27 July 2001 GST/HST Interpretation 34317 - Interpretation of Paragraph 149(1)(c) of the ETA

Dear XXXXX:

Thank you for your letter of January 19, 2001, concerning paragraph 149(1)(c) of the Excise Tax Act (ETA).

Interpretation Requested

You have requested an interpretation of whether paragraph 149(1)(c) of the ETA will cause a registrant to become a de minimis financial institution if it earns interest income in excess of $1 million from guaranteed investment certificates (GICs), government bonds and corporate bonds, where the interest income is "incidental to the carrying on of a business".

Interpretation Given

Our interpretation is that, where a person receives interest with respect to a GIC, and/or with respect to a bond, either government or corporate, that has been purchased from the issuer of the bond (whether or not through an intermediary), the amount should be included in the calculation in paragraph 149(1)(c) of the ETA to determine whether the person is a de minimis financial institution, provided the amount is included in computing, for the purposes of the Income Tax Act, the person's income, or, where the person is an individual, the person's income from a business, for the relevant taxation year. However, where a bond is purchased on a secondary market (i.e. from a person other than the issuer of the bond), any interest received with respect to the bond should not be included in the calculation in paragraph 149(1)(c).

Of course, subsection 149(4) excludes from the calculation interest received from a related corporation. Also, subsection 149(4.1) states that paragraph 149(1)(c) does not apply for purposes of determining whether a person is a financial institution throughout a particular taxation year if the person is, at the beginning of the year, a charity, municipality, school authority, public college or university. Subsection 149(4.1) also states that paragraph 149(1)(c) does not apply for purposes of determining whether a person is a financial institution throughout a particular taxation year if the person is, at the beginning of the year, a non-profit organization that operated, otherwise than for profit, a health care facility within the meaning of paragraph (c) of the definition of that expression in section 1 of Part II of Schedule V to the ETA. Subsection 149(4.1) further states that paragraph 149(1)(c) does not apply for purposes of determining whether a person is a financial institution throughout a particular taxation year if, on the last day of the taxation year of the person preceding the particular year, the person was a qualifying non-profit organization within the meaning of subsection 259(2) of the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-9211.

Yours truly,

Don Dawson
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate