Financial Services (GST/HST) Regulations

Subsection 4(1)

Person at Risk

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109

not a "person at risk" if risk is very remote

The CIBC issued Visa credit cards and utilized a credit card payment system operated and managed by Visa Canada. Visa Canada essentially acted as a largely automated go-between between the “issuer,” who provided the funds for a purchase at a merchant by a cardholder, and the “acquirer,” who used such funds to pay the merchant. Visa Canada added $18M in GST or HST to its charges for its services to CIBC in the years in question, and CRA denied CIBC’s s. 261 rebate claim therefor. In finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ first found that the services of Visa were “quintessentially administrative in nature” so as to come within s. 4(2)(b) of the Regulation, and then rejected the suggestion that Visa was a “person at risk,” stating (at paras 134, 135, 136, and 137):

…[I]t does not appear as though Visa was actually put financially at risk as a result of the services it provided, at least not to the extent necessary to satisfy the person at risk definition. …

Before 2007 … it would appear that the risk borne by Visa Canada was almost entirely non-existent, with the risk instead largely being borne by Visa International and the issuing financial institutions. Post-2007, the principal change to Visa Canada’s risk profile was that it no longer had the option of short settling with its members, with Visa Inc. being expected to make up any shortfall that arose as a result of settlement losses.

In spite of this change, …Visa has never had to pay a settlement loss.

In discussing the rationale for the person at risk exception, the Department of Finance explained in its news release to the CIBC describing its legislative changes that the person at risk exception is not meant to apply to risks which have only a remote chance of occurring… .

…Proposed subsection 4(1) of the Regulations stipulates that a "person at risk" does not include a person who becomes at risk solely through the provision of a clearing, settlement or authorization service. … [O]therwise taxable administrative services, such as those provided in respect of credit card transactions, do not fall within the definition of a "financial service" only because the service provider agrees to assume the remote risk of honouring the payment authorized under the credit transaction in the event of a failure by the relevant financial institution. (Emphasis added)

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 156
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) Visa arranged for payments between cardholder bank, merchant’s bank and merchant 260
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (i) Visa provided services to CIBC that related to an agreement for which credit card vouchers were issued 208
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Asset Management Service services provided by Visa to bank were not an asset management service 231
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) no (r.3) service as Visa did not assist in credit authorization 185
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) services provided by Visa that were listed in (r.4) were not the predominant elements 191
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.5) limited use of Visa logo did not engage (r.5) 138
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) - Paragraph 4(2)(b) Visa service to CIBC was an administrative service 174
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(3) - Paragraph 4(3)(c) activities of Visa were too passive to be of a "broker" 229

Skylink Voyages Inc. v. The Queen, [1999] GSTC 119 (TCC)

The registrant served retail travel agencies by booking and purchasing airline tickets for the agencies' customers, which resulted in the receipt by it of commissions from the airlines. Where the retail agencies had no agreement with the issuer of the customer's credit card, the registrant would act as the "merchant" insofar as the credit card issuer was concerned, so that the voucher amount for the ticket was advanced to it, with that amount being used by the registrant towards the cost of the ticket. In those situations, the registrant charged $15 per ticket to the retail agency to cover the charge of 2% to 3% by which the credit card issuer discounted the amounts which it paid to the registrant.

After finding that the registrant's $15 fees to the travel agencies qualified as consideration for services described under paras. (l) and (i) of the financial services definition in s. 123(1) (arranging for payment of a credit card voucher amount), Archambault J found that such arrangement services were not excluded by the Regulations, as the collection of the voucher amounts was "solely the ... taking of the receipt ... of other amounts" under s. 4(2) of the Financial Services (GST) Regulations: "I do not see here any other kind of service" (para. 38). S. 4(2) also did not apply because, under s. 4(3)(a), the registrant was a "person at risk" for the amounts involved. Archambault J. stated (at para. 40):

By accepting ownership of the credit card slip, Skylink took a financial risk, albeit a slight one. Under the terms and conditions of its agreement with the issuer, Skylink could be required to pay back to the issuer the amount of the credit card slip. For example, if a customer does not sign the slip and disputes its validity, the issuer is entitled to require Skylink to repay it the amount appearing on the slip....[I]n some instances, as a result of bankruptcy or for some other reason, the retail agency may be unable to reimburse Skylink.

Subsection 4(2)

Cases

Great-West Life Assurance Company v. Canada, 2016 FCA 316

predominant character of insurance claim processing was administrative

The appellant ("Great-West") provided prescription drug plans to the employees of various employers. The claims were processed by a third party ("Emergis") using its "Assure Card System." The plan members' claims were adjudicated electronically immediately upon being charged for filling a prescription at a participating pharmacy. Emergis would then reimburse the pharmacies for the claim amount, and submit periodic invoices to Great-West. The appellant sought a refund of GST and HST that it had paid on Emergis's fees, on the basis that Emergis was providing a financial service.

In affirming the finding below that the supply by Emergis came within para. (f.1) of "financial service", but was excluded by s. 4(2) of the Financial Services and Financial Institutions (GST/HST) Regulations (i.e. Emergis was providing administrative services and was not a "person at risk"), Woods JA stated (at paras 48, 51):

…[I]t is necessary to determine the predominant elements of the supply if it is a single compound supply. It is only the predominant elements that are taken into account in applying the inclusions and exclusions in the “financial service” definition. …

The judge… did not err in concluding that the supply is not a “financial service” since these [predominant] elements are properly characterized as a payment of an insurance claim for purposes of the inclusion in paragraph (f.1) and as an administrative service for the purpose of the exclusion in paragraph 4(2)(b) of the Regulations.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (f.1) “financial services” definition should be applied based only on the “predominant elements” supplied 232
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply characterization of single supply based on predominant elements 191

See Also

Great-West Life Assurance Company v. The Queen, 2015 TCC 225

electronic drug plan adjudication and processing was "quintessentially administrative in nature"

The appellant ("Great-West") provided prescription drug plans to the employees of various employers. The claims were processed by a third party ("Emergis") using its "Assure Card System." The plan members' claims were adjudicated electronically immediately upon being charged for filling a prescription at a participating pharmacy. Emergis would then reimburse the pharmacies for the claim amount, and submit periodic invoices to Great-West. The appellant sought a refund of GST and HST that it had paid on Emergis's fees, on the basis that Emergis was providing a financial service.

Owen J found that that the supply by Emergis came within para. (f.1) of "financial service", but was excluded by s. 4(2) of the Financial Services and Financial Institutions (GST/HST) Regulations (i.e. Emergis was providing administrative services and was not a "person at risk"). He stated (at paras. 107-09):

The group of services making up the single supply by Emergis can be described as administrative services for two principal reasons.

First, the services provided by Emergis to Great-West do not involve any independent decision making by Emergis. ... In essence, Emergis provides a computer system that allows the decision regarding a drug benefit claim to be made in real time, but the decision itself stems from the terms of the group health benefits plan and not from Emergis.

Second, the services provided by Emergis are quintessentially administrative in nature. ... The Assure Card ... does not alter the substance of what is being done, which is established by the terms of the drug benefit plans provided by Great-West to Emergis. ... Emergis is a pharmacy benefits manager and nothing more.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (f.1) essential character of drug claim processing service was providing payment to the claimant 276
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) services described in (r.4) did not represent the essential character of drug claim processing service 241
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.5) essential character of drug claim processing service was providing payment to the claimant 162
Tax Topics - General Concepts - Payment & Receipt constructive receipt by relieving obligation to pay pharmacist 210

Drug Trading Company Ltd. v. The Queen, [2001] GSTC 48 (TCC) (Informal Procedure)

The registrant was a wholesaler of products to independent retail pharmacies operating under the "I.D.A." name, and also provided franchisor-like services to them. One such service was to negotiate favourable terms with various banks for credit and debit card services. When a customer made a purchase from an IDA member, the bank would deposit the amount (which it debited to the customer's account) into the registrant's bank account, and the registrant would transfer the full amount of the funds to the member's bank account. However, as the bank charged its "discount fees" to the registrant's account, the registrant in turn debited the members for these amounts - which Bowie J found represented a reimbursement for such fees which it had incurred as the members' agent.

In response to a submission of the Justice lawyer that the service which the registrant supplied to the members when it received funds from the banks for the credit and debit card transactions was an administrative rather than financial service (for which it was not a "person at risk" under the Financial Services (GST) Regulations), Bowie J found (at para. 21) that "there is no service to the members that is not a financial, and therefore exempt, service."

Administrative Policy

17 May 2012 Ruling 62492 [merchant Interac services]

merchant Interac services

An "Acquirer" is a connection service provider (i.e., it provides connection to the Interac network for the purpose of processing Interac direct payment transactions) and a settlement agent (i.e., the Acquirer uses the services of a bank to provide funds). An "Independent Sales Organization" ("ISO") sells or leases point-of-sale terminals to merchants and uses the services of the Acquirer in order to provide continuous processing services to the merchants and related reporting. In addition to purchasing or leasing the terminal, the merchant agrees with the ISO to pay (out of user fees charge by it to customers) per-transaction fees to the ISO as well as transaction and processing fees to the Acquirer. After ruling that the services of the ISO (which were a single supply including payment processing services) were excluded under s. 4(2), CRA stated:

...when considered as a whole, the ISO's service is predominantly the transfer, collection or processing of information and/or an administrative service performed by a person who is not at risk (i.e., the ISO does not appear to be financially at risk when it provides assistance to the Merchant such as performing data processing, monthly reports, funds transfer and other support and administrative services).

19 July 2011 Headquarters Letter Case No. 111922

insurance policy administration

Corporation X administers insurance policies for large health plan providers (Providers) and independent employers (Employers) including employee benefit plans and extended health and dental plans. After finding that its services were predominantly taxable services, CRA went on to indicate that even if some elements came within the para. (l) ("arranging for") or (f.1) (claims payments), they were excluded under under s. 4(2) (administration services including in relation to the payment of claims by a person not at risk).

5 April 2006 Interpretation 60463

CRA discussed Shared Cash Dispensing (SCD) transactions allowing cardholders to access their accounts to withdraw cash at automated banking machines (ABMs) not belonging to the financial institution that issued their banking card. In a typical SCD transaction, after a Cardholder standing at an ABM has requested a withdrawal from his or her account, the transaction message is sent to an Acquirer (a member of the payments network), who confirms which Issuer (i.e., financial institution) issued the Card. The Acquirer then sends the transaction message across the network to the Issuer, which then sends a message back to the Acquirer either approving or declining the transaction. The Acquirer passes the appropriate instruction back to the Card Acceptor (i.e., ABM operator) who, if the transaction is approved, will dispense the requested funds to the Cardholder out of its ABM. After noting that the service provided by an Acquirer, who is the Card Acceptor, to the Issuer in dispensing cash to a Cardholder is included in para. (a) of the financial services definition, whereas the service provided by an Acquirer to an Issuer of dispensing cash to a Cardholder is included under para. (l) where the Acquirer is not the Card Acceptor, CRA stated that in the first instance "the Acquirer is a "person at risk" in respect of the dispensing of cash to Cardholders… since the Acquirer is financially at risk for the period from the time cash is dispensed to a Cardholder to the time funds are settled," whereas in the second instance "the Acquirer is generally a "person at risk" in respect of agreeing to dispense cash to a Cardholder…since the Acquirer is financially at risk with respect to an instrument through the settlement process."

Paragraph 4(2)(b)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109

Visa service to CIBC was an administrative service

The CIBC issued Visa credit cards and utilized a credit card payment system operated and managed by Visa Canada. Visa Canada essentially acted as a largely automated go-between between the “issuer,” who provided the funds for a purchase at a merchant by a cardholder, and the “acquirer,” who used such funds to pay the merchant. Visa Canada added $18M in GST or HST to its charges for its services to CIBC in the years in question, and CRA denied CIBC’s s. 261 rebate claim therefor. In finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ stated (at para 116):

[T]he value added service which Visa provides to CIBC is to relieve them of the need to keep track of and then individually pay merchants for the transactions paid for on credit by CIBC clients. …At its most basic level …, the benefit that Visa offered CIBC was cost saving and logistical simplification. Both of which, like in Great West Life, are quintessentially administrative in nature.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 156
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) Visa arranged for payments between cardholder bank, merchant’s bank and merchant 260
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (i) Visa provided services to CIBC that related to an agreement for which credit card vouchers were issued 208
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Asset Management Service services provided by Visa to bank were not an asset management service 231
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) no (r.3) service as Visa did not assist in credit authorization 185
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) services provided by Visa that were listed in (r.4) were not the predominant elements 191
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.5) limited use of Visa logo did not engage (r.5) 138
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(3) - Paragraph 4(3)(c) activities of Visa were too passive to be of a "broker" 229
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(1) - Person at Risk not a "person at risk" if risk is very remote 401

Healthcare Insurance Reciprocal of Canada v. The Queen, [2000] GSTC 50

administrative service provided as part of insurance service

Services provided by the appellant (“HIROC”) were found by Sarchuk J to be financial services which were not excluded by paragraph (t). HIROC was an organization established to enable its members (e.g., hospitals) to insure against risks relating to their activities and provided insurance to its members. It also performed activities such as monitoring, arranging the defence of and settling claims, administering funds, coordinating and implementing the inter-exchange of insurance, risk management, regulatory compliance, and accounting and book keeping activities. HIROC was charging GST on its services and claiming ITCs on the basis that it was providing an administrative service which was carved out of the financial service definition by paragraph (t). However, Sarchuk J held that its supplies were “financial services” pursuant to paragraphs (d), (f.1), (h) and (l) and that paragraph (t) did not apply and the judge concluded (at para. 19):

I am of the view that the exclusion provided in paragraph (t) does not apply in the present circumstances. This is not a case where the Appellant merely provided data processing or administrative services in isolation since, as I have found, the Appellant did provide the underlying financial instrument, i.e. an insurance policy. The services described by the Appellant’s counsel as not excluded by subsection 4(3) of the Regulations cannot in my view be separated from the financial service of providing insurance itself. As well, on the evidence, it would be reasonable to conclude that any administrative services provided by the Appellant were supplied by a person at risk.

Subsection 4(3)

Paragraph 4(3)(c)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109

activities of Visa were too passive to be of a "broker"

The CIBC issued Visa credit cards and utilized a credit card payment system operated and managed by Visa Canada. Visa Canada essentially acted as a largely automated go-between between the “issuer,” who provided the funds for a purchase at a merchant by a cardholder, and the “acquirer,” who used such funds to pay the merchant. Visa Canada added $18M in GST or HST to its charges for its services to CIBC in the years in question, and CRA denied CIBC’s s. 261 rebate claim therefor. In finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ first found that the services of Visa were “quintessentially administrative in nature” so as to come within s. 4(2)(b) of the Regulation, and then rejected the suggestion that Visa was a broker, stating (at para 128):

The definitions of a broker … give the impression of someone that actively engages in commercial activity, such as negotiating, buying and selling, on behalf of a principal. In contrast, the activities engaged in by Visa are generally more passive in nature with Visa not negotiating, buying or selling on behalf of CIBC, but rather coordinating the completion of financial transactions by effectively acting as a facilitator in helping to transmit funds from one party to another. I believe that Visa does not meet the intended definition of a broker.

Words and Phrases
broker
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 156
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) Visa arranged for payments between cardholder bank, merchant’s bank and merchant 260
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (i) Visa provided services to CIBC that related to an agreement for which credit card vouchers were issued 208
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Asset Management Service services provided by Visa to bank were not an asset management service 231
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) no (r.3) service as Visa did not assist in credit authorization 185
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) services provided by Visa that were listed in (r.4) were not the predominant elements 191
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.5) limited use of Visa logo did not engage (r.5) 138
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) - Paragraph 4(2)(b) Visa service to CIBC was an administrative service 174
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(1) - Person at Risk not a "person at risk" if risk is very remote 401