Financial Services (GST/HST) Regulations

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)

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.

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.

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.

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.