1 March 1999 GST/HST Interpretation HQR0001424 - Arranging for HQR0001424

This is in response to the case involving XXXXX XXXXX and whether or not the services they are providing to XXXXX XXXXX are financial services of "arranging for" as per paragraph (l) of the definition of financial services in subsection 123(1). Another company, XXXXX XXXXX provides taxable services to XXXXX was incorporated in XXXXX and has been operating as a mutual fund dealer and life insurance broker. As per the documentation provided, XXXXX XXXXX XXXXX XXXXX provides taxable management and administrative services to XXXXX XXXXX  is a registrant. They charge GST on their supplies to XXXXX and claim ITCs on their purchases.

XXXXX[.] These are three of the nine companies identified as principals in a XXXXX submitted by Taxation. The XXXXX is involved as owners/stockholders in all nine companies.

Overview and Comments

It is this client's position that XXXXX is providing financial services to its clients and that XXXXX services to XXXXX fall within the definition of "arranging for" financial services as per paragraph (l) of the definition of "financial services". Therefore XXXXX services to XXXXX are exempt and not taxable. Further even if some of the services provided by XXXXX are not financial services then section 139, "Financial Services in Mixed Supply", applies as the financial services provided constitute a value which is more than 50% of the amount of the consideration for the service. A passing reference is made to section 138, Incidental supplies, but it is not integral to their argument.

There is no question that XXXXX is providing financial services. It is licensed in the XXXXX "for the sale, issuance, granting and processing of mutual fund investments ..." and that seems to be its major activity. XXXXX is registered as a partnership with its general nature of business stated as the "provision of financial services to mutual fund dealers ...". The actual services offered by XXXXX are specified in the XXXXX between the two parties. Additional information about theses services is contained in their lawyers letter of XXXXX to the Department and in the summary of the interview with their accountant XXXXX[.] The majority of services provided by XXXXX are well outside the parameters of arranging for a financial service as per the Excise Tax Act. For example, paragraph 9 of the partnership agreement specifies that XXXXX will "provide office premises, one portable computer system, a telephone, office equipment, cellular telephone and vehicle and shall be responsible to hire 5 full time employees ...". These are clearly inputs to the overall operations of XXXXX and are not directly connected to the arranging for the sale of mutual funds.

The rest of the documentation also doesn't lend much support to their position. Paragraph 3. of the agreement, the description of the duties of the various employees in their letter of October 15, and the record of interview with their accountant in the XXXXX report merely adds to the evidence that the services they perform are well outside any definition of "arranging for". For example, making sure that bonding and licensing requirements are met, ensuring legal and audit requirement are met, organizing and planning the annual conference, overseeing other marketing staff, preparing a regular news letter, researching mutual fund performance and disseminating the information to XXXXX sales representatives.

Arguably one of their services might be considered to fall directly within the definition of "arranging for". That service being the one where XXXXX reps attend seminars for XXXXX clients, give presentations on occasion at these seminars and sit in with the XXXXX rep where they are trying to convince the client to buy mutual funds. The XXXXX role is mostly limited on these occasions to being present as the XXXXX rep completes all the necessary requirements to make the sale on behalf of XXXXX[.] However, even if we were to accept this as a "financial service" it is abundantly evident that if there was a separate charge for the service it would be far less than 50% of the amount of the total charged for all of the services. Therefore section 139 is not applicable and if section 138 were to be applied that financial service would be regarded as an incidental supply to the overall services provided by XXXXX[.] The arguments they present are based on the position that the preponderance of services provided by XXXXX fall within the definition of "arranging for" and are therefore financial services. However, a review of all the documentation presented does not bear this out, as per the examples outlined above. Clearly the majority of services fall well outside the ambit of "arranging for" and any definition of financial services, rendering the arguments they present ineffective because of that fact.