Financial Instrument

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 31

futures contracts on emission allowances

Is an emission allowance (e.g., a carbon offset) a commodity for GST/HST purposes? How is the trading of futures or options contracts on emissions allowances that are settled only in cash (or that may also be settled by delivery of the underlying emission allowance) treated? CRA responded:

An emission allowance is a right and…is considered intangible personal property. Thus, an option or contract [thereon]…would not be considered an option or a contract for the future supply of a commodity… .

…Where the option or contract can only be settled in money it may be considered a financial instrument.

20 March 2013 Interpretation Case No. 100956

In finding that broker fees and other fees relating to commodity trades were consideration for taxable supplies, CRA stated:

It does not appear that the Brokers who make trades in the over the counter…markets are trading on a recognized exchange. Furthermore, in some instances, where the agreements provide for the delivery of an actual physical commodity, the supply is not a financial instrument….Therefore, the Brokers providing the services in respect of these contracts to USCO and CANCO would not be considered to be "arranging for" financial services and consequently, the supplies provided by the Brokers would not be financial services.

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

The purchase of a right to receive investment management fees to be earned by the assignor did not qualify as the purchase of a debt security because "a 'right to be paid money' does not include a contingent right". GST Memorandum (New Series), 17.1, dated April 1999 "Definition of 'Financial Instrument'"

Paragraph (f)


Financial Law Panel, "The London Metal Exchange and LME Warrants", July 2000

Distinction between LME Warrants (representing the beneficial ownership of the metal) and LME Contracts (for the future supply of metal represented by the Warrants) (pp. 2-3)

Ownership of metal traded on the LME is transferred from seller to buyer under the terms of an LME Contract. An essential part of all LME Contracts is an agreement as to the date (the ‘Prompt Date’) on which metal of the agreed specification and amount will be paid for and delivered. Although the LME rule book does not specify when title to the metal passes from seller to buyer, the general view is that, since payment for and delivery of the metal take place on the Prompt Date, it is clear that the parties also intend ownership to pass on the Prompt Date.

The LME Contract provides that the seller’s obligation to deliver the metal sold (i.e. to transfer possession to the buyer of the metal sold under the contract) is fulfilled by the seller delivering to the buyer LME Warrants representing metal which complies with the contract specification. Indeed, under an LME Contract, this is the only way in which the delivery obligation can be met. Delivery of the LME Warrants is not an alternative to delivery of the metal sold – because of the terms of the LME Contract and the nature of LME Warrants, delivery of Warrants amounts to delivery of the metal.

An LME Warrant can be issued only by a warehouse which has been authorised by the LME. Under the LME regulations, which a warehouse must accept before obtaining authorisation, an LME Warrant relates to a specific lot of metal, identified in the Warrant, which has been deposited with the warehouse under a contract for storage. The warehouse agrees that its obligations under the contract of storage relating to the metal specified in the Warrant will be owed to the bearer of the Warrant. Accordingly, the authorised warehouse is under a contractual obligation to deliver to the holder of the LME Warrant on demand the metal specified in the Warrant. The effect of this is to make the holder of the Warrant the possessor of the metal.

Words and Phrases
warrant LME warrant