CRA rules that fees paid by an introducing broker to a carrying broker were GST/HST taxable

An Agreement between a carrying broker and the introducing broker contemplated that the introducing broker would effect all of its trades on all of the exchanges and in the over-the-counter markets that were checked off in a Schedule, and that the carrying broker would provide clearing services (deliveries and settlements of cash and securities respecting trades made for the introducing broker’s clients), segregation/safe-keeping services (holding securities and/or cash of the introducing broker’s clients and of the introducing broker in segregation or safekeeping) and record keeping/information services (preparing and issuing confirmations of trades, monthly statements and statements in respect of inactive accounts to the introducing broker’s clients in the name of the introducing broker).

After finding that the introducing broker was making an exempt “arranging for” financial services supply to its clients, CRA went on to find that, on general principles, there was a single supply of an administration service by the carrying broker to the introducing broker, so that the fees charged by it to the introducing broker were GST/HST taxable rather than being an exempt financial service. Although it thus was unnecessary to consider the exclusion from a financial service under para. (t) of the definition thereof and under the Financial Services and Financial Institutions (GST/HST) Regulations, that exclusion, if relevant, would also have applied given that (in light of a reasonably comprehensive indemnity provided by the introducing broker) the carrying broker was not a person at risk.

Neal Armstrong. Summaries of 24 January 2020 GST/HST Ruling 194625 under ETA s. 123(1) – financial service – para. (l) and Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(1) – person at risk.