Excise and GST/HST News - No. 109, June 28, 2021

After providing a general overview of the legislative proposals (to generally take effect on July 1. 2021) regarding cross-border digital products and cross-border services, goods supplied through fulfillment warehouses in Canada, and platform-based short-term accommodation, CRA stated:

Where the affected businesses and platform operators show that they have taken reasonable measures to comply but are unable to meet their new obligations for operational reasons, the CRA will take a practical approach to compliance and exercise discretion in administering these measures during a 12-month transition period, starting July 1, 2021.

In finding that the CEWS was not government assistance, and also not included in total revenue under B of the formula in s. 3, CRA stated:

The definition of government funding excludes a refund, rebate, or remission of, or credit in respect of, taxes imposed under any statute. Under the Income Tax Act (ITA), the CEWS takes the form of a deemed overpayment of liability under Part I of the ITA by an eligible entity, which is then refunded to the eligible entity. The Minister of National Revenue has statutory authority under the ITA to refund the deemed overpayment. Therefore, the CEWS is a refund of taxes imposed under the ITA and excluded from the definition of government funding. Furthermore, the CEWS is not paid for the purpose of financially assisting NPOs in carrying out its purpose. As such, the CEWS is not included in the government funding amount in the percentage of government funding calculation.

In addition, the CEWS is not included in the total revenue amount in the percentage of government funding calculation. The CEWS is not a gift, because it is a statutory obligation under the ITA for the Minister to refund the deemed overpayment to eligible CEWS applicants. Therefore, the CEWS will have no impact on the percentage of government funding calculation, as it is not included in the numerator or the denominator.

Zomaron was a registered independent sales organization (ISO) for the purposes of the Visa network and a member service provider (MSP) for the purposes of the Mastercard network. ISOs/MSPs are registered with Visa or Mastercard and must comply with various rules and regulations, including the payment network regulations established by these credit brands. Zomaron was primarily responsible for seeking out prospective merchants to receive card payment services provided by the acquirers/processors, and negotiating with the prospective merchants the rates and fees (and, in some circumstances, certain terms and conditions) of such card payment services to the extent provided in merchant application forms. The merchant application forms were submitted to the acquirers/processors. Once approved by the acquirer/processor, the merchant became contractually bound to the acquirer/processor according to the terms negotiated in the merchant application form and the terms and conditions included by reference.

The TCC concluded that Zomaron was making a single compound supply of all the services provided to the acquirer/processor. The TCC outlined that the evidence revealed that during negotiations Zomaron had considerable latitude and autonomy to set pricing, rates and fees and did that within a complex pricing structure. Zomaron could also negotiate some terms and conditions. …. The TCC determined that Zomaron delivered to the acquirer/processor fully negotiated merchants requiring card payment processing services. … The TCC determined the predominant element in respect of this single supply to be “arranging for” the card payment processing services offered by the acquirer/processor to the merchants and that this “arranging for” activity was a financial service.

… Although a supplier may be registered as an ISO/MSP within the Visa/Mastercard networks, the supplier may not always perform the very same services and have the very same obligations and autonomy as another ISO/MSP. … The CRA will only apply the Zomaron decision to supplies made by an ISO/MSP if the same fact situation exists.