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
Case Number: 81693
Attention: XXXXX
XXXXX
August 22, 2008
Subject:
GST/HST RULING
Application of GST/HST to financial planning services
Dear Mr. XXXXX:
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided by you as a partner of XXXXX. We apologize for the delay in responding to your request.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
The following have been provided for our review:
• an agreement (the "Agreement") between you, as a partner of XXXXX, and XXXXX dated XXXXX;
• a sample Dealer Agreement (the "Dealer Agreement"): XXXXX between XXXXX and XXXXX, referred to as the Dealer;
• a sample Distribution Agreement (the "Distribution Agreement") between XXXXX and a counter party referred to as the "Dealer" in the agreement;
• an undated Dealer Service Agreement (the "Dealer Service Agreement") between XXXXX and XXXXX (the "Dealer");
• a sample Schedule XXXXX Fee for Service Arrangement between XXXXX and an unnamed client (individual investor);
• a sample Fee Schedule (the "Fee Schedule") from XXXXX, effective XXXXX; and
• a variety of e-mails between you and XXXXX.
Statement of Facts
Based on the above documents and your letter, we understand that:
XXXXX is a partnership, is not registered for purposes of the GST/HST and is in the business of providing financial planning services. XXXXX is not registered with the XXXXX as a mutual fund dealer. As a result, XXXXX is registered with XXXXX, who is a registered mutual fund dealer with the XXXXX. XXXXX has agreed to arrange to process all trades through XXXXX.
You, as a partner of XXXXX, have entered into the Agreement with XXXXX. The recitals to the Agreement state that XXXXX is registered with certain applicable securities authorities as a dealer for the purpose of trading in mutual fund securities and other selected products and services. The recitals also state that you, referred to as Agent in the Agreement, are registered with the applicable securities authorities as a salesperson permitted to trade in mutual fund securities and other selected products and services.
Section XXXXX of the Agreement provides that the relationship between you and XXXXX is an Agency Relationship. Agency Relationship is defined in the Agreement to mean a relationship where XXXXX acts as principal and the Agent (you) act as agent. Under Section XXXXX of the Agreement, you are appointed XXXXX non-exclusive agent for XXXXX of the Agreement. You are permitted to act as XXXXX agent in all jurisdictions in which you are lawfully licensed and permitted to trade in XXXXX Products. XXXXX Activities are business activities carried out by XXXXX. XXXXX Products are investment products and services authorized by XXXXX to be offered to clients.
Section XXXXX of the Agreement deals with the conduct of the Agent. All securities related business conducted by you, as agent, shall be conducted in the name of XXXXX. XXXXX is liable to third parties for the acts and omissions of the Agent relating to XXXXX business. You, as Agent, have agreed to comply with certain rules and standards of conduct that are defined in the XXXXX Statement of the Standards of Professional Conduct, Schedule XXXXX of the Agreement. You are required to ensure that all your assistants and/or employees follow this code of conduct as well. Schedule XXXXX lists XXXXX standards and contains various responsibilities within each standard. The XXXXX standards are: XXXXX.
With respect to your relationships with and responsibilities to clients and prospects, you are required to: XXXXX. All advisors must use reasonable care and judgement to achieve and maintain independence and objectivity. With respect to investment recommendations and actions, advisors must make reasonable inquiries into a client's financial situation, investment experience and objectives prior to making investment recommendations and must consider the appropriateness and suitability of investment recommendations or actions.
Section XXXXX of the Agreement deals with the business responsibilities of the Agent. You, as Agent, agree to conduct only XXXXX Activities and offer for sale only XXXXX Products, except as permitted in Section XXXXX (e.g., the selling of life insurance products). You are required to exercise your own judgement regarding the solicitation of clients, to act always in the best interests of your clients, to present all products and services fairly and not make any false or misleading statement regarding them. You, as Agent, also agree to take full responsibility for "XXXXX" and "XXXXX" rules and match the client's investment objectives with recommended products and services.
Section XXXXX of the Agreement deals with payment to the Agent. XXXXX. Commissions are paid at a rate specified in Schedule XXXXX. Commissions are only paid by XXXXX to you as Agent upon XXXXX from the relevant fund. Schedule XXXXX of the Agreement provides that XXXXX% of the fee income earned by the dealer (here, XXXXX) will be paid to you. Further, XXXXX% of the commission income earned by the dealer will be paid to you. Schedule XXXXX, under the heading XXXXX by the Agents, also lists certain costs to be paid by the agents including fixed costs and a XXXXX that calls for an over-ride of XXXXX% on all fees and commissions earned. There are also provisions for minimum and maximum compensation levels.
The sample Distribution Agreement is between XXXXX (also referred to as Manager in the agreement), the manager of certain mutual funds known as the XXXXX, and the Dealer, a person in the business of trading in securities, (in the present case, XXXXX). The recitals of this agreement indicate that the Manager wishes to appoint the Dealer to act as a distributor of units of the mutual funds and the Dealer is willing to act in this capacity.
Section XXXXX of the Distribution Agreement provides that XXXXX appoints the Dealer as a person entitled to offer for sale and distribute units of the XXXXX funds. Section XXXXX provides that these units may only be sold by representatives (Agents) of the Dealer that have been approved by XXXXX.
Section XXXXX of the Distribution Agreement provides:
XXXXX.
The sample Dealer Agreement between XXXXX and XXXXX contains several agreements. One of these agreements, a XXXXX Agreement, allows XXXXX to offer a certain XXXXX. Another agreement, a XXXXX from XXXXX to XXXXX and XXXXX, authorizes and directs XXXXX, upon receipt of certain instructions, to redeem or purchase securities referred to in a wire order. The net proceeds are to be forwarded to XXXXX. Other agreements are included in the Dealer Agreement that allow XXXXX and XXXXX to perform certain administrative and settlement services.
The Dealer Service Agreement between XXXXX and XXXXX is for the provision of products and services by XXXXX to XXXXX and its clients. This agreement states that XXXXX, as Dealer, offers products specified in this agreement to its clients. A recital to this agreement states:
XXXXX.
Schedule XXXXX to the Dealer Service Agreement lists a variety of products. There are XXXXX types of products: Registered plans where XXXXX acts as Trustee and holds the assets; Non-Registered plans where XXXXX holds the assets; and Other plans where XXXXX holds the assets. The Registered plans consist of various self-directed plans. Article XXXXX of the Dealer Service Agreement provides that the Dealer has engaged the services of XXXXX and the products and services offered to clients of the Dealer (XXXXX) as detailed in the Schedules. Schedule XXXXX to the agreement list a variety of services to be provided by XXXXX to XXXXX. These services include: opening accounts; clearing and settlement services; and other services.
The Dealer Service Agreement requires XXXXX to ensure that the instructions communicated to XXXXX in relation to a client's account are fully authorized. Also, XXXXX does not and will not provide advice, recommendations, etc. with respect to a client's loan or investment. XXXXX will clear and settle all transactions placed with mutual fund companies in connection with products for XXXXX. XXXXX shall administer the client's accounts in accordance with the agreement. Section XXXXX of the Dealer Service Agreement provides that there is no agency relationship between XXXXX and XXXXX, for purposes of the agreement and they act, at all times, as independent contractors.
The XXXXX Fee for Service Arrangement states that the client (account holder/individual investor) has agreed with their financial advisor to pay the advisor and/or dealer a fee for the account. The fee will be charged and collected XXXXX by XXXXX as account administrator and remitted to the Dealer (XXXXX). The client acknowledges, in this agreement, that their advisor and/or dealer may already be compensated on assets held in the client's account. Further, collection of this fee is the responsibility of XXXXX and is paid to the Dealer on a XXXXX basis. A portion of this fee is then passed down to you as the advisor referred to in this agreement and as provided for in the Agreement between XXXXX and you.
The Fee Schedule provided by XXXXX to individual investors/unit holders lists a variety of services provided by XXXXX and corresponding fees including: various types of trustee services and fees; fees for a variety of mutual fund transactions; services related to various mortgage investments; and services regarding individual pension plans.
An estimated fee schedule that you have provided, and an e-mail to XXXXX, lists some of the services you provide including: developing a financial plan; preparing an investment policy statement; advising on financial affairs of the client; and ongoing reviews of investments and the financial plan. You verbally explained that general estate, retirement and tax advice, as well as the preparation of tax returns for larger accounts, is a separate service for a separate fee charged by XXXXX. XXXXX also provides additional services that are charged separately including: preparing comprehensive financial plans; selling insurance; corporate financial consulting; preparing and reviewing financial projections and proposals; and corporate valuation. You indicated that XXXXX charges GST/HST on the consideration for these services, other than the sale of insurance.
Ruling Requested
Are the amounts paid to you, as a partner of XXXXX, under Section XXXXX of the Agreement by XXXXX, consideration for a financial service?
Ruling Given
Based on the facts set out above, we rule that the amounts paid to you, as a partner of XXXXX, by XXXXX under Section XXXXX of the Agreement, are consideration for a financial service.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Please note that subsection 272.1(1) provides that anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership's activities and not to have been done by the person.
Pursuant to section 1 of Part VII of Schedule V, the supply of a "financial service" is exempt for GST/HST purposes unless it is zero-rated under Part IX of Schedule VI. Additional information on zero-rated financial services is available in GST Memorandum 300-3-9, Financial Services. A supply of a financial service may be zero-rated where you are making a supply to a non-resident person.
The definition of "financial service" includes agreeing to provide or arranging for most financial services, including the sale of mutual fund units. To qualify as a service of "arranging for" the supply of a financial service, each of the following elements should be present:
• the intermediary will help either the supplier or the recipient or both, in the supply of a financial service,
• the supplier and/or the recipient count on one or more intermediaries for assistance in the course of a supply of a financial service, and
• the intermediary is directly involved in the process of the provision of a financial service and will therefore, expend the time and effort necessary with the intent to effect a supply of a service described in paragraphs (a) to (i) of the definition of financial service.
For additional information, please refer to GST/HST Policy Statement P-239:
Meaning of the Term "Arranging For" as Provided in the Definition of "Financial Service".
Please note that any additional services that are provided to a client that are not XXXXX Activities as described in the Agreement and are not part of a supply of arranging for the supply of a financial service (here, the sale of mutual fund units), are not included in this ruling and may be taxable supplies.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9577. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Kirk Moore
Financial Institutions Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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