Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Attention: XXXXX
Case Number: 106266
Business Number: XXXXX
November 17, 2008
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Paragraph 149(1)(c) of the Excise Tax Act
Thank you for your XXXXX of XXXXX requesting an interpretation related to paragraph 149(1)(c) of the Excise Tax Act. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Interpretation Requested
We understand that you would like clarification regarding the meaning of the phrases "the making of any advance" and "the lending of money" in subparagraph 149(1)(c)(ii) of the ETA.
More precisely, you would like clarification concerning the following situations:
Whether the interest revenues generated by cash balances from a business bank account required for the day-to-day operation of a business are considered to be with respect to the "making of an advance" or the "lending of money"?
Whether the answer will be different if the cash balances are invested in short term deposits, guaranteed investments certificates (GICs) or bonds instead of maintained in a business bank account.
Is there any difference in the application of paragraph 149(1)(c) between holding company and operating company where the earning of interest is incidental to its commercial activities.
Interpretation Given
The term "financial institution", as defined in subsection 123(1) of the ETA, means a person who is a financial institution under section 149.
For the purpose of subparagraph 149(1)(c), a person is a "financial institution" (commonly referred to as a "de minimis financial institution"), throughout a particular taxation year if:
The total of all amounts each of which is an amount that is included in computing, for the purposes of that Act [the Income Tax Act], the person's income, or, where the person is an individual, the person's income from a business, for that preceding taxation year and that is interest, or a separate fee or charge, with respect to
(i) a credit card or charge card issued by the person, or
(ii) the making of an advance, the lending of money or the granting of credit
exceeds
(iii) the amount determined by the formula
$1,000,000 x A/365
where
A is the number of days in that preceding taxation year. [emphasis added]
The "lending of money" includes transactions where money is borrowed on the borrower's promise to repay the amount borrowed in the future with or without interest.
Interest generated from a business's bank account should be included in the total in paragraph 149(1)(c) to determine whether the person is a "financial institution", provided the amount is included in computing, for the purposes of the Income Tax Act, the person's income, or, where the person is an individual, the person's income from a business, for the relevant taxation year.
When a person receives interest with respect to short term deposits, guaranteed investment certificates (GICs) and/or bonds, either government or corporate, that have been acquired from the issuer (whether or not through an intermediary), the amount of interest should be included in the total in paragraph 149(1)(c) to determine whether the person is a "financial institution", provided the amount is included in computing, for the purposes of the Income Tax Act, the person's income, or, where the person is an individual, the person's income from a business, for the relevant taxation year.
However, if, for example, a guaranteed investment certificate (GIC) or bond is purchased on a secondary market (i.e. from a person other than the issuer or an agent of the issuer), any interest received with respect to such a product should not be included in the total in paragraph 149(1)(c).
There is no difference in the application of paragraph 149(1)(c) between holding company and operating company except that interest earned from a corporation related to a person shall not be included in the total for that person under paragraph 149(1)(c) according to subsection 149(4).
Pursuant to subsection 149(4.1), paragraph 149(1)(c) does not apply to determine if a person is a financial institution throughout a particular taxation year where the person is a charity, municipality, school authority, hospital authority, public college, university or a certain type of non-profit organization.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
Should you have any further questions or require clarification on the above GST/HST matter, you may contact me at 613-952-9210
Yours truly,
Dawn Weisberg
Manager
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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