
any, for Special Reports shall be as agreed upon by Great-West from time to
time.
5.7 Emergis shall
carry out routine audit procedures no less frequently than quarterly and on a
minimum of 200 pharmacy Providers annually, to ensure that the Assure System
and the Services are free from errors and defects, including auditing specific
pharmacy Provider sites. Emergis shall notify Great-West of such audits when
performed. Emergis shall make any change to its audit process in accordance
with the Change Management Procedure, and make the results of such audits
available to Great-West in such detail as may be agreed upon by the Parties,
acting reasonably, with respect to its Transactions with such pharmacy
Providers.
5.8 Emergis shall
provide such additional services for such Fees or Charges as may be agreed upon
by Emergis and Great-West from time to time, at which time such services shall
be deemed to be part of the Services, the whole in accordance with the Change
Management Procedure set out in Schedule E.
. . .
5.14 Emergis
shall be solely responsible for the use and compatibility of its own equipment,
software and applications and shall be liable for all Emergis costs required to
troubleshoot difficulties in the Services caused by Emergis' equipment,
software or applications.
5.15 Emergis
shall maintain the Assure System, the System Software and its equipment using
hardware and software commonly used in the Canadian market, and its proprietary
software.
. . .
5.22 Emergis
shall provide Great-West with access to Emergis’ proprietary formularies that
are made generally available to Emergis’ clients, as amended from time to time,
and shall update such formularies no less frequently than quarterly. Emergis
shall provide Great-West with no less than eighteen (18) months prior written
notice of the termination of an Emergis formulary except where such termination
is required by law. Emergis shall take reasonable steps to ensure that its
formularies comply with law.
. . .
5.25 Emergis
shall, upon request of Great-West, provide training to Great-West personnel
authorized by Great-West to access the Assure System. Such training shall be
conducted at a time and location to be reasonably designated by Great-West.
Emergis shall supply all required documentation, aids and tools required for
training on the Assure System. Any travel expenses incurred by Emergis in
providing such training and invoiced as a Charge to Great-West shall comply
with Great-West's Travel Policy set out in Schedule K.
[40]
Section 7.1 of the 2007 Agreement, under the
heading “Fees and Charges”, states:
7.1 In
consideration of performing the responsibilities set out in Section 5 hereof
and the Services, Great-West shall pay Emergis the Fees and Charges for the
Services as set out in Schedule D or as otherwise provided in this Agreement.
[41]
The Services provided by Emergis to Great-West
are described in detail in Schedule A to the 2007 Agreement. For transactions
using the Assure System (described in the schedule under the heading “Pay
Direct Drug”), the Services are described as follows:
(i) provide
real-time, electronic pharmacy Transactions capture from the Provider’s
point-of-service, verification of eligibility of Claimant, adjudicate in
accordance with Benefit Plan Designs provided by Great-West and confirm
Transaction payment status to the Providers.
(ii) maintain
the Provider network to allow electronic submission of drug Transactions.
(iii) assist
in the development of standards for electronic transactions processing and keep
Great-West informed of developments.
(iv) operate
a support desk (English and French) for Providers to answer questions and
assist in problem resolution.
(v) maintain
relations with major software vendors and support regarding their provider
software management packages relating to the processing of drug Transactions,
changes required to support new products and validation of vendor software.
(vi) ensure
the adjudication software will adhere to legislative requirements, when
possible with the information provided, the whole in accordance with the Change
Management Procedure in Schedule E when appropriate.
(vii) maintain
DIN price and formulary files for use in the adjudication process.
(viii) maintain
DUR files for use in the adjudication process.
(ix) maintain
the appropriate version of the Transaction submission message.
(x) provide
real-time monitoring of Transactions processing and ensure continuity of
service.
(xi) maintain
the Provider files for use in the adjudication process.
(xii) create
end of day Transaction Log Files that includes [sic] all Transactions
submitted by the Provider for Great-West, including same day voids, prior day
voids, and rejected Transactions. (This information is contained within the
ELOG and VLOG).
(xiii) check
to ensure no other payment has been issued for the same Transaction by Emergis.
(xiv) Emergis
will keep on-line drug adjudication Transactions for a period of ninety (90)
days.
[42]
Schedule A also describes the services provided
by Emergis in respect of Deferred Payment and Paper Reimbursement transactions.
As the services are similar and the vast majority of transactions in issue
involve Pay Direct Drug services, I will refer only to the Pay Direct Drug
services. I note that neither party sought to distinguish the various service
categories.
[43]
Schedule D sets out the price list in detail. Heading
A of Schedule D is “PAY DIRECT
DRUG (PDD)”. Paragraph A(i) indicates that in exchange
for the Pay Direct Drug services described in paragraph (i) of section II-A of
Schedule A, Emergis is paid a fixed amount for each Transaction, which is
referred to as the Transaction Fee. The description in Schedule D of the Fee
for the services described in paragraphs (ii) through (xiv) of section II-A of
Schedule A states: “No
additional charge – included in Transaction Fee”.
[44]
If the number of Transactions in a year exceeds
a specified threshold, the Transaction Fee for Transactions above that
threshold is reduced. Under section 7.4 of the 2007 Agreement, the Fees are
invoiced using a blended rate that is based on the projected number of
Transactions for the year, and an adjustment for the actual number of
Transactions is made at the end of the year.
[45]
Section 8 of the 2007 Agreement describes the
payment procedure. Emergis is required, under section 8.1, to provide
Great-West with the daily Transaction Log Files and, under section 8.2, to
e-mail to Great-West an invoice for the previous day’s Transactions. Great-West
is required to pay the invoices by an electronic transfer of funds into a trust
account named the “Emergis Inc.
Trust Account for The Great-West Life Assurance Company”. The payment is to take place no later than the end of the
business day following receipt of the Transaction Log Files. The funds so
transferred are to be used by Emergis exclusively for the purpose of paying
Providers in settlement of each Transaction processed by Emergis for Great-West.
Any interest earned on the funds in the account belongs to Emergis.
[46]
Under section 8.9, Emergis is required to
provide Great-West with an itemized statement of Charges within 30 days after
the end of each month. Great-West is required to pay Emergis the amount
indicated on the statement within 30 days of receipt of the statement. Charges
are all amounts payable for services under the agreement, other than Fees.
[47]
Section 10 of the 2007 Agreement describes
operations and marketing. Under section 10.1, Emergis is required to establish
and maintain a users group to discuss the needs of the users and market
requirements in order to keep the Assure System and the Services competitive,
current and on the leading edge. Under section 10.2, in June of each year,
Emergis is required to provide to Great-West a preliminary business plan
setting out the activities planned in regard to the Services for the following
year. The plan is to be based on the feedback obtained from the users group.
[48]
Section 12 addresses Assure Cards,
Identification Cards and indemnification by Great-West. Under section 12.1,
Great-West is responsible for the accuracy of the Benefit Plan Design and
Claimant Information it provides to Emergis, and Emergis is responsible for the
accuracy of the application of the Benefit Plan Design and data to the
Identification Cards and
the Assure Cards. Emergis is responsible for any costs incurred because of an
omission or error in the application of the Benefit Plan Design and data to the
Identification Cards and the Assure Cards. Under section 12.2, Great-West is to
indemnify Emergis for any loss resulting from the fraudulent use of an
Identification Card, or an Assure Card except where the use is by an employee
or agent of Emergis or results from a negligent or willful act or omission by
Emergis.
[49]
Section 13 addresses intellectual property
rights. Sections 13.1 to 13.3 state:
13.1 Except as
expressly provided in Section 13.5 and 21.3 hereof, Great-West acknowledges
that all rights in the Assure System are proprietary to Emergis and all
Intellectual Property Rights developed, collected, created by or for Emergis
otherwise resulting from the Services shall belong solely to Emergis.
13.2 Emergis
represents and warrants that it is the owner of the Emergis Trade Marks and has
the right to grant to Great-West the right to use same in a manner approved by
Emergis from time to time. On this basis, Great-West acknowledges that Emergis
is the exclusive owner of the Emergis Trade Marks and, except as expressly
provided in this Agreement, Great-West acquires no right, title or interest in
the Emergis Trade Marks. Great-West shall only use the Emergis Trade Marks in a
manner approved by Emergis from time to time.
13.3 Emergis
represents and warrants that it is the owner or the authorized licensee of all
elements of the Assure System and any third party software that Emergis
provides to access or use the Assure System and has the right to provide the
Services to Great-West as provided for herein. On this basis, Great-West
acknowledges that Emergis is the exclusive owner or authorized licensee of the
Assure System and the Assure Card and, except as expressly provided in this
Agreement, Great-West acquires no right, title or interest in the Assure Card
or the Assure System. Great-West shall only use and authorize the use of the
Assure Card in a manner approved by Emergis from time to time.
[50]
Section 14 addresses confidentiality and
confidential information.
[51]
Section 16 addresses the indemnity to be provided
by Emergis and the limits of Emergis’ liability. Sections 16.1 to 16.3 state:
16.1 Emergis’
liability for all damages to Great-West arising out of this Agreement for all
claims, demands or causes of action whatsoever, and regardless of the form of
action, whether in contract or in tort, including negligence, for any year
shall be limited to one half (l/2) the estimated amount of Fees for the
immediately preceding year to which a claim relates. Excluded from this
limitation are claims under Section 14 [the confidentiality provisions],
Section 16.2 and Section 16.3 hereof.
16.2 Emergis
shall indemnify and hold Great-West harmless from any claim from a third party
that any item or any part of the Services furnished hereunder constitute an
infringement of any copyright, trade secret or other intellectual property
right excluding patent, and Emergis shall pay all damages and costs incurred by
Great-West, including without limitation all legal fees and all settlement
costs.
16.3 Emergis
shall indemnify and hold Great-West harmless from any claim that the license of
the Assure System as set out in Section 21.3 hereof, constitutes an
infringement of any copyright, trade secret or other intellectual property
right excluding patent, and Emergis shall be liable to pay all damages and
costs incurred by Great-West, including without limitation all legal fees and
all settlement costs.
[52]
Section 20 addresses information and data. Sections
20.1 and 20.3 state:
20.1 It is
understood and agreed that Great-West owns the data provided by Great-West to
Emergis in order to provide the Services and is entitled to all information in
the records of Emergis pertaining to such data. The Provider is entitled to
review and obtain a copy of all information in the records of Emergis which the
Provider originally submitted and any other information required by a Benefit
Plan Design, as permitted by law. Except for information which may identify an
individual, Emergis owns the information generated by Emergis through the
provision of the Services and will be free to use it in providing statistical
data to (without limitation) drug manufacturers, pharmacies, government
agencies, carriers and third party statistical information providers. In no
event will Emergis identify Great-West, the Sponsor or an individual Claimant
without the express written consent of Great-West, Sponsor and/or the Claimant
as the case may be.
. . .
20.3 Emergis
represents and warrants that the Assure System and the System Software and any
component thereof (including customizations, corrections and enhancements)
developed by Emergis or for Emergis, will be free of any disabling codes or
instructions, any virus or other contaminant, or any passwords that may, or may
be used to, access, modify, delete, damage or disable Great-West’s computer
systems or any component thereof or that may result in damage thereto.
[53]
Section 21 addresses the termination of Emergis’
business and the placing in escrow of the assets used in the Assure System. If
there is a Release Event then Emergis grants to Great-West a non-exclusive
limited licence to use the proprietary components of the Assure System. A
Release Event includes such things as the cessation of Emergis’ business, the
bankruptcy, insolvency, dissolution or winding up of Emergis, or the seizing of
the Assure System by any legal process.
B. The Position of the Appellant
[54]
The position of Great-West is that the
Transaction Fee paid by Great-West to Emergis was consideration for making a
supply of a “financial service” (as defined in subsection 123(1) of the ETA) to Great-West. Great-West
argues that this follows from the fact that the essential service for which
Great-West paid the Transaction Fee to Emergis was the effecting of the payment
of drug benefits in accordance with the terms of the benefit plans.
[55]
Great-West submits that Emergis played an
indispensable and integral role in the payment of drug benefits to plan members.
Specifically, plan members who used the Assure Card enjoyed the benefit of
their drug coverage at the pharmacy counter and pharmacies received actual
payment of the drug benefits by means of a disbursement from the trust account.
As a result of the involvement of Emergis in the process, Great-West was able
to satisfy its obligations under the benefit plans by making a single payment
each day into the trust account.
[56]
Great-West submits that, before a drug benefit
could be paid to a plan member, the claim had to be adjudicated against the
applicable Benefit Plan. The process of adjudication was complex, but Emergis
was capable of handling the complexity. Emergis provided the payment and
adjudication services as a single package to Great-West and its competitors.
Great-West’s overarching business objective in engaging the services of Emergis
was the payment of drug benefits in accordance with benefit plans as agreed
with plan sponsors.
[57]
Great-West reiterates that the parties agree
that the Services provided to Great-West by Emergis pursuant to the terms of
the Agreements constitute a single supply under the ETA. This single supply
contained all of the elements of service and property, if any, that Emergis
provided to Great-West in consideration of the Transaction Fee. The appropriate
analysis to apply to the supply is as follows: first, determine the essence or
overall character of the supply in view of its “raison d’être” or main purpose;
second, determine whether the essence of the single compound supply is captured
in the inclusionary paragraphs of the definition of “financial service”; and, third, if the supply fits within the inclusionary
paragraphs, determine whether any of the exclusionary paragraphs capture the
essence or overall character of the supply.
[58]
Great-West submits that, on such an analysis,
the single compound supply in this case is a “financial service” as defined in
subsection 123(1) of the ETA. Specifically, the essence or overall character of
the supply is described in paragraphs (a), (f), (f.1)
and/or (l) of the definition and the supply is not excluded by any of
paragraphs (n) to (t) of the definition. Consequently, the supply
is an “exempt supply” for the purposes of the ETA, and GST does not apply to the
consideration paid by Great-West for this exempt supply.
C. The Position of the Respondent
[59]
The position of the Respondent is that each case
turns on its particular facts and that as a result one cannot simply apply a
result in a different case that involved different facts. The Respondent
submits that careful consideration must be given to the specific terms of the
Agreements pursuant to which the compound supply in this case is provided by
Emergis to Great-West.
[60]
The Respondent submits that the Agreements
describe a wide range of services that are provided by Emergis to Great-West. This
is evident from the many services described in Schedules A and D. The
Respondent observes that A(i) of Schedule D, which describes the Transaction
Fee, does not even mention actual payment of the plan benefits. Instead, it
describes the capture of information from the pharmacy, the verification of eligibility,
the adjudication of the claim in accordance with the terms of the Benefit Plan
and the transmission of payment status to the pharmacy. The Respondent says
that these services are best described as pharmacy benefits management rather
than the payment of benefits. Payment is but one small part of the compound
supply, which happens separately under the terms of the agreements between
Emergis and the pharmacies
[61]
The Respondent submits that the term “financial service” is merely a label which encompasses the descriptions in paragraphs
(a) to (m) of the definition and excludes the descriptions in
paragraphs (n) to (t) of the definition. The definition uses the
word “means”, so it is an exhaustive definition of the phrase “financial service”.
The compound supply in this case is not described in any of the inclusionary
provisions of the definition and, even if it was, it is excluded by paragraphs (r.4),
(r.5) and/or (t) of the definition.
III. The
Statutory and Regulatory Provisions
[62]
The parties agree that the amendments to the
definition of “financial
service” introduced by S.C. 2010, c. 12, section
55 apply to the reporting periods in issue in these appeals. These amendments
were deemed to come into force on December 17, 1990. With this in mind, the
relevant provisions of the ETA and the regulations to the ETA are set out in Appendix
A to this judgment.
IV. Analysis
[63]
The ETA provides that the supply of a financial
service to a resident of Canada is an exempt supply and therefore not subject
to GST. The corollary to this is that the supplier of the financial service is
not entitled to input tax credits for property or services acquired (or
imported) in order to supply the financial service. The issue in this case is
whether the Services provided by Emergis to Great-West under the Agreements
constituted the supply of a financial service.
[64]
The parties agree that the supply in this case
is a single compound supply.
The Supreme Court of Canada discussed the distinction between a single supply
and multiple supplies in Calgary (City) v. Canada, 2012 SCC 20, [2012] 1
S.C.R. 689:
[32] In
determining whether a supplier has made a single supply or multiple supplies,
the relevant principles were summarized by Justice Rip (as he then was) in O.A.
Brown Ltd. v. Canada, [1995] G.S.T.C. 40 (T.C.C.). His approach was
confirmed by the Federal Court of Appeal in Hidden Valley Golf Resort Assn.
v. R., [2000] G.S.T.C. 42.
. . .
[34] Justice
Rip found that the Value Added Tax statute in the United Kingdom
contained many provisions similar to our GST (Value Added Tax Act (UK),
1983, c. 55). In the English cases the issue had been defined as whether the
supply in question comprises a compound supply or a multiple supply. A compound
supply is a single supply with a number of constituent elements which, if
supplied separately, some would have been taxed and some not. Multiple supplies
are made and taxed separately.
[35] O.A.
Brown established the following test to determine whether a particular set
of facts revealed single or multiple supplies for the purposes of the ETA:
The test to be distilled from the English authorities is whether, in
substance and reality, the alleged separate supply is an integral part,
integrant or component of the overall supply. One must examine the true nature
of the transaction to determine the tax consequences. [p. 40-6]
[36] When
reaching his decision, Justice Rip made the following observation:
. . . one should look at the degree to which the services alleged to
constitute a single supply are interconnected, the extent of their
interdependence and intertwining, whether each is an integral part or component
of a composite whole. [p. 40-6]
(Citing Mercantile Contracts Ltd. v. Customs & Excise
Commissioners, File No. LON/88/786, U.K. (unreported).)
[37] Justice
Rip also noted the importance of common sense when the determination is made.
McArthur T.C.J. made a similar observation in Gin Max Enterprises Inc. v. R.,
2007 TCC 223, [2007] G.S.T.C. 56, at para. 18:
From a review of the case law, the question of whether two elements
constitute a single supply or two or multiple supplies requires an analysis of
the true nature of the transactions and it is a question of fact determined
with a generous application of common sense.
[65]
In this case, common sense does suggest that the
various services provided by Emergis to Great-West under the Agreements are
intertwined, interdependent and integral to one another. While it is true that
Mr. Roszak testified that Emergis provided stand-alone switching services
to some clients, the fact that switching can stand alone does not alter the
reality in this case that the Services provided under the Agreements were all
intertwined and interconnected to such a degree as to be properly considered a
single compound supply.
[66]
As noted by the Supreme Court in Calgary (City),
a compound supply is by its nature a supply with a number of constituent
elements. If
these elements had been supplied separately some would have been taxed and some
not. In this case, the constituent elements of the single supply made by
Emergis to Great-West were not provided separately but as an intertwined,
interrelated and integral whole and the incidence of GST on the consideration
charged for this single supply must be determined on that basis.
[67]
The test to apply to determine whether a single
supply constitutes a “financial
service” is succinctly described by the Federal
Court of Appeal in Global Cash Access (Canada) Inc. v. The Queen, 2013
FCA 269 as follows:
[26] To
determine whether that single supply falls within the statutory definition of
“financial service”, the questions to be asked are these: (1) Based on an
interpretation of the contracts between the Casinos and Global, what did the
Casinos provide to Global to earn the commissions payable by Global? (2) Does
that service fall within the statutory definition of “financial service”?
[68]
I interpret the references to what is being
provided in the first question and to service in the second question to be
references to the essential or predominant character of the supply or, stated
another way, the substance of the supply. This follows from the fact that it is
the single supply that is being characterized and not the constituent elements
of the supply individually. As stated by Judge Rip (as he then was) in O.A.
Brown (pp. 40-5 and 40-6):
. . . A compound
supply is a supply where there are a number of constituent elements which, if
supplied separately, some would have been taxed and some not. With respect to
these types of supplies, it is necessary to determine the quality of the final
compound supply for tax purposes regardless of its constituent elements. . . .
[69]
Accordingly, basing my analysis on an
interpretation of the Agreements, I must first determine the essential
character, or substance, of what Emergis is supplying to earn the Fee and then
assess whether this supply constitutes a “financial service” as defined in
subsection 123(1) of the ETA. With respect to the second step, the essential
character or substance of the supply will determine not only whether the supply
is one described in the inclusionary paragraphs of the definition but also
whether the supply is one described in the exclusionary paragraphs of the
definition. In other words, the fact that one or more of the constituent
elements of the supply may fall within the inclusionary or exclusionary
paragraphs is not determinative. It is the essential character or substance of
the supply that determines whether the supply is a financial service.
[70]
The Services provided by Emergis to Great-West
are described in section II-A of Schedule A to the 2007 Agreement as
follows:
(i) provide
real-time, electronic pharmacy Transactions capture from the Provider’s
point-of-service, verification of eligibility of Claimant, adjudicate in
accordance with Benefit Plan Designs provided by Great-West and confirm
Transaction payment status to the Providers.
(ii) maintain
the Provider network to allow electronic submission of drug Transactions.
(iii) assist
in the development of standards for electronic transactions processing and keep
Great-West informed of developments.
(iv) operate
a support desk (English and French) for Providers to answer questions and
assist in problem resolution.
(v) maintain
relations with major software vendors and support regarding their provider
software management packages relating to the processing of drug Transactions,
changes required to support new products and validation of vendor software.
(vi) ensure
the adjudication software will adhere to legislative requirements, when
possible with the information provided, the whole in accordance with the Change
Management Procedure in Schedule E when appropriate.
(vii) maintain
DIN price and formulary files for use in the adjudication process.
(viii) maintain
DUR files for use in the adjudication process.
(ix) maintain
the appropriate version of the Transaction submission message.
(x) provide
real-time monitoring of Transactions processing and ensure continuity of
service.
(xi) maintain
the Provider files for use in the adjudication process.
(xii) create
end of day Transaction Log Files that includes [sic] all Transactions
submitted by the Provider for Great-West, including same day voids, prior day
voids, and rejected Transactions. (This information is contained within the
ELOG and VLOG).
(xiii) check
to ensure no other payment has been issued for the same Transaction by Emergis.
(xiv) Emergis
will keep on-line drug adjudication Transactions for a period of ninety (90)
days.
[71]
In addition, under section 5 of the 2007
Agreement, Emergis is charged with other responsibilities, including the
maintenance of a sufficient number of Providers (pharmacies) to meet the needs
of Claimants (plan members), the provision to Great-West of an appropriate
number of Assure Cards, the provision to Great-West, at the end of each day, of
access to data associated with its business, the provision to Great-West of
standard reports, the conduct of routine audit procedures no less frequently
than quarterly on a minimum of 200 pharmacies, and the on-request training of
Great-West personnel authorized to access the Assure System.
[72]
Schedule D to the 2007 Agreement indicates
that the Transaction Fee is for the Pay Direct Drug services described in
paragraph (i) of section II-A of Schedule A and that the fee for the balance
of the services is included in the Transaction Fee. As well, section 7.1 of the
2007 Agreement indicates that, unless a separate Charge is agreed to or
specified, the Fee also covers the services provided by Emergis under section 5
of the 2007 Agreement.
[73]
It is clear from the description of the various
services in the 2007 Agreement and from the evidence of Mr. Schwartz and
Mr. Roszak that the substance of the supply is described under the heading
Pay Direct Drug services in paragraph (i) of section II-A of Schedule A and
that the other services may be considered ancillary or incidental to, or
consequent upon, these services. Specifically, paragraphs (ii) to (vi) and (ix)
to (xiv) of section II-A of Schedule A describe what is necessary to properly
and efficiently carry out the services described in paragraph (i). For example,
paragraph (ii) requires Emergis to maintain the Provider network, paragraph
(iii) requires Emergis to assist in the development of electronic transaction
processing standards and paragraph (iv) requires Emergis to operate a support
desk. All of these actions are required in order to perform in an effective and
efficient manner the services described in paragraph (i). The same can be said
for the actions described in paragraphs (v), (vi) and (ix) to (xiv). The services
described in section 5 are also ancillary or incidental to, or consequent upon,
the services described in paragraph (i) of section II-A of Schedule A and do
not represent the essential character of the supply.
[74]
Paragraphs (vii) and (viii) of section II-A of
Schedule A may be considered to describe two value-added services related to
the adjudication process. However, the maintenance of DIN price and formulary files
and DUR files for use in the adjudication process cannot be considered to
define the essential character of the supply provided by Emergis to Great-West.
Rather, these services represent bells and whistles added by Emergis to the
adjudication component of the package of services. The adjudication component
itself is provided for in paragraph (i).
[75]
The question then is what is the essential
character of the supply described in paragraph (i) of section II-A of
Schedule A? The Appellant argues that the essential character of the
supply described in paragraph (i) is the payment of the claim made by a plan
member, while the Respondent argues that paragraph (i) describes the
communication, adjudication and processing of a claim but not the payment of a
claim. Payment, the Respondent says, is merely one small part of the compound
supply, which happens separately under the terms of the agreements between
Emergis and the pharmacies.
[76]
To answer the question as to which view is
correct, it is helpful to consider why the Pay Direct Drug services described
in paragraph (i) of section II-A of Schedule A are being provided by Emergis to
Great-West. Before the advent of real-time benefit administration systems such
as the Assure Card system, a plan member would attend the pharmacy, present his
or her prescription and pay for the prescribed drug(s) personally. The plan member
would then submit a claim form to Great-West to obtain reimbursement of all or
part of the amount paid. Great-West would adjudicate the claim and, if the plan
member was eligible for plan benefits, mail a cheque to the plan member for the
amount covered by the plan. In the meantime, the plan member was out of pocket
for the full amount paid to the pharmacy for the drug(s) notwithstanding that
the plan member had drug coverage under a group health benefits plan.
[77]
The Assure Card system converted this process
into a real-time adjudication and payment regime. The plan member now attends
the pharmacy, presents his or her prescription and Assure Card (or
Identification Card) and is advised on the spot how much coverage he or she has
under the applicable group health benefits plan. The plan member is thereby
relieved of paying to the pharmacy the amount covered by the plan.
[78]
Seen in this light, it is clear that the essence
of the service is the payment of the plan benefit to the plan member. Specifically,
the services provided by Emergis effect the payment of the drug benefit to the
plan member in accordance with the terms of the applicable Benefit Plan. All of
the other services simply support this objective.
[79]
The mechanics of how the pharmacy is paid are a
red herring in the sense that the plan member is constructively paid the plan
benefit when he or she is relieved of the obligation to pay at the pharmacy
counter the amount covered by the plan. The mechanics under the Assure Card
system to address this constructive payment consistent in the reimbursement of
the pharmacy for agreeing to forgo payment by the plan member at the point of
sale. The pharmacy has no entitlement to the benefit under the terms of the
applicable group health benefits plan but does have a right to be reimbursed
under its agreement with Emergis. The reimbursement is simply an aspect of the
Assure Card system that allows Emergis to effect payment of the drug benefit to
the plan member in an efficient manner.
[80]
The next question is whether this supply falls
within the definition of financial service. Before addressing that question, I
note that the Respondent did not at any time suggest that any of the group
health benefits plans under which Great-West was the insurer or which Great-West
administered did not constitute an “insurance policy” as defined in
subsection 123(1) of the ETA. Accordingly, I will proceed on the basis that each
of the group health benefits plans in issue is an “insurance policy” and a “financial
instrument” as defined in subsection 123(1) of
the ETA.
[81]
Paragraph (f.1) of the definition of “financial service” includes “the
payment or receipt of an amount in full or partial satisfaction of a claim
arising under an insurance policy”. As already
stated, the essential character of the supply provided by Emergis to Great-West
is the payment to the plan member of the drug benefit claimed by the plan
member under a group health benefits plan. The payment of the amount is
effected through the agreement of the pharmacy to forgo the collection of the
full price of the drug at the point of sale. In my view, the words of the
provision are sufficiently broad to capture this method of payment.
[82]
In the past, the entitlement to the benefit
would have been satisfied by the issuance of a cheque to the plan member. Under
the Assure Card system, the entitlement is satisfied by relieving the plan
member of the obligation to pay the amount of the benefit to the pharmacy at
the point of sale. The result is the same. The plan member constructively
receives at the pharmacy counter the benefit payable to him or her under the
terms of the group health benefits plan. The fact that a payment is
subsequently made by Emergis to the pharmacy does not alter the substance of
what has transpired at the point of sale. As already stated, the subsequent
payment to the pharmacy is simply a means to give effect to the payment of the
drug benefit to the plan member under the Assure Card system.
[83]
In my view, the substance of the supply provided
by Emergis to Great-West under the Agreements is described in paragraph (f.1)
of the definition of “financial
service”. In light of this finding, I do not
need to consider whether the supply is described in paragraph (a) or (f)
of the definition of financial service.
[84]
The Appellant also argued that paragraph (l)
describes the substance of the supply. Emergis did agree to provide a group of
services that in substance effect the action described in paragraph (f.1).
However, the agreement to provide the Services is not the substance of the
supply. The actual provision of the Services is the substance of the supply. Accordingly,
paragraph (l) does not apply to the supply in this particular case.
[85]
The next question is whether the supply
described in paragraph (f.1) of the definition of financial service is
nevertheless excluded by any of paragraphs (n) to (t) of the
definition. The Respondent argued that the supply is excluded by one or more of
paragraphs (r.4), (r.5) and (t) of the definition.
[86]
I will first address paragraph (r.5). The
Respondent argued that Emergis delivered or made available property to
Great-West. While it is true that Great-West had the right to acquire certain
property if there was a Release Event, such an event did not occur during the
reporting periods in issue. Apart from that right, section 13 of the 2007
Agreement acknowledges that Great-West had the right to use the Emergis trademarks
and the Assure Card system, but only in the manner approved by Emergis. The
section also makes clear that Great-West did not acquire any ownership of the
intellectual or other property of Emergis.
[87]
Great-West is given limited rights to use the
Emergis trademarks and the Assure Cards so that Great-West can link the use of
the Assure Card services to its group health benefits plans. The use of the
property of Emergis in this manner is not the essential character of the supply
provided by Emergis to Great-West but an incidental aspect of retaining Emergis
to provide the Services described in the Agreements. Accordingly, paragraph (r.5)
does not describe the essential character of the supply.
[88]
Paragraph (r.4) of the definition of
financial service states:
(r.4) a
service (other than a prescribed service) that is preparatory to the provision
or the potential provision of a service referred to in any of paragraphs (a)
to (i) and (l), or that is provided in conjunction with a service
referred to in any of those paragraphs, and that is
(i) a service of collecting, collating or providing information, or
(ii) a market research, product design, document preparation,
document processing, customer assistance, promotional or advertising service or
a similar service.
[89]
As already stated, the taxability of a compound
supply under the ETA is based on the essential character or substance of the
supply and not the constituent elements of the supply. Accordingly, the fact
that the constituent elements of the supply may include services described in
paragraph (r.4) is not a basis for excluding the supply from the
definition unless the essential character or substance of the supply is
described by those services. This was confirmed by the Federal Court of Appeal
in Global Cash Access:
[37] I turn
now to the portion of the statutory definition of “financial service” that
lists the exceptions. The Crown argues that paragraphs (r.4) and (r.5)
of the statutory definition apply because under the agreement with Global, the
Casinos are providing, respectively, clerical services that include the
collection of identifying information about patrons, and access to the physical
premises of the Casinos for Global’s terminals and kiosks. Since the Crown
is also arguing that there is a single supply, that argument assumes that those
are the predominant elements of the supply. [Emphasis added.]
[90]
Here, the group of services that constitutes the
compound supply does include some of the services described in paragraph (r.4).
For example, Emergis does provide services to Great-West that involve
collecting, collating or providing information. However, those services do not
represent the essential character or substance of the supply, which is paying
drug benefits to plan members. Accordingly, paragraph (r.4) does not
apply to exclude the supply from the definition.
[91]
Paragraph (t) of the definition of “financial service” excludes a prescribed service. Subsections 4(1), 4(2) and 4(3) of
the Financial Services and Financial Institutions (GST/HST) Regulations
(these subsections are hereinafter collectively referred to as the “Regulation”)
state:
4. (1) In this
section,
“instrument”
means money, an account, a credit card voucher, a charge card voucher or a
financial instrument;
“person at risk”,
in respect of an instrument in relation to which a service referred to in
subsection (2) is provided, means a person who is financially at risk by virtue
of the acquisition, ownership or issuance by that person of the instrument or
by virtue of a guarantee, an acceptance or an indemnity in respect of the
instrument, but does not include a person who becomes so at risk in the course
of, and only by virtue of, authorizing a transaction, or supplying a clearing
or settlement service, in respect of the instrument.
(2) Subject to
subsection (3), the following services, other than a service described in
section 3, are prescribed for the purposes of paragraph (t) of the
definition “financial service” in subsection 123(1) of the Act:
(a) the transfer, collection or processing of information,
and
(b) any administrative service, including an administrative
service in relation to the payment or receipt of dividends, interest,
principal, claims, benefits or other amounts, other than solely the making of
the payment or the taking of the receipt.
(3) A service
referred to in subsection (2) is not a prescribed service for the purposes of
paragraph (t) of the definition “financial service” in subsection 123(1)
of the Act where the service is supplied with respect to an instrument by
(a) a person at risk,
(b) a person that is a member of the same closely related
group as a person at risk, if the recipient of the service is not the person at
risk or another person that is a member of the same closely related group as
the person at risk, or
(c) an agent, salesperson or broker who arranges for the
issuance, renewal or variation, or the transfer of ownership, of the instrument
for a person at risk or a person that is a member of the same closely related
group as the person at risk.
[92]
The Appellant did not pursue the position that
Emergis is a person at risk as defined in subsection 4(3) of the Regulation. In
cross-examination, Mr. Schwartz confirmed that Emergis did not assume any
risk in connection with the issuing of insurance policies by Great-West or in
connection with insurance policies administered by Great-West. It is also clear that Emergis did not
use its own funds to pay the pharmacies, only those funds provided by
Great-West under section 8.3 of the Agreements. Accordingly, subsection 4(3)
does not apply to exempt the services in issue from being prescribed services. However,
the existence of the exception in subsection 4(3) is an important part of the
context in which the inclusionary rule in subsection regulation 4(2) of the
Regulation is found.
[93]
I will start by noting that the fact that what
constitutes a “prescribed
service” is set out in a regulation in no way
diminishes the scope or force of the exclusion. The exclusion itself is in
paragraph (t) of the definition of “financial service”, which is as much
a statutory provision as the exclusions in paragraphs (n) through (s)
of the definition. The fact that the statutory provision references a
regulation to define its scope does not place paragraph (t) in a
subordinate position relative to the other exclusionary paragraphs in the
definition of financial service, nor does it transform the statutory exclusion
in paragraph (t) into a regulatory exclusion.
[94]
Even if the Regulation is considered
subordinate, this is only an issue if there is a conflicting statutory
provision. The Regulation does not conflict with the ETA in general or the
definition of financial service in particular. Rather, it is a component of the
definition of financial service. Even if the Regulation did conflict, the court
should prefer a construction of the Regulation that reconciles it with the conflicting
statutory provision.
[95]
The text of subsection 4(2) refers to the “transfer, collection or processing of
information” as well as to “any administrative service”. The phrase “any
administrative service” is qualified by
including within the scope of that phrase an administrative service in relation
to the payment or receipt of benefits, other than solely the making of the
payment or the taking of the receipt.
[96]
The text of subsection 4(2) is broad. The word “administrative” connotes anything concerning or relating to the management of
affairs and
the phrase “any administrative
service” therefore encompasses any service
concerning or relating to the management of affairs. Further, the qualification
in paragraph 4(2)(b) ensures that the phrase extends to an
administrative service concerning the payment or receipt of benefits. On the
other hand, the concluding language of paragraph 4(2)(b) ensures that an
administrative service that is solely the making of the payment of the benefit
or the taking receipt of the benefit is not a prescribed service.
[97]
The context of subsection 4(2) is that it is
part of the regulation that defines “prescribed service” for the purposes
of the exclusionary provision in paragraph (t) of the definition of
financial service. As such, it must be read in conjunction with the balance of
the Regulation, the key components of which are subsection 4(3) of the
Regulation and the definitions of “instrument” and “person at risk” in subsection 4(1) of the Regulation.
[98]
Paragraph (t) is one of a number of
disparate exclusions in the definition of financial service. There is nothing
in the text of the definition of financial service to suggest that paragraph (t)
and the Regulation must be read to conform with the exclusions in paragraphs (n)
to (s). Quite the contrary, the structure of the definition is that each
inclusionary paragraph must be considered to determine if the supply falls within
the definition and then each exclusionary paragraph must be considered to
determine if the supply is nevertheless taken out of the definition.
[99]
The text of subsection 4(3) of the Regulation
and the definitions in subsection 4(1) of the Regulation indicate that the
existence of a prescribed service is limited by the identity of the person
providing the service with respect to an instrument. If that person is described in
subsection 4(3), then services described in subsection 4(2) that would
otherwise be prescribed are not prescribed services. Accordingly, the text and
context of subsection 4(2) suggest that the subsection is intended to have a
broad scope that is limited only by the concluding words of paragraph 4(2)(b)
and the identity of the service provider.
[100] In view of the foregoing, the apparent purpose of paragraph (t)
of the definition of financial service is to ensure that the consideration
payable to a person who provides the services described in subsection 4(2) with
respect to an instrument is subject to GST unless the person is financially at
risk in relation to the instrument. This purpose is confirmed by the background
to the Regulation, issued by the Department of Finance in 1990, which was reproduced
in part in President’s Choice Bank v. The Queen, 2009 TCC 170 at
paragraph 59:
59 Department
of Finance News Release 90-103 (August 20, 1990), referred to by counsel for
the appellant in paragraph 106 of the appellant’s memorandum of fact and law,
provided the following background information regarding the Financial
Services (GST/HST) Regulations:
106. . . .
The Definition of
a Financial Service
. . . Bill C-62
contains provisions for prescribing services as either financial services or as
excluded from the financial service definition. These provisions provide the
flexibility to address any necessary technical refinement to the definition of
a financial service contained in the Bill. The prescribed services will be
defined by regulations to be released over the coming weeks. This note outlines
the intention and effect of these regulations.
. . .
B. Third Party
Administrative Services
. . .
However,
financial institutions sometimes provide data processing or administrative
services in respect of financial services or instruments, but do not provide
the underlying financial instrument — the services are provided on a
third-party basis by the financial institutions. Examples include debt collection
services and administrative-services-only (ASO) provided in respect of health
insurance services. Under a broad based sales tax, these types of services
should be taxable.
As a result,
services which are purely administrative and provided on a third-party basis
will be excluded from the definition of a financial service as a result of a
regulation to be issued under paragraph (t) of the definition of a financial
service. This regulation will provide that these services be taxable and will
thereby further clarify the application of the tax in this area.
It is worth
noting that this regulation will affect only services that would otherwise be
considered to be financial services under paragraphs (a) to (m) of the
definition under subsection 123(1). Therefore, this regulation will not affect
services that are not captured by these paragraphs and, as a result, would not
be financial services in the absence of this regulation.
Services that
will be prescribed under paragraph (t) as excluded from the definition of a
financial service will, in broad terms, be described as follows:
(a) the service of transferring, collecting or processing
information,
(b) an administrative service involving the payment or
receipt of dividends, interest, principal, claims, benefits, or any other
amount, (other than a service that is solely the transfer of money from one
person to another) or,
(c) any other service of an administrative nature.
[101] The background to the Regulation confirms that the exclusion in
paragraph (t) is aimed at purely administrative services provided on a
third party basis that are otherwise caught by paragraphs (a) through (m)
of the definition of financial service. The latter point may be stating the
obvious as the exclusion in paragraph (t) would not be relevant if there
was not already an inclusion under paragraphs (a) to (m). However,
it further confirms what the text and context already tell us: that the
exclusion is intended to apply according to its terms even if the services are
otherwise included in the definition by one or more of paragraphs (a) to
(m). I can see nothing in the text, context or purpose of paragraph (t)
and the Regulation to suggest that the exclusion should not be applied in that
manner.
[102] The issue then is whether the services provided by Emergis to
Great-West, the essential character of which is captured by paragraph (f.1)
of the definition of financial service, are excluded from the definition by
paragraph (t). For the reasons that follow, I conclude that the services
making up the group of services provided by Emergis to Great-West under the
Agreements are prescribed services by virtue of paragraph 4(2)(b) of the
Regulation and that therefore the single compound supply provided by Emergis to
Great-West is not a financial service.
[103] Paragraph 4(2)(a) of the Regulation includes as prescribed
services the services of transferring, collecting or processing information. There
is no doubt that Emergis provides such services to Great-West under the
Agreements. Emergis collects information from Great-West and the pharmacies
(among others), processes the information collected from the various sources,
and transmits information to Great-West and the pharmacies. However, those
services do not describe the essential character or substance of what Emergis
is doing for Great-West, which, as already stated, is the payment of drug
benefits to the plan members. Accordingly, paragraph 4(2)(a) of the
Regulation does not cause the services provided by Emergis to Great-West under
the Agreements to be prescribed services.
[104] Paragraph 4(2)(b) of the Regulation includes as prescribed
services any administrative service, including the provision of an
administrative service in relation to (i.e., concerning) the payment or receipt
of benefits, but excluding a service that is solely the payment or receipt of
benefits.
[105] With respect to the exclusion in paragraph 4(2)(b), no one
service provided by Emergis to Great-West can be described as being solely the effecting
of the payment or the taking receipt of benefits. Rather, the payment to, and
receipt by, plan members of drug benefits result from the overall effect of the
group of services described in paragraph (i) of section II-A of Schedule A to
the 2007 Agreement. In particular, the services of switching (i.e., the transmission
of the claim by the pharmacy to Emergis), adjudication, communication of the
result and payment to the pharmacies are all required in order to effect
payment of the benefits to plan members. As a result of these services,
Great-West is relieved of making individual drug benefit payments to plan
members and instead need only make one daily payment to Emergis. Notwithstanding
the multi-step procedure used to effect payment, from the point of view of the
plan member the drug benefit is paid and received at the point of sale.
[106] With respect to the inclusionary language in paragraph 4(2)(b),
the group of services provided by Emergis to Great-West can be accurately
described as a group of administrative services in relation to the payment or
receipt of benefits. Specifically, the essential character of the group of
services constituting the single supply is the payment of benefits to plan
members, and the services composing that same group of services are
administrative services in relation to the payment of those benefits. There is
no conflict between these two characterizations. The essential character of the
supply and the objective of the administrative services are the same.
[107] The group of services making up the single supply by Emergis can be
described as administrative services for two principal reasons.
[108] First, the services provided by Emergis to Great-West do not involve
any independent decision making by Emergis. The basis for any decision regarding
a claim is found in the plan communicated by Great-West to Emergis. Under
sections 4.2 and 12.1 of the Agreements, Great-West is solely responsible for
each Benefit Plan Design and for the accuracy of the Benefit Plan Design and
Claimant Information it provides to Emergis. Under section 12.1, Emergis is responsible
for the accuracy of the application of the Benefit Plan Design and data to the
Identification Cards and the Assure Cards. In essence, Emergis provides a
computer system that allows the decision regarding a drug benefit claim to be
made in real time, but the decision itself stems from the terms of the group
health benefits plan and not from Emergis.
[109] Second, the services provided by Emergis are quintessentially
administrative in nature. Specifically, each drug benefit claim is
electronically submitted by the pharmacist to Emergis, the dedicated computer
system of Emergis adjudicates the claim in real time by applying the terms of
the plan provided by Great-West, and that same system then communicates the
result of the adjudication to the pharmacy, resulting in the constructive
payment of any drug benefit available to the plan member. Emergis may also
provide some additional information to Great-West (such as formularies) and to
the pharmacies (such as the results of drug utilization reviews). However, the
provision of this information is simply an aspect of Emergis’ role as
administrator of the drug benefit payments. The Assure Card system employed by
Emergis adds value for Great-West by simplifying and reducing the cost of the
benefits payment procedure, but the system does not alter the substance of what
is being done, which is established by the terms of the drug benefit plans
provided by Great-West to Emergis. As stated by Mr. Roszak, Emergis is a
pharmacy benefits manager and nothing more.
[110] For these reasons, I find that the services provided by Emergis to
Great-West under the Agreements are prescribed services by virtue of paragraph
4(2)(b) of the Regulation and are therefore excluded from the definition
of “financial service” by paragraph (t) of the definition of “financial service” in subsection 123(1) of the ETA. As the services constituting the
single compound supply in issue are excluded from the definition of financial
service by paragraph (t) of that definition, the supply itself is also
excluded. Accordingly, the appeals of Great-West are dismissed with costs to
the Respondent.
Signed
at Ottawa, Canada, this 21st day of September 2015.
“J.R. Owen”
Appendix
A
Excise Tax Act, Part IX
123.(1) Definitions
. . .
. . .
“commercial activity” of a person means
(a) a business
carried on by the person (other than a business carried on without a reasonable
expectation of profit by an individual, a personal trust or a partnership, all
of the members of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the person,
(b) an
adventure or concern of the person in the nature of trade (other than an
adventure or concern engaged in without a reasonable expectation of profit by
an individual, a personal trust or a partnership, all of the members of which
are individuals), except to the extent to which the adventure or concern
involves the making of exempt supplies by the person, and
(c) the making
of a supply (other than an exempt supply) by the person of real property of the
person, including anything done by the person in the course of or in connection
with the making of the supply;
“commercial service”, in respect of
tangible personal property, means any service in respect of the property other
than
(a) a service
of shipping the property supplied by a carrier, and
(b) a financial
service;
. . .
“exempt supply” means a supply
included in Schedule V;
. . .
“financial instrument” means
. . .
(c) an
insurance policy,
. . .
“financial service” means
(a) the
exchange, payment, issue, receipt or transfer of money, whether effected by the
exchange of currency, by crediting or debiting accounts or otherwise,
(b) the
operation or maintenance of a savings, chequing, deposit, loan, charge or other
account,
(c) the lending
or borrowing of a financial instrument,
(d) the issue,
granting, allotment, acceptance, endorsement, renewal, processing, variation,
transfer of ownership or repayment of a financial instrument,
(e) the
provision, variation, release or receipt of a guarantee, an acceptance or an
indemnity in respect of a financial instrument,
(f) the payment
or receipt of money as dividends (other than patronage dividends), interest,
principal, benefits or any similar payment or receipt of money in respect of a
financial instrument,
(f.1) the
payment or receipt of an amount in full or partial satisfaction of a claim
arising under an insurance policy,
(g) the making
of any advance, the granting of any credit or the lending of money,
(h) the
underwriting of a financial instrument,
(i) any service
provided pursuant to the terms and conditions of any agreement relating to
payments of amounts for which a credit card voucher or charge card voucher has
been issued,
(j) the service
of investigating and recommending the compensation in satisfaction of a claim
where
(i) the claim is made
under a marine insurance policy, or
(ii) the claim is made
under an insurance policy that is not in the nature of accident and sickness or
life insurance and
(A) the service is
supplied by an insurer or by a person who is licensed under the laws of a
province to provide such a service, or
(B) the service is
supplied to an insurer or a group of insurers by a person who would be required
to be so licensed but for the fact that the person is relieved from that
requirement under the laws of a province,
(j.1) the
service of providing an insurer or a person who supplies a service referred to
in paragraph (j) with an appraisal of the damage caused to property, or
in the case of a loss of property, the value of the property, where the
supplier of the appraisal inspects the property, or in the case of a loss of
the property, the last-known place where the property was situated before the
loss,
(k) any supply
deemed by subsection 150(1) or section 158 to be a supply of a financial
service,
(l) the
agreeing to provide, or the arranging for, a service that is
(i) referred to in any
of paragraphs (a) to (i), and
(ii) not referred to in
any of paragraphs (n) to (t), or
(m) a
prescribed service,
but does not include
(n) the payment
or receipt of money as consideration for the supply of property other than a
financial instrument or of a service other than a financial service,
(o) the payment
or receipt of money in settlement of a claim (other than a claim under an
insurance policy) under a warranty, guarantee or similar arrangement in respect
of property other than a financial instrument or a service other than a
financial service,
(p) the service
of providing advice, other than a service included in this definition because
of paragraph (j) or (j.1),
(q) the
provision, to an investment plan (as defined in subsection 149(5)) or any
corporation, partnership or trust whose principal activity is the investing of
funds, of
(i) a management or
administrative service, or
(ii) any other service
(other than a prescribed service),
if the supplier is a
person who provides management or administrative services to the investment
plan, corporation, partnership or trust,
(q.1) an asset
management service,
(r) a
professional service provided by an accountant, actuary, lawyer or notary in
the course of a professional practice,
(r.1) the
arranging for the transfer of ownership of shares of a cooperative housing
corporation,
(r.2) a debt
collection service, rendered under an agreement between a person agreeing to
provide, or arranging for, the service and a particular person other than the
debtor, in respect of all or part of a debt, including a service of attempting
to collect, arranging for the collection of, negotiating the payment of, or
realizing or attempting to realize on any security given for, the debt, but
does not include a service that consists solely of accepting from a person
(other than the particular person) a payment of all or part of an account
unless
(i) under the terms of
the agreement the person rendering the service may attempt to collect all or
part of the account or may realize or attempt to realize on any security given
for the account, or
(ii) the principal
business of the person rendering the service is the collection of debt,
(r.3) a service
(other than a prescribed service) of managing credit that is in respect of
credit cards, charge cards, credit accounts, charge accounts, loan accounts or
accounts in respect of any advance and is provided to a person granting, or
potentially granting, credit in respect of those cards or accounts, including a
service provided to the person of
(i) checking,
evaluating or authorizing credit,
(ii) making decisions
on behalf of the person in relation to a grant, or an application for a grant,
of credit,
(iii) creating or
maintaining records for the person in relation to a grant, or an application
for a grant, of credit or in relation to the cards or accounts, or
(iv) monitoring another
person’s payment record or dealing with payments made, or to be made, by the
other person,
(r.4) a service
(other than a prescribed service) that is preparatory to the provision or the
potential provision of a service referred to in any of paragraphs (a) to
(i) and (l), or that is provided in conjunction with a service
referred to in any of those paragraphs, and that is
(i) a service of
collecting, collating or providing information, or
(ii) a market research,
product design, document preparation, document processing, customer assistance,
promotional or advertising service or a similar service,
(r.5) property
(other than a financial instrument or prescribed property) that is delivered or
made available to a person in conjunction with the rendering by the person of a
service referred to in any of paragraphs (a) to (i) and (l),
(s) any service
the supply of which is deemed under this Part to be a taxable supply, or
(t) a
prescribed service;
. . .
“insurance policy” means
(a) a policy or
contract of insurance . . . that is issued by an insurer . . .
(b) a policy or
contract in the nature of accident and sickness insurance, whether the policy
is issued, or the contract is entered into, by an insurer, and
(c) a bid,
performance, maintenance or payment bond issued in respect of a construction
contract;
“insurer” means a person who is
licensed or otherwise authorized under the laws of Canada or a province to
carry on in Canada an insurance business or under the laws of another
jurisdiction to carry on in that other jurisdiction an insurance business;
. . .
“recipient” of a supply of property
or a service means
(a) where
consideration for the supply is payable under an agreement for the supply, the
person who is liable under the agreement to pay that consideration,
(b) where
paragraph (a) does not apply and consideration is payable for the
supply, the person who is liable to pay that consideration, and
(c) where no
consideration is payable for the supply,
(i) in the case of a
supply of property by way of sale, the person to whom the property is delivered
or made available,
(ii) in the case of a
supply of property otherwise than by way of sale, the person to whom possession
or use of the property is given or made available, and
(iii) in the case of a
supply of a service, the person to whom the service is rendered,
and any reference to a
person to whom a supply is made shall be read as a reference to the recipient
of the supply;
. . .
“supplier”, in respect of a supply,
means the person making the supply;
“supply” means, subject to sections
133 and 134, the provision of property or a service in any manner, including
sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
. . .
“taxable supply” means a supply that
is made in the course of a commercial activity;
. . .
“zero-rated supply” means a supply
included in Schedule VI.
133. Agreement as
supply — For the purposes of this Part, where an agreement is entered into to
provide property or a service,
(a) the
entering into of the agreement shall be deemed to be a supply of the property
or service made at the time the agreement is entered into; and
(b) the
provision, if any, of property or a service under the agreement shall be deemed
to be part of the supply referred to in paragraph (a) and not a separate
supply.
138. Incidental supplies — For the purposes of this Part, where
(a) a
particular property or service is supplied together with any other property or
service for a single consideration, and
(b) it may
reasonably be regarded that the provision of the other property or service is
incidental to the provision of the particular property or service,
the other property or service shall be deemed to form part of the
particular property or service so supplied.
139. Financial services in mixed supply — For the purposes of this
Part, where
(a) one or more
financial services are supplied together with one or more other services that
are not financial services, or with properties that are not capital properties
of the supplier, for a single consideration,
(b) the
financial services are related to the other services or the properties, as the
case may be,
(c) it is the
usual practice of the supplier to supply those or similar services, or those or
similar properties and services, together in the ordinary course of the
business of the supplier, and
(d) the total
of all amounts, each of which would be the consideration for a financial
service so supplied if that financial service had been supplied separately, is
greater than 50% of the total of all amounts, each of which would be the
consideration for a service or property so supplied if that service or property
had been supplied separately,
the supply of each of the services and properties shall be deemed to
be a supply of a financial service.
165. (1) Imposition of goods and services tax — Subject to this Part,
every recipient of a taxable supply made in Canada shall pay to Her Majesty in
right of Canada tax in respect of the supply calculated at the rate of 5% on
the value of the consideration for the supply.
261. (1) Rebate of payment made in error — Where a person has paid
an amount
(a) as or on
account of, or
(b) that was
taken into account as,
tax, net tax, penalty, interest or other obligation under this Part
in circumstances where the amount was not payable or remittable by the person,
whether the amount was paid by mistake or otherwise, the Minister shall,
subject to subsections (2) and (3), pay a rebate of that amount to the person.
(2) Restriction — A rebate in respect of an amount shall not be paid
under subsection (1) to a person to the extent that
(a) the amount
was taken into account as tax or net tax for a reporting period of the person
and the Minister has assessed the person for the period under section 296;
(b) the amount
paid was tax, net tax, penalty, interest or any other amount assessed under
section 296; or
(c) a rebate of
the amount is payable under subsection 215.1(1) or (2) or 216(6) or a refund of
the amount is payable under section 69, 73, 74 or 76 of the Customs Act
because of subsection 215.1(3) or 216(7).
(3) Application for rebate — A rebate in respect of an amount shall
not be paid under subsection (1) to a person unless the person files an
application for the rebate within two years after the day the amount was paid
or remitted by the person.
Schedule V – Exempt Supplies
Part VII — Financial Services
1. A supply of a financial service that is not included in Part IX
of Schedule VI.
Schedule VI – Zero-Rated Supplies
Part IX – Financial Services
1. [Exported financial service] — A supply of a financial service
(other than a supply that is included in section 2) made by a financial
institution to a non-resident person, except where the service relates to
(a) a debt that
arises from
(i) the deposit of
funds in Canada, where the instrument issued as evidence of the deposit is a
negotiable instrument, or
(ii) the lending of
money that is primarily for use in Canada;
(b) a debt for
all or part of the consideration for a supply of real property that is situated
in Canada;
(c) a debt for
all or part of the consideration for a supply of personal property that is for
use primarily in Canada;
(d) a debt for
all or part of the consideration for a supply of a service that is to be
performed primarily in Canada; or
(e) a financial
instrument (other than an insurance policy or a precious metal) acquired,
otherwise than directly from a non-resident issuer, by the financial
institution acting as a principal.
2. [Insurance] — A supply made by a financial institution of a
financial service that relates to an insurance policy issued by the institution
(other than a service that relates to investments made by the institution), to
the extent that
(a) where the
policy is a life or accident and sickness insurance policy (other than a group
policy), it is issued in respect of an individual who at the time the policy
becomes effective, is a non-resident individual;
(b) where the
policy is a group life or accident and sickness insurance policy, it relates to
non-resident individuals who are insured under the policy;
(c) where the
policy is a policy in respect of real property, it relates to property situated
outside Canada; and
(d) where the
policy is a policy of any other kind, it relates to risks that are ordinarily
situated outside Canada.
3. [Precious metals] — A supply of a financial service that is the supply
of precious metals where the supply is made by the refiner thereof or by the
person on whose behalf the precious metals were refined.
Financial Services and Financial Institutions (GST/HST) Regulations
2. In these Regulations, “Act” means
the Excise Tax Act.
4. (1) In this section,
“instrument” means money, an account,
a credit card voucher, a charge card voucher or a financial instrument;
“person at risk”, in respect of an
instrument in relation to which a service referred to in subsection (2) is
provided, means a person who is financially at risk by virtue of the
acquisition, ownership or issuance by that person of the instrument or by
virtue of a guarantee, an acceptance or an indemnity in respect of the
instrument, but does not include a person who becomes so at risk in the course
of, and only by virtue of, authorizing a transaction, or supplying a clearing
or settlement service, in respect of the instrument.
(2) Subject to subsection (3), the following services, other than a
service described in section 3, are prescribed for the purposes of paragraph (t)
of the definition “financial service” in
subsection 123(1) of the Act:
(a) the
transfer, collection or processing of information, and
(b) any
administrative service, including an administrative service in relation to the
payment or receipt of dividends, interest, principal, claims, benefits or other
amounts, other than solely the making of the payment or the taking of the
receipt.
(3) A service referred to in subsection (2) is not a prescribed
service for the purposes of paragraph (t) of the definition “financial service” in subsection 123(1) of the Act
where the service is supplied with respect to an instrument by
(a) a person at
risk,
(b) a person
that is a member of the same closely related group as a person at risk, if the
recipient of the service is not the person at risk or another person that is a
member of the same closely related group as the person at risk, or
(c) an agent,
salesperson or broker who arranges for the issuance, renewal or variation, or
the transfer of ownership, of the instrument for a person at risk or a person
that is a member of the same closely related group as the person at risk.
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