Debt Security

Table of Contents

Cases

2441-0946 Québec Inc. (c.b.a., Insta-chèques) v. Agence du revenu du Québec, 2017 QCCA 1491

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Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(a) - Subparagraph 149(1)(a)(iii) company in a cheque-cashing business was a "dealer in … financial instruments" 251

See Also

Casa Blanca Homes Ltd. v. The Queen, 2013 TCC 338 (Informal Procedure)

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Words and Phrases
deposit
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply possible to structure separate assignments 252

Administrative Policy

10 May 2019 GST/HST Ruling 167225 - Royalty Payments

The Investors entered into a loan agreement (“Agreement #1”) and a royalty agreement (“Royalty Agreement #1”) with Company #1. Agreement #1 provided for the Investors to make a loan to Company #1 (which did not bear interest absent default) provided that Royalty Agreement #1 had been entered into. Company #1 is required to make quarterly instalments to the Investors equal to a stipulated percentage of its Gross Revenue for the quarter (being the aggregate revenue of Company #1, and all affiliates, derived from all sales of the specified products (the “Products”). The total amount of these instalments was not to exceed the amount of the advance (the “Principal Amount”). In addition, if the total instalments paid by a specified date were less than the Principal Amount, the difference became due and payable on that date.

The Investors agreed to pay a specified sum, described as an interest free loan in exchange for the payment of a royalty fee (Royalty Fee #1), which was required to be paid (in addition to the instalments described above) at a stipulated percentage of Gross Revenue from retail sales of the Products (and a stipulated percentage of the Gross Revenue from Wholesale Orders of the Products) to the Investors beginning on the date that Company #1 has paid a total of a stipulated amount to the Investors.

Pursuant to Royalty Agreement #2, the investor (the “Business”) agreed to pay a specified sum to Company #2 in exchange for the payment of a royalty fee (Royalty Fee #2) that was calculated at a rate equal to a stipulated percentage of the gross revenue, including but not limited to revenue attributed to sales of the Products of Company #2 and/or its Affiliates up to a specified maximum, after which Royalty Fee #2was reduced to a lower percentage.

CRA stated:

[A] “debt security” does not include a contingent right. …

Under Agreement #1 and Royalty Agreement #1, Company #1 has made a single supply to the Investors … of the right to receive money, that is, the instalments … and Royalty Fee #1. …[T]he Investors have acquired a contingent right to be paid money under Agreement #1 and Royalty Agreement #1. The consideration for this taxable supply is the Principal Amount … paid by the Investors to Company #1. As such, where Company #1 is a GST/HST registrant, the Investors are required to pay GST/HST to Company #1.

When Company #1 pays the instalments and Royalty Fee #1 to the Investors pursuant to the right that the Investors have acquired, we do not consider the Investors to be making a taxable supply in exchange for these payments of money. Accordingly, the instalments and Royalty Fee #1 are not subject to GST/HST.

Similarly, under Royalty Agreement #2, Company #2 is making a single supply to [the Business] of a right to be paid money contingent upon Company #2 earning revenue as Royalty Fee #2 is paid to [the Business] at a rate calculated on the gross revenue of Company #2 and/or its Affiliates. This right to be paid money is a taxable supply of intangible personal property … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply loan and royalty advance were consideration for single taxable supply of IPP 202

23 April 2019 GST/HST Ruling 186334 - S AND INTERPRETATIONS - Annual licensing fees and public service bodies’ rebate eligibility

An incorporated non-profit organization (the “Organization”), being a provincial professional society makes NSF cheque charges. CRA stated:

With respect to the insufficient funds fee, a dishonoured cheque triggers a situation in which the [Organization] obtains a “right to be paid money” by the drawer of the cheque. This “right to be paid” meets the definition of “debt security” in subsection 123(1). The debt security is a “financial instrument” and the processing of a financial instrument is an exempt supply of a “financial service” … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20 law society was an “other body established by a government” 57
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20 - Paragraph 20(c) consideration for licensing included expired licence fees 43
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20 - Paragraph 20(b) - Subparagraph 20(b)(i) exempt processing and registration fees of professional society 62
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part III - Section 6 jurisprudence exam fee exempt, but not charge for processing exam administered by another body 144

24 January 2018 Ruling 156434

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Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) separately stated originating fee for sourcing credit agreement was part of consideration for its assignment 195

10 February 2017 Ruling 162056

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Words and Phrases
contingent right
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) the purchase of an IP royalty gives rise to non-creditable GST/HST to the investor 126
Tax Topics - Excise Tax Act - Section 182 - Subsection 182(1) buyout of royalty agreement not subject to s. 182 176
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity receipt of royalty not considertion for a taxable supply 117

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 18

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5 December 2003 Interpretation 44874

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Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 136 - Subsection 136(1) concurrent lease qualified as lease 202

April 1999 GST Memorandum (New Series), 17.1

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3 September 1997 Ruling HQR0000579

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1 December 1994 P-170 "Debt Security and Contingent Amounts"

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