Prospera Credit Union – Tax Court of Canada finds that a credit union, although not an authorized MFT unit distributor, earned GST-exempted fees for doing most of the work
A credit union (“Westminster”), which was not authorized to sell mutual fund units or securities to its members, entered into “participation agreements” with two arm’s-length companies (“CAMI” and “CSI”) which were so authorized, pursuant to which Westminster employees nominally became employees or representatives of CAMI or CSI and became licensed and trained to sell securities, while remaining essentially full-time employees of Westminster working under its supervision. Pursuant to the participation agreements, Westminster received percentages of the distribution and service fees received by CAMI from the mutual fund issuers, or of the commissions received by CSI. In finding that such fees of Westminster were exempted from GST/HST as an “arranging for” financial service notwithstanding the exclusion in para. (r.4) of the financial service definition for preparatory services, Wong J stated:
The predominant element was the sale of CAMI/CSI mutual funds/securities to Westminster’s members, carried out by way of the dual employees/investment advisors using their training/licensing to recommend and sell CAMI/CSI products to Westminster members, commensurate with the members’ particular investment profiles.
Westminster arranged for the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of financial instruments, being CAMI mutual funds and CSI securities. It is the heart of the transaction and what CAMI/CSI really paid for.
Neal Armstrong. Summary of Prospera Credit Union v. The King, 2023 TCC 65 under ETA s. 123(1) – financial service – (r.4).