Words and Phrases - "administrative service"

The appellant mutual funds (the “Funds”) gave investors subscribing for their units the “deferred sales charge,” or “DSC” option of deferring broker commissions when subscribing for units (or shares), so that there would be no DSC if they held their units for a specified length of time. However, the brokers were still paid their commissions shortly after the units were issued. Citibank, N.A. (“Citibank”) established a single purpose non-resident securitization entity (“Funding Corp”) to provide daily funding of the brokers’ commissions. In consideration, the Funds agreed to pay Funding Corp a portion of the management fees that otherwise would have been payable by them to the Fund manager (the “Manager”) and which the Manager had agreed to relinquish (the “Earned Fees”), which were expressed to be fees paid by the Funds for the services rendered to them in the U.S. by Funding Corp in arranging for the daily funding of the brokerage commissions. Funding Corp then sold its right to the Earned Fees to Citibank. CRA assessed on the basis that the Earned Fees were consideration for an imported taxable supply because they were not consideration for a financial service.

After finding that the services supplied by Funding Corp to the Funds were described in para. (a) or (l), Woods JA then found that the services of Funding Corp were not excluded by para. (q) (which, she noted, at para. 66, "is aimed at circumstances in which GST is avoided by having a provider of management services to an investment plan unbundle its services and provide non-management services under a separate arrangement.") She first rejected the apparent assumption of the Tax Court below “that all activities integral to the business and operations of the Funds are management duties which must be provided by the Manager” (para. 49), so that Funding Corp’s taking care of the commission funding was a management function, stating (at para. 50):

With respect to the deferred payment option, the Funds themselves entered into the agreement with Funding Corp. Therefore, these services were not among those which the Manager was required to provide as the Funds themselves assumed responsibility for them.

She then stated (at para. 63):

As for whether the supply itself is a management or administrative service, the character of the supply is determined by its dominant element, which in this case is either depositing money or arranging for the deposits. In either case, the supply is in the nature of a financing service provided by third party financial institutions. … The services do not have the usual characteristics of management services which typically involve decision-making on behalf of the business … [nor of] of administrative services which typically involve support services.

As for the Crown suggestion that “Funding Corp. provided an administrative service to the Funds by providing Funding Notices to Citibank” (para. 68), she stated:

[T]his service was not a separate supply to the Funds. It was part of the single supply, which was not a management or administrative service.