File: 11645-4, 11640-3
We are writing in response to your request for our view as to how broadly the Department intends to interpret the terms "custodial service" and "nominee service" as used in section 217 of the Excise Tax Act (the "Act") and section 17, Part V of Schedule VI to the Act. In particular, you would like to know if the services provided by the XXXXX (as described in its information brochure) would be considered as "custodial services".
We apologize for the delay in replying as the issue required policy development in order to provide a response.
The Act does not define "custodial service" or "nominee service". Both section 217 of the Act and section 17, Part V of Schedule VI refer to a custodial or nominee service "in respect of securities".
It is an established rule that when legislation is directed at a particular industry or group in which words have a special or technical meaning, then the words will be given their technical meaning. Hence, for purposes of these provisions, the term "custodial service" or "nominee service" should be interpreted with reference to these financial instruments as that term is commonly used in the financial community.
"Custodial Service": It is the Department's position that the term custodial service can mean either the service of "safekeeping" in respect of securities OR the service of safekeeping in respect of securities together with other duties that are appertaining to the safekeeping of the property, such as:
• administrative activities relating to the settlement of securities traded;
• collection or disbursement of income generated from the securities, (dividends/interest) for the client, and
• maintenance of accounts and reporting of securities transactions.
The supply of a "custodial service" hence may include a composite supply of a service that is made up of these activities.
In the situation of the XXXXX its brochure describes the following responsibilities under its "custodial service":
• provision of a consolidated statement of account for securities held in custody;
• vaulting of securities;
• provision of quick delivery of securities in the settlement of securities traded;
• simultaneous update of client's securities position with credit or debit entries to the client's cash account;
• electronic or mail notification of trading and settlement of securities.
In our view, the XXXXX service includes the activity of safekeeping of securities as well as other responsibilities generally appertaining to the safekeeping of securities. Hence, its service will qualify as a "custodial service" in respect of securities.
However, we also note that XXXXX also provides a custodial service to its clients in respect of bullion and coins.
The term "securities" is not defined in the Act. The Oxford Dictionary refers to "securities" as "document as evidence of loan, certificate of stock, bond, etc." The Dictionary of Finance and Investment Terms described this as "instrument that signifies an ownership position in a corporation (a share) or a creditor relationship with a corporation or government body (a bond), or rights to ownership such as those represented by an option, subscription right, and subscription warrant". The Black's Law Dictionary describes it as evidences of debts or property, usually in the form of stock, bonds, notes, convertibles debentures, warrants or other documents that represent a share in a company or a debt owed by a company".
In our view, the term "securities" will NOT include property such as bullion or coins. Therefore, when XXXXX provides a custodial service in respect of bullion or coins to a non resident client, it cannot be said to be providing a custodial service "in respect of securities" for purposes of section 17, Part V of Schedule VI application.
"Nominee Service": The term "nominee service" in respect of securities is used in the financial community generally to refer to the service of a person of holding the securities on behalf of the owner to protect the anonymity of the owner and for ease of settlement. The securities are registered in the name of the nominee, but the customer remains the true beneficial owner.
Should you require further information please do not hesitate to contact Duncan Jones at (613) 952-9210 or Phil Tang at (613) 954-1433.
J. Sitka
A/Director
Financial Institutions and Corporate Re-organizations Division
GST Rulings and Interpretations
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