Financial Service

See Also

FP Newspapers Inc. v. The Queen, 2013 TCC 44 (Informal Procedure)

partnership draws represented financial services

The registrant, which was the corporate successor to an income fund, acquired, as essentially its only asset, a 49% limited partnership interest in a partnership that carried on a newspaper business. In denying the registrant's ITC claims for GST on various of its costs including fees paid in connection with the income fund conversion and in connection with news releases regarding its dividends, Pizzitelli J. found that the receipt by the registrant of substantial partnership drawings ($3,865,500 for a six-month period) for distribution by it to shareholders represented financial services.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141 - Subsection 141(3) 177
Tax Topics - Excise Tax Act - Section 272.1 - Subsection 272.1(2) s. 272.1 did not apply to limited partner 260

Global Cash Access (Canada) Inc. v. The Queen, 2012 TCC 173, rev'd in part 2013 FCA 269

The appellant ("Global") enabled casino patrons to use their credit cards to receive cash advances or, more precisely, to purchase cheques from Global which they could negotiate for cash. To this end, the patron first used his or her credit card at a kiosk on the casino premises (or at a cashier cage) to get the cheque-purchase transaction approved by the credit card issuer. The casino cashier then issued, on Global's behalf, a cheque made out by Global to the casino operator, which the casino operator then negotiated for cash (or gaming chips) provided to the patron. At issue was the taxability of the fees paid by Global to the casino operator.

Turning first to the activities of the casino operator in allowing kiosks on its premises and providing support services at the cashier cages, Woods J noted (at para. 70) that "the term ‘arrange for'…has been broadly interpreted," quoted from CRA Policy P-239 (since repealed), and then found (at para. 72) that these activities qualified as arranging for a financial service:

The Casinos are directly involved in the issuance of cheques and are actively engaged in doing so, since they allow kiosks on the premises and provide services such as transaction procedures and initiating transactions on behalf of patrons.

However, allowing kiosks on the casino premises was an excluded provision of property under para. (r.5) (para. 81); and the cashier support services were excluded under para. (r.4), as services provided in conjunction with the issuance of the cheques (a financial service) and consisting primarily of the collecting and providing of information, and document preparation and processing (para. 82). The casino operator's role of cashing the cheques (which was similar to that of a disbursing agent), was encompassed within the broad language of paras. (a) and (d) (para. 76). The above supplies (kiosk provision, cashier services and cheque cashing) were "not so interdependent that they should be considered a single supply" (para. 94), and "none of these elements are a minor part of the supply so as to be incidental" for purposes of s. 138 (para. 96). It was appropriate to allocate 25% of the fees paid to the casino operator as consideration for the exempt cheque-cashing service, and to treat the balance as taxable.

Aim Funds Management Inc. v. Aim Trimark Corporate Class Inc., [2009] O.J. No. 4798, [2009] GSTC 170, 64 DLR (4th) 261, 2009 CanLII 29491 (Ont. Sup. Ct. J.)

The Minister assessed the applicant, a mutual fund manager, on the basis that a payment to it by mutual funds of deferred sale charges received by the mutual funds from redeeming investors represented consideration for taxable supplies of services made by the applicant to the mutual funds.

Perell, J. concluded, on the evidence, that the mutual fund manager and the mutual funds intended that these amounts were to be paid to the fund manager as reimbursement in whole or in part for brokerage commissions previously paid by the mutual fund manager when the investor had purchased his units in the mutual fund, and granted an order of rectification of numerous contracts to accord with the form requested by the applicant. He stated (at para. 58) that "the Applicant does not seek to rewrite a contract to rewrite contractual history; rather the Applicant is seeking to rewrite a contract that does not correctly write the contractual history".

Locations of other summaries Wordcount
Tax Topics - General Concepts - Rectification & Rescission 155

The Canadian Medical Protective Association v. The Queen, 2008 TCC 33, [2008] GSTC 88, aff'd supra

Before noting at para. 54, that it was conceded by the Crown that the appellant's principal activity was not the investing of funds (its principal activity being defending lawsuits against doctors), Bowman, C.J. found (at para. 54) that the discretionary investment management services provided to the taxpayer were not "management ... services":

The juxtaposition in paragraph (q) of the words "management" and "administrative" implies the type of managerial function associated with running a business. Management and administration fees are paid generally to individuals or corporations to handle the variety of matters necessary for the functioning of a business. I should not have thought that "managing" a portfolio of investments carried that type of connotation.

General Motors of Canada Limited v. The Queen, [2008] GSTC 41, 2008 TCC 117, aff'd [2009] GSTC 64, 2009 FCA 114

The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its employees. It directed the trustee of the plans to pay the fees of third party portfolio advisors out of the trust assets.

After finding that the Appellant was eligible for input tax credits for the GST that was charged on the fees, Campbell J went on to indicate that the portfolio advisory services did not qualify as financial services given that the portfolio advisors did not actually trade in the securities held by the plans.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient employer was recipient of portfolio advisory fees for employees' pension fund 78
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) recipient acquires the services 209

Canada Trustco Mortgage Company v. The Queen, 2004 TCC 792

sale of mortgages on fully-serviced basis

The appellant ("CTM") sold mortgage loans made by it to arm's length securitization trusts and serviced the sold mortgages including collecting and accounting for payments, and dealing with renewals and defaults. The consideration for a sale for the most part comprised a "Closing Payment" paid by the purchaser trust out of the proceeds of commercial paper issuances and "Deferred Amounts" representing most of the cash subsequently generated to the trust from the purchased mortgages net of all other outlays. CTM did not explicitly charge the trusts for the servicing, but recorded fees for such services in its financial statements. In finding that there was a single supply of a financial service by CTM, Bowman ACJ quoted extensively from O.A. Brown, including a statement therein that "'the fact that a separate charge is made for one constituent part of a compound supply does not alter the tax consequences'," and stated (at para. 20):

[For there to be a single supply] there must be an inextricable interdependency between the two elements so that they are integral parts of a composite whole that cannot, as a matter of commercial reality, be sensibly separated into separate supplies. … Here we have a sale of mortgages of which the servicing is not only an integral part but is requisite as a matter of commercial exigency. There is an intimate commercial relationship between CTM and the trusts in which CTM not only holds the registered title to the mortgages in trust for the trusts, but also performs the very services which are essential to the commercial viability of the trusts' investment. For someone other than CTM to service the mortgages would, as a practical matter, be commercially infeasible and would be inimical to the raison d'être of the transaction.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply sale of mortgages on fully-serviced basis 139
Tax Topics - Excise Tax Act - Section 138 sale of mortgages on fully-serviced basis with deferred purchase price labelling 243

State Farm Mutual Auto Insurance Co. v. The Queen, [2003] GSTC 35

After finding that the U.S. head office of the appellant (an auto insurer) did not render or supply services to the Canadian regional office, Bowman A.C.J. went on to find that if such services were rendered, they were financial services. He noted that the respondent's argument "would essentially restrict financial services, in the context of the insurance business, to the issuance of an insurance policy to an insured" and that the concept of underwriting was much broader than this. Further , if any administrative or management services were attributed to the categories of insurance performed by the head office for the Canadian regional office, they were incidental to the financial services, so that s. 138 applied.

Words and Phrases
underwriting
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 138 84
Tax Topics - Excise Tax Act - Section 220 charges to Canadian branch of an allocated portion of head office expenses were not for services rendered 72

Ingle Manor Farms Inc. v. The Queen, docket 2001-862-GST-I (TCC) (Informal Procedure)

A fee received by the taxpayer for agreeing not to bid for the assets of an insolvent corporation did not represent consideration for a financial service.

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."

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..

Archambault J found that the $15 fees of the registrant were consideration for supplies of services to the travel agencies, but that such supplies were exempt supplies under three aspects of the financial services definition, of which the most apt were paras. (l) and (i) (arranging for payment of a credit card voucher amount). Archambault J stated (at para. 31):

Skylink obtained payment of the amount of the credit card slip from the issuer pursuant to the obligation that the issuer had towards the credit card holder.

The amounts were not excluded by para. (n) (consideration for a taxable supply) and (t) (prescribed service). Archambault J stated (at para. 32):

In my view, paragraph (n) does not apply here since Skylink arranged not for obtaining payment of the ticket price, but rather for obtaining payment of the amount of the credit card slip by the issuer.

Regarding para. (t), Archambault J found that the collection of credit card 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):

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.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply cancellation charges were consideration for a supply 188
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(1) - Person at Risk "slight" risk in accepting credit card slips rendered a person at risk 336
Tax Topics - General Concepts - Agency 205

C.I. Mutual Funds Inc. v. Canada, [1997] GSTC 84 (TCC), aff'd [1999] GSTC 12 (FCA)

The managment fees received by mutual fund managers, which also were the trustees of the mutual fund trusts which they managed, were taxable even under the pre-1997 version of para. (q). Rip J stated (at para. 75):

...one can interpret "on behalf of" as meaning "for the benefit of" if the context commands such an interepretation....I also agree with the respondent that any other interpretation would effectively deprive the provision of any meaning and effect.

On-Guard Self-Storage Ltd. v. The Queen, [1996] GSTC 9 (TCC)

The taxpayer provided storage lockers pursuant to rental contracts that provided for a monthly rental fee with a "prompt payment discount" for paying by the due date.

McArthur TCJ. found that the commercial reality or true nature of the transactions was that the reduced amount payable in the event of prompt payment was the true monthly rent, and that the additional amount paid by a defaulting tenant was a late payment fee. However, such fee was an exempt financial service on the basis that the services provided by the registrant to the defaulting tenant were part of the operation of an overdue account. McArthur TCJ. stated (at p. 9-5) that "the term 'other account' is wide enough ... to include the subject late fees owing in respect of the breach of the Agreement".

Locator of Missing Heirs Inc. v. The Queen, [1995] GSTC 63 (TCC)

The appellant who carried on a business of finding missing heirs to property in estates of deceased persons was found not to be doing any of the things described in paragraph (d) of the definition of financial service and, therefore, was making taxable supplies.

Commissioner of Inland Revenue v. Databank Systems Ltd., [1990] BTC 5108 (PC)

The respondent provided five clearing banks with computer-related services which essentially replaced many of the clerical operations of the banks relating to the payment and collection of cheques and other settlement or payment services, the posting of transactions to customer accounts, maintenance of customer accounts and other records. It was found that these services did not come within the definition of a financial service in the Goods and Services Tax 1985 (New Zealand), which included "the issue, payment, collection, or transfer of ownership of a cheque or letter of credit" and "agreeing to do, or arranging any of [such] activities". The supply of computer services to the banks to enable them, in turn, to provide financial services was not itself a financial service.

Customs and Excise Commissioners v. Diners Club Ltd., [1989] BTC 5084, [1989] 2 All E.R. 385 (C.A.)

The taxpayer argued that the credit card charges owing to it by cardholders arose as a result of an assignment of debts or other rights to it by the relevant retailers, and that the payments made by the taxpayer to the retailers accordingly represented the cash consideration for a supply by the retailers to it, rather than the consideration for the provision of a financial service by the taxpayer to the retailers (the Crown having conceded that the payment of money as the consideration for a supply of goods or services is not itself a supply).

In rejecting this submission, Woolf L.J. found that even though the agreements between the taxpayer and the retailers indicated that the taxpayer was purchasing the accounts from the retailer, when a cardholder signed the sales voucher she was unconditionally discharged from her liability to pay the retailer, and a fresh debt arose between her and the taxpayer. In any event, having regard to the reality created by the terms of the three-party arrangements, there was a supply of a financial service by the taxpayer to the retailers, namely, the service of assuring payment of the retailers in consideration for the earning of a discount from the face amount of the accounts by the taxpayer.

Administrative Policy

5 June 2012 Interpretation Case No. 127795

Interac fees exempt to settlement provider but not to ISO

An independent sales organization (ISO) enters into agreements with merchants under which the merchants acquire point-of-sale terminals of a vendor (which offers Interac direct payment services and, therefore, is referred to in the Interpretation as an Acquirer). Fees charged to the merchants by the ISO include debit transaction fees and communication fees per attempted or completed credit or debit transaction. The ISO pays debit surcharges generated by the operation of the POS terminals to the merchants, net of fees owing to the Acquirer. In suggesting that the fees received by the Acquirer may be for financial services, CRA states:

Since the ISO is not considered an Acquirer and is therefore prohibited from performing the Payment Processing Service for the Merchant, a second agreement was entered into with the Acquirer. As the Acquirer's service essentially ensures that the transactions initiated through the POS Terminal result in the correct debiting and crediting of accounts via the Interac network, its service may be considered under paragraph (l) of the definition of financial service [as] the agreeing to provide or arranging for a financial service referred to in paragraphs (a), (g) or (i). Moreover, paragraph (t) may not apply to exclude the Acquirer's Payment Processing Service from the definition of a financial service if the Acquirer is considered a person at risk with respect to the issuance of an instrument (i.e., where the Acquirer is financially at risk of any loss until the transactions have gone through the settlement process). If this is the case, then the Acquirer would not charge GST/HST on its Payment Processing Service.

Respecting the ISO, CRA stated:

Even though the ISO's service provided to the Merchant under the Agreement may also be considered the agreeing to provide or arranging for a financial service under paragraph (l), paragraph (t) may apply to exclude the service as a financial service if the ISO's service, when considered as a whole, 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., where the ISO is not financially at risk when it provides these services to the Merchant).

5 June 2012 Interpretation Case No. 81635

taxable provision of point of sale terminals

An "Investor" purchases point-of-sale terminals from the Supplier, who also supplies systems and services to connect the terminals , which will be used by retailers, to the credit card and Interac networks. A Third Party provides connection services. The revenues generated by the terminals are received by the the Supplier, with the Investor then being paid a percentage of those amounts. In stating that it appeared that the Investor was not providing a financial service, CRA stated

...the Investor's business seems to be limited to the ownership of the POS terminals, choosing suitable placements for the terminals, and engaging the Third Party to deliver the processing services required to connect the terminals to the networks.

17 May 2012 Interpretation File 97556

The Supplier, which purchases point-of-sale terminals from CanCo and sells them to merchants, also markets processing services to the merchants, whom it refers to CanCo, in consideration for fees paid by CanCo. The processing services are "various technical and administrative services designed to support customer transactions initiated on the Merchant's POS Terminal. Since CanCo and [its parent] USCo are not Interac Association Members, the Processing Services are contracted to a third party, […], an Interac Member and Acquirer." In finding that the Supplier's services made to CanCo were not exempt financial services, CRA stated that the Supplier

is providing a taxable service consisting predominantly of marketing, promoting and referring potential Merchants for the purpose of providing Processing Services.

17 May 2012 Ruling 62492

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 charged by it to customers) per-transaction fees to the ISO as well as transaction and processing fees to the Acquirer. Before concluding that that the services of the ISO (which were a single supply including payent processing services) were excluded under para. (t) of the financial services definition (and s. 4(2) of the Financial Services (GST/HST) Regulations), CRA stated:

Since the Acquirer's processing service is essential to any debit card or credit card transaction, the service is considered under paragraph (l) of the definition of financial service [as] the agreeing to provide or the arranging for a financial service referred to in paragraphs (a), (g) or (i) in that the Acquirer effects the Interac Direct Payment transactions initiated through the POS Terminal by correctly debiting the cardholder's account and crediting the Merchant's accounts via the Interac payment network. Moreover, paragraph (t) does not apply to exclude the Acquirer's processing service from the definition of a financial service since the Acquirer is a person at risk with respect to the issuance of an instrument, i.e., the Acquirer is financially at risk of any loss in settling the debit or credit card transactions.

In a variation of these transactions, the ISO engages an independent sales representative to handle the promotion, installation and servicing of the POS terminals. Commissions payable to this sales representative are taxable.

15 March 2012 Ruling Case No. 132880-2 [trailer fees exempt if no servicing]

trailer fees exempt if no servicing

Dealers, who arrange for the initial sale of shares in an Investment Fund which is managed by an Investment Manager, receive a service fee (the "Dealer's Fee") from the Investment Manager based on the number of shares held in their account - both at the time of initial sale and on an on-going basis. The on-going fees are additional consideration for arranging the sale of the shares and "the Dealer does not at any time after the initial sale of the...Shares perform any other service for the Client or the Client's account." Ruling that

the Dealer's Fee received by the Dealer either as a lump-sum payment or as periodic payments for facilitating the initial sale of the […] Shares to the Client, is consideration for an exempt supply of arranging for a financial service under paragraph (l) of the definition of financial service in subsection 123(1). However, if at any time after the initial sale, the Dealer "services" the Client's account in order to earn the Dealer's Fee, or if the fee is paid to a Dealer who did not facilitate the initial sale of the […] Shares, the supply of the services for which the Dealer's Fee is paid may be considered the provision of a taxable supply.

The Explanation further states:

Based on the information provided, since there is a direct and clear connection between the Dealer's Fee and the services performed by that Dealer to facilitate the initial sale of the […] Shares, the Dealer's services are predominantly "arranging for" a financial service as provided under paragraph (l) of the definition of financial service and would not be excluded from the definition by any of paragraphs (n) through (t) including paragraphs (p), (q), (q.1) and (r.4). However, if the Dealer's services performed after the initial sale are predominantly to "service" the Client's account in order to receive the ongoing Dealer's Fee, then those services are considered in the nature of taxable management, administration, marketing or promotional activities as they are not themselves financial services....

[T]o "service" a Client's account includes, but is not limited to:

  • regularly contacting the Client after the initial sale to review the status of the account and the appropriateness of the […] Shares held in the account in light of the Client's financial needs and investment objectives (e.g., holding the Client invested in those Shares, performing research and analysis);
  • offer advice by recommending any appropriate change in the account; and
  • provide assistance to the Client by answering any questions the Client may have regarding the […] Shares and on exercising any right or privilege connected to those Shares or to the account

9 January 2012 Ruling Case Number 112274 [taxable processing of credit applications]

taxable processing of credit applications

Prior to a sale of equipment by the vendor to a customer, Company A "as part of its wide range of financing services" processes the customer's credit application. If the application is approved, the vendor enters into the Contract to sell the equipment to the customer, and then assigns both the equipment and the Contract to Company A, which retains ownership of the equipment until the customer has made all periodic instalment payments under the Contract.

In finding that fees charged by Company A to the customers for processing their credit applications were taxable, CRA stated:

[T]he supply of the equipment and the assignment of the Contract by the vendor to [Company A] is not a supply of a financial service but rather is a taxable supply of the equipment….A service that is in the nature of a…credit application… service (i.e., the Service) is intended to be taxable as it is not itself a financial service. Moreover, [Company A] did not enter into any agreement with the customer whereby [Company A] agreed to lend money directly to the customer. [Furthermore] the Service is excluded from the definition by paragraph (r.4) since…the Service is predominantly collecting information, and preparing and processing the Application on behalf of the customer….

31 October 2011 Interpretation Case No. 132880

predominantly servicing account v. arranging share sale

This is the previously interpretation respecting the fee arrangement dealt with in 132880-2, two Rulings above. CRA stated:

The Dealer's Fee paid to the Dealer may be consideration for a supply of an exempt service of arranging for a financial service under paragraph (l) depending on all of the facts and circumstances. This may be the case where the original Dealer (the person who facilitated the initial sale of the shares) provides services that are predominantly services of arranging for the sale. In such a case, there must be a direct and clear connection between the payment made to the Dealer (lump-sum or periodic) and the services provided in relation to the initial sale of the […] Shares to the Client. However, if the Dealer's services are predominantly to "service" the Client's account, the Dealer's Fee received for such services would generally be consideration for a taxable supply. In such circumstances, even if the Dealer provided services that included services described under paragraph (l), those services would generally be excluded from the definition of financial service.

5 January 2012 Ruling Case No. 98811 [broker charge for securing health plan employer]

broker charge for securing health plan employer

A commission charged by a broker to the administrator of a private health services plan in consideration for bringing the administrator and employer together and designing the plan was consideration for a taxable supply. Even if it could be argued that the broker's service (which was a single supply) was otherwise included under para. (l), it would be excluded by para. (r.4).

10 November 2011 Case No. 125071

Given that mortgage brokers often receive a higher rate of commission from a particular lender if they generate higher volumes of loans, many brokers operate under "franchise agreements" under which they effectively pool with the work done by other brokers in order to generate higher commission rates. The granting by the "Franchisor," "which is one such franchise banner," to the "franchisee" of a non-exclusive licence to operate the "Franchise" at a specific location was a taxable supply, so that the franchise fee received by it in consideration for the grant of the franchise was subject to GST/HST.

19 May 2011 Interpretation Case No. 131970

loan application portal

X Co. provide lenders (through two internet portals) with an electronic loan application system for the processing and approval of credit applications between the lenders and dealers (sellers of taxable property) in order to provide point-of-sale financing for the dealers' consumer customers ("Purchasers"). The related software is used solely by X Co. to operate the portals. When a Purchaser requires financing, the dealer will then use a portal to select a lender to whom it wishes to submit a loan application on behalf of the Purchaser, with the Purchaser and dealer then submitting a loan application to the lender via that portal. CRA stated:

while some of X Co's activities, such as processing on-line the Purchasers' applications for financing, and facilitating the electronic preparation of the Lenders' specified legal documentation, assist the Lenders in providing a financial service of granting credit to Purchasers, X Co.'s activities when considered as a whole are predominantly managing and administering on behalf of the Lenders an electronic loan application system for the Program. Accordingly, the Look-See Fee and Completion Fee charged by X Co. to the Lenders are in respect of a single taxable supply....

6 September 2011 Ruling Case No. 77006 [on-line administration of credit card portfolio]

on-line administration of credit card portfolio

A non-resident company (Service Provider) provides services to FinanceCo consisting of on-going processing services respecting FinanceCo's credit card portfolio (e.g., on-line applications and processing, financial adjustments, posting and storing account information such as balances and authorizations, and rendering billing statements), in addition to additional optional services and services necessary to convert FinanceCo's systems so as to accommodate Service Provider's platform. After ruling that Service Provider was making a single taxable supply of services to FinanceCo, CRA stated:

Based on the Agreement, FinanceCo is making a supply of a financial service pursuant to paragraphs (b), (d) and (g) of the definition of financial service. Although involved in the issuance process of credit cards by FinanceCo, the Service Provider does not issue credit cards....… [W]hile some of the activities, such as processing credit applications, assist FinanceCo in providing a financial service of issuing a credit card and operating and maintaining cardholder accounts, when considered as a whole [the services] are predominantly administrative in nature including storage of account information, card production services, services related to cardholder data and contact centre services. As a result, the supply is not a financial service….Even if the supply was to be included in paragraphs (a) to (m) of the definition of financial service in subsection 123(1) it would be excluded by paragraphs (r.3) to (r.5) and (t) of that same definition.

29 July 2011 Headquarters Letter 95868

loyalty card promotion

A credit card loyalty program is proposed in which participating organizations (Organizations C) assist in the marketing of credit cards of a particular credit card company (FinanceCo). By using the credit card, members of Organizations C accumulate various member rewards which they may use to purchase rewards from Organizations C. Amounts paid by FinanceCo to Organizations C fund the cost of these rewards. After ruling that the amounts received by Organizations C from FinanceCo are consideration for a single taxable supply, CRA states:

[Organizations C] activities when considered as a whole are predominantly in respect of the promotion and marketing of the Loyalty Program. Moreover, the services performed by [Organizations C] do not meet the factors that are used to determine whether a supply is arranging for a financial service under paragraph (l), such as the degree of direct involvement with the consumers or the time expended in the provision of a financial service referred to in any of paragraphs (a) to (i).

See also 3 August 2011 Headquarters Letter 137201 in respect of the same loyalty program.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) card loyalty program credits 112

29 July 2011 Headquarters Letter Case No. 82567

web-based loan applications

Pursuant to related agreements between ABC Corporation, Lenders, the Vendors or products, Dealers for the Vendors and the Customers of the Vendors, ABC provides a web-based system pursuant to which the Dealers apply on behalf of the Customers through ABC's website for loans to fund Customers' purchases of products, and ABC applies a largely automated system to assess the credit-worthiness of the Customer loan applications, generate loan agreements to be entered into between the Lenders and Customers and advances the funds on behalf of the Lenders to the Customers. Although various of ABC's services assist the Lenders in providing credit to the Customers and thus may otherwise be included in para. (l) ("arranging for"), the transaction fees received by ABC from the Lenders are consideration for a service that consists predominantly of credit management services (obtaining Customer credit reports, and checking and authorizing the loans) and services that are preparatory to the provision of financial services (promotion of the program, preparation and processing of loan information, and Lender assistance). Therefore, the services provided by ABC to the Lenders are excluded under paras. (r.3) and (r.4). The services performed by ABC for the Vendors (to whom it also pays fees) also are preparatory to the provision of a financial services under para. (r.4) (i.e., facilitation of the Vendors' promotions, liaising regarding loan terms, and provision of various reports) and also are excluded from financial services.

19 July 2011 Headquarters Letter 127619

The registrant enters into marketing agreements with various merchants to promote their businesses by selling vouchers on its website on their behalf which are redeemable for goods or services offered by the merchants, and by promoting such goods and services on the website and through other channels. CRA rules that the commissions paid by the merchants are not consideration for financial services.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 181.2 272

19 July 2011 Headquarters Letter Case No. 111922

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. Given that "services in the nature of management, administration, marketing and promotion are intended to be taxable" and given that the services of Corporation X assisted the Providers and Employers in administering these plans, its services were predominantly taxable services and, under single supply doctrines, were all taxable. Furthermore, even if some elements came within the para. (l) ("arranging for") and para. (f.1) (claims collections), they were excluded under para. (r.4) (preparatory customer assistance, collection and provision of information, and document preparation and processing) and under para. (t) (administration services including in relati0n to the payment of claims by a person not at risk).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) insurance policy administration 77

19 July 2011 Headquarters Letter Case No. 125864

In connection with a credit card program launched by a bank, it agrees with an insurer that it will use commercially reasonable efforts to arrange for the issuance of insurance by the insurer to cardholders (including contacting them by telephone) and collect the monthly insurance premiums from the insured cardholders. After ruling that the bank is providing a (single) supply of a taxable service to the insurer in consideration for payments to it by the insurer, CRA stated:

...the activities undertaken by the Bank are the promotion of the insurance policy offered to Cardholders...as well as forwarding the applications for Certificates under the Group Policy for issuance by the Insurer. The Bank has limited involvement with respect to the provision of a financial service by the Insurer....[V]iewed as a whole the activities undertaken by the Bank are predominantly promotional services. Promotional services are excluded from the definition of financial service under paragraph (r.4).

14 July 2011 Headquarters Letter Case No. 132388

exempt intermediation by mortgage broker

A mortgage broker presents the programs of different mortgage lenders to prospective borrowers, selects programs that meet the borrower's needs and identifies mortgage lenders that would likely accept the borrowers. In contracts with the lenders, the mortgage broker indicates that it will assist the borrowers in completing the mortgage application, verify that the borrower meets the mortgage lender's credit critieria, verify the completeness and accuracy of the information provided by the borrower and participate in the closing. After ruling that the fees received by the mortgage broker from the mortgage lender are consideration for financial services under para. (l) of the financial services definition, CRA states that:

The term "arranging for" is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(i), such as agents, brokers and dealers in financial instruments or money.

CRA also rules that fees received by the mortgage broker from borrowers where private lenders are involved are exempt under para. (l), but declines to rule that commissions paid by the mortgage broker to the agents through which it acts are exempt as the agreement provided to CRA did not contain a description of their services. CRA further states

Although you did not request information on future compensation programs (e.g. trailer fees), please note that a renewal commission payable in future years may not be consideration for the arranging for the supply of a mortgage loan.

15 June 2011 Headquarters Letter Case No. 108590

credit card promotion

Corporation A agrees to promote a credit card to be issued by a bank by soliciting prospects to open up accounts with the bank pursuant to a marketing program developed jointly with the bank (with the bank assuming sole responsibility for credit approval and administering the accounts including collections). After ruling that the compensation received by Corporation A from the bank is consideration for a single taxable supply, CRA stated:

[Corporation A's] activities ...are predominantly promoting and marketing the Program....Also [Corporation A] is not in the business of providing supplies of financial services or considered a financial intermediary as described under subparagraph 149(1)(a)(iii).

27 May 2011 Headquarters Letter Case No. 129882

mortgage broker directly involved in securing loans

A mortgage broker qualifies borrowers (including assessing the impact of their credit reports), obtains commitments from mortgage lenders and discloses the terms and conditions to the borrower. In providing a general interpretation that the mortgage brokers are providing a financial service of arranging for the mortgage loans, CRA stated:

...it appears that the mortgage broker has a high degree of direct involvement and effort in the supply of a mortgage loan, is relied on by the borrower and the lender and has the intention to effect a supply of the mortgage loan. Although the mortgage broker may create or maintain records for the lender relating to a grant...of credit...the services provided by the mortgage broker are not limited to credit management services. Similarly, while the mortgage broker may provide information , document preparation or processing, or customer assistance that would be preparatory to the provision of a financial service, the services would generally be financial services described in paragraph (l) of arranging for a service referred to in paragraph (d) and would not be excluded from that definition by reason of paragraphs (r.3) or (r.4).

No rulings were provided as no copies of the relevant agreements were provided.

17 May 2011 Headquarters Letter Case No. 129875

an insurer has an arrangement with a managing general agent ("MGA") to promote and effect sales of its insurance policies, and the MGA has an agreement, in turn, with broker/agents (the "Advisors") to promote and effect sales of such policies. The commissions paid by the insurer to the MGA would not be exempt (under para. (l) - "arranging for") because of the lack of direct involvement of the MGA with the clients. Furthermore, the activities of the MGA could be considered to be also excluded on the basis that they are predominantly preparatory activities. Where Advisor A sells an insurance brokerage business to Advisor B, with Advisor B being assigned the entitlement to future streams of commissions including renewal commissions generated as a result of sales to clients previously made by Advisor A, such commissions would not be exempt consideration in the hands of Advisor B as Advisor B had no direct involvement with the clients in arranging for the supply to them of the insurance policies.

GST/HST Notice 250, "Proposed Changes to the Definition of Financial Service", June 2010.

26 July 2007 Ruling 63048 ["fees" of vendor for servicing of sold mortgages part of consideration for single exempt supply]

"fees" of vendor for servicing of sold mortgages part of consideration for single exempt supply
see also 21 December 2016 Ruling 157873 and 28 January 2008 GST/HST Ruling 84428
Seller and Investor

The Seller (a registrant which is resident in Canada) sells mortgages (the "Mortgage Loans"), which have already been fully advanced, to the Investor, which is a non-resident of Canada, has no permanent establishment in Canada and is not registered.

Sale on fully-serviced basis

The Investor agrees to purchase the Mortgage Loans on a fully-serviced basis pursuant to the Agreement. The Seller is required under XX of the Agreement to perform various duties respecting the sold Mortgage Loans including provision of a detailed funded mortgages report, giving necessary notices respecting amounts due or overdue, maintaining proper records and accounts showing all receipts, payments and disbursement in respect of the Mortgage Loan, notifying the Investor of any alteration or modification in the terms of the Mortgage Loans under certain conditions, enforcing performance of the obligations of the mortgagor under the Mortgage Loans and realizing upon the mortgage and other security, at the cost and expense of the Investor.

Security and registration

All Mortgages shall be registered in the name of the Seller. The Seller shall execute registrable assignments of the Mortgages and all related security documents and deliver those to the Custodian as part of a bulk assignment not less frequently than once every month. The Investor has the right to require the Seller to purchase back a Mortgage Loan as a result of an unsatisfactory change, within seven days and by giving written notice.

Ruling

The fees described in XX of the Agreement, payable by the Investor to the Seller, are consideration for a supply of a financial service.

December 2006 GST/HST Info Sheet GI-006 "ABM Services"

Includes various examples, including:

Example 4

where an ISO (a person who markets ABM services) contracts with a merchant to be the card acceptor and where the merchant contracts with the ISO to provide services for the ABM that the ISO has sold or leased to the merchant. In this situation:

  • the acquirer (a member of the payments network) receives an exempt interchange fee from the card issuer for agreeing to pay cash to a cardholder.
  • the ISO receives an exempt payment from the acquirer, derived from the interchange fee paid by the card issuer to the acquirer, for agreeing to dispense cash to the cardholder.
  • the merchant receives an exempt payment from the ISO (derived from the payment the ISO receives from the acquirer) for dispensing cash from the ABM to the cardholder.
  • the merchant also receives an exempt surcharge fee from the cardholder for dispensing cash from the ABM to the cardholder.

5 April 2004 Ruling Case No. 50019

The quarterly fees received in arrears (based on the market value of the investment portfolio) by an investment manager with full discretion as to all investment decisions were consideration for taxable supplies by it given that the primary service provided by it was expertise in the selection of securities, which was characterized as the provision of investment advice.

17 December 2003 Ruling Case No. 45758

As the role of Agent B was to provide administrative services to Agent A to enable Agent A to fulfill its responsibilities for arranging for the provision of insurance by an insurer, the services provided by Agent B did not qualify as financial services.

17 December 2003 Ruling Case No. 40640

A corporation was characterized as providing a technology platform, which permitted the electronic collection of mortgage loan application and underwriting information, to mortgage brokers and was characterized as not providing any services directly to an insurance company. Accordingly, the fees generated by it were consideration for taxable services rather than being financial services under paragraph (1).

2 December 2003 Memorandum Case No. 41678

The exclusion in paragraph (q) applied to the sale of mortgages on a fully-serviced basis to a trust, based on a review of its activities set in the Declaration of Trust.

19 November 2002 Interpretation RITS 42355

An independent third party that, for a commission, engaged in the collection of overdue loans and accounts receivable due to a bank was not providing a financial service but, rather, providing an administrative service that facilitated the collection of the overdue accounts.

P-239 "Meaning of the Term 'Arranging For' as Provided in the Definition of 'Financial Service'" 30 January 2002. 31 March 2000 HQ Letter 25522

A commitment fee payable in connection with a merger transaction entailing share and note consideration represented consideration for a financial supply. A break-up fee (referred to as a "non-completion fee") did not represent consideration for a supply, nor was it governed by subsection 182(1) as the agreement to which the fee related was an agreement for the making of an exempt financial service. Accordingly, no GST was payable on the break-up fee.

GST/HST Memorandum 17.1.1 Products and Services of Investment Dealers October 2001

Listing of Exempt Products and Services

E-1

Buying and Selling of Debt Security

Buys and sells debt securities on the secondary market as a principal (for the broker's own account). Interest is earned by holding these securities. A fee is not charged.

E-2

Buying and Selling of Equity Security

Buys and sells equity securities on the secondary market as a principal (for the broker's own account). Dividends are received from holding these securities. A fee is not charged.

E-4

Coupon Interest

Long-term interest earned or short-term interest expense on debt securities.

E-5

Securities Borrow-Lending Service

Broker lends or borrows a financial instrument primarily to cover short deliveries. A fee is charged for the service.

E-6

Commission Revenue

Broker buys or sells securities on behalf of a client. A fee is charged for the service.

E-7

Cash/Broker Account (Free Credits)

Maintenance of a client's account to which interest is credited at a prescribed rate in relation to any cash on deposit by a client. The funds on deposit are payable on demand and may be used in the conduct of the brokerage business.

E-8

Margin Account

Interest charged at prescribed rates for the lending of money to a client to finance a security purchase against acceptable collateral.

E-9

Option Account

Broker buys/sells put or call options traded on stock or option exchanges. A fee is charged for the service.

E-10

Commodity Account

Broker buys/sells futures. A fee is charged for the service.

E-11

Returned Cheques

Client's cheque returned NSF (i.e., drawn on an account with insufficient funds). A fee is charged for the service.

E-12

Stop Payment

Client issues a cheque drawn on an account and subsequently gives instruction to stop payment on the cheque. A fee is charged for the service.

E-13

Wire Transfers

Client asks broker to transfer an amount held by the brokerage firm to a bank account. A fee is charged for the service.

E-14

Transactions in a Year [inactivity fee]

Maintenance of a client account (as described in E-7) that has seen no activity during a year. A fee is charged for the service.

E-15

Account Termination Fee (Transfer of cash position to another Financial Institution)

Client transfers cash position, in a cash/broker account, a margin account, an option account or a commodity account, to another financial institution. A fee is charged for the administration of the transfer.

E-16

Redemption of Mutual Fund Units

Client redeems mutual fund units with a financial institution. A fee is charged for the service.

E-17

Purchase "No-Load" Fund

Fee for processing the trade to buy a no-load (no commission) mutual fund.

E-18

Options/Futures/Foreign Exchange

Broker/Dealer acts as a principal (for own account) in acquiring options/futures that give the broker the right to buy or sell at a specified price a future supply of a commodity/security within a specified time (including future supply of currency). A fee is not charged.

E-19

Physical Certification

Broker issues physical certificates to client in the client's name at the time of a trade. A fee is charged for the service.

E-20

Fees with respect to the underwriting of a Financial Instrument

An underwriting contract is an agreement, made before financial instruments are brought before the public, to the effect that the underwriter will assume all financial instruments that remain unsold after a public offering. The underwriting contract may make provisions for the following;

  • Management Group Fees (difference between the price of the security paid by the lead underwriter and the selling price to the Banking Group)
  • Banking Group Fees (difference between the price of the security paid by the Banking Group and the selling price to "Defined Financial Institutions" and Selling Groups)
  • Selling Group Fees (difference between the price paid to the Banking Group and the price charged to the retail investor and, a fixed fee based on sales volume of a new issue with the Selling Group member

E-21

Rush Transfers

Broker transfers or registers a certificate to client's name at the time of a trade. Service is performed on a priority, or rush, basis. A fee is charged for the service.

E-22

Transfers

Broker transfers or registers a certificate to client's name at the time of a trade. A fee is charged for the service.

E-23

Cheques issued on client account

Service fee charge based on number of cheques issued on client's account in any given period.

E-24

Substitution

The service of substituting cash with securities, either in or out of a self-directed RRSP, that involves the transfer of ownership from the individual to the trust or vice versa. A fee is charged for this service.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (b) inactivity fee to brokerage client is exempt 36

Draft Policy Statement on the Meaning of the Term 'Arranging for', 18 January 2000, No. 11595-2

"The intermediary should be fully and directly involved in the process of the provision of the financial service by the supplier and will therefore, expend necessary time and effort to ensure a successful supply of the financial service."

21 December 1999 Headquarters Letter 8177/HQR0001783

Fees paid were characterized as being primarily consideration for marketing and promotional services notwithstanding that there were incidental financial services involved including arranging for the opening of a bank account and arranging for a credit facility.

21 December 1999 Ruling File 11595-2 No. HQR0001783/8177

A service of securing additional merchants to accept the credit card services provided by a financial institution was characterized as relating substantially to the provision of marketing and promotional services, rather than to financial services, with the result that the fees were not exempt.

27 October 1999 HQ Letter HQR0001895

status of placement fee determined by whether share or asset sale concluded

Where a supplier had agreed to actively solicit for and negotiate with potential buyers of the assets of a company or its shares, and a share sale ultimately occurred, the fees paid to the supplier (comprising a final percentage fee which was conditional upon closing the sale, together with initial fees) would be treated as the consideration for the single supply of a financial service, with amounts initially received by the supplier treated as non-refundable deposits under s. 168(9) that did not become consideration for the supply until the sale occurred. If the sale had not been consummated, or occurred as an asset sale, the consideration (including the deposit) would be treated as consideration for a taxable supply.

25 August 1998 Ruling RITS HQR0001269 [trailer fees]

trailer fees

Trailer fees were exempt.

3 September 1997 Ruling HQR0000579

"Revenue Canada takes the position that the service of 'arranging for' the supply of a financial service ... generally refers to the activities of an intermediary, such as a broker, a salesperson or a dealer, of bringing together in an active manner of two parties (a supplier and a recipient of the financial service) for the supply of the financial service by one person to the other. 'Arranging for' a service does not mean the service of 'recommending', 'advertising' or 'marketing' alone. The term 'arranging for' the service should go beyond the activities of merely referring or introducing one party to the other party for the supply of a financial service. In general, the intermediary will be expected to have spent time and effort to assist both parties whenever necessary for the eventual success of the supply of the financial service by one party to the other party."

P-210 "Performance Bond Claims" dated 7 February 1997. P-192 "Supply of Precious Metals" P-119 "Trailer Commission Servicing Fees"

Trailer commissions paid by fund managers to investment dealers are exempt under paragraph (l) of the definition.

GST M 300-4-7 "Financial Services" GST M 700-2 "Definition of 'Financial Instrument'" B-032 "Registered Pension Plans and Registered Retirement Savings Plans"

B-033 "GST Treatment of Products and Services of a Deposit-Taking Financial Institution"

Articles

Sabrina Wong, Sania Ilahi, "Tax Implications of Asset Securitizations", 2015 CTF Annual Conference Report

Quiescence of CRA post-Canada Trustco (p. 12:21)

No significant assessments have come to light in connection with the treatment of the servicing since...Canada Trustco … [R]eaders should be cautioned that…[s]tructuring of the securitization is critical to ensure that a third party is not granted responsibility for servicing the financial assets sold to an SPE.

Paragraph (a)

Cases

Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 10

VISA supplied a payment service to CIBC

CIBC issued Visa credit cards and utilized the Visa payment system, for which it paid fees to VISA. It was acknowledged that such charges otherwise came within the exempt financial services definition, relevantly described as including “the services of paying money (paragraph (a)), arranging for the payment of money (paragraph (l)), and any service provided under an agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued (paragraph (i)),” and the only issue was whether the exemption was ousted by the services being of an “administrative” nature - and Laskin JA found that this exclusion did not apply,

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) - Paragraph 4(2)(b) VISA provided a GST/HST-exempt financial service to CIBC 421
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (t) VISA provided core payment processing services that CIBC could not replicate that were more than merely administrative 284

See Also

Wiltonpark Ltd & Ors v Revenue & Customs Commissioners, [2016] EWCA Civ 1294

fee charged by club for encashing vouchers was in economic reality for access to club

The self-employed lap dancers at the appellants’ clubs often would accept vouchers from customers, who had run out of cash, in exchange for their services. The customers used their credit cards to purchase such vouchers from the appellants at a 20% premium to their face value. However, when the dancers subsequently encashed the vouchers, the appellants paid them only 80% of the vouchers’ face value, so that the appellants effectively received a double commission.

The appellants’ treated the 20% commissions earned by them from the lap dancers as coming within a VAT exemption for:

the issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.

In accepting the HMRC’s position that the vouchers were consideration for taxable supplies of club facilities provided by the appellants to the dancers, Richards LJ stated (at paras 42, 48 and 50):

…[T]he critical point in my judgment is whether it is right to treat, as part of the services supplied in return for the commission payable on encashment of vouchers, the provision of the club's facilities to the dancers to enable them to obtain income from non-cash customers. …

… [A] commission of 20% for the encashment of a voucher, even with the benefits of inclusion in the scheme, is on the face of it very high, particularly as the appellants ran, as they knew, a very low credit risk. …

[T]he UT's analysis that the provision of the club's facilities forms part of the consideration for the commission on encashment of the vouchers is a legitimate interpretation of the constituent parts of the services supplied by the appellants in return for the commission. It reflects the economic realities from the perspective of the dancers.

HMRC v National Exhibition Centre Ltd., [2016] BVC 19, Case C-130/15 (ECJ (8th Chamber))

additional “booking” charges by a service provider to those paying by credit card viewed as essentially only for exchanging information with merchant acquirer bank

NEC sold tickets on behalf of third parties to various trade, sporting and concert events held by them at the National Exhibition Centre. Where the customers paid by credit card, NEC increased the ticket prices by about 10%, and retained this amount as a booking fee.

The U.K. Upper Tribunal (Tax and Chancery Chamber) referred questions to the European Court of Justice respecting the principles to apply in determining whether the card processing services of NEC came within Art. 13B(d)(3) of the Sixth Directive, which directed the exemption of “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments… .”

The card processing services of NEC (referred to as the “service provider”) were described by the Court (at para. 26):

[C]ard processing service consists, first, of the service provider obtaining from the buyer the details of the debit or credit card which that buyer wishes to use and transmitting those details to its merchant acquirer bank which then transmits them to the card issuer. Next, it consists - when the card issuer, after receipt of those details, has confirmed to the merchant acquirer bank, by transmitting to the latter an authorisation code, the validity of the card and the availability of the necessary funds - of the receipt of that code by the provider via its merchant acquirer bank, which authorises it to make the sale. Lastly, it consists of the retransmission by that provider to its merchant acquirer bank, at the end of the day, of a settlement file summarising all the sales made during the day and including the relevant details of the payment cards used, including the authorisation codes, which is forwarded by the merchant acquirer bank to the various card issuers, who then make the payments or transfers to that merchant acquirer bank, which transfers the relevant funds to the account of the service provider.

The Court questioned the implicit assumption in the question that the NEC booking fees were consideration for a separate supply. The Court then found that the card processing services of NEC did not come within the exemption, stating (at paras. 42-43, 48):

[T]he provider of such a service neither debits or credits directly the accounts concerned, nor intervenes by way of accounting entries, nor even orders such a debit or credit since it is the buyer who, by using his payment card for a purchase, decides that his account will be debited in favour of a third party’s account.

Furthermore…the settlement files presented by a services supplier to its merchant acquirer bank are nothing more than a demand for payment in electronic form. The forwarding of such a file at the end of the day is, consequently, only to inform the relevant payment system that a previously authorised sale has indeed taken place. It cannot, therefore, be regarded as executing the payment or transfer concerned or as having the effect of fulfilling the specific, essential functions.

A card processing service, such as that at issue…, thus consisting, in essence, of an exchange of information between a trader and its merchant acquirer bank with a view to receiving payment for goods or services offered for sale, cannot fall within the exemption… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply additional “booking” charges by a service provider to those paying by credit card were not consideration for a separate supply 330

Paragraph (b)

Administrative Policy

GST/HST Memorandum 17.1.1 Products and Services of Investment Dealers October 2001

inactivity fee to brokerage client is exempt

Item E-14 indicates that a fee charged for continuing to maintain the client account with the investment dealer firm notwithstanding that there was no activity during the year, is consideration for a financial service.

Paragraph (c)

See Also

ING Intermediate Holdings Ltd v HMRC, [2017] EWCA Civ 2111

borrowing is not by itself a supply by borrower

Although accepting (per BLP) that a mere borrowing by a company is not a supply by it, Arden LJ confirmed the finding below that the services provided by ING to its on-line depositors (including 24-hour access to their deposits) were more than merely “peripheral” to the borrowing represented by the deposits, so that ING was engaged in an exempt banking business.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply services provided in deposit-taking business were more than peripheral so that supplies were made 262
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) interest paid by bank to depositors was reduced by implied fees earned as consideration going to the bank 137
Tax Topics - General Concepts - Substance court only goes behind the contract if the contract does not reflect the true agreement 173

Administrative Policy

Excise and GST/HST News - No. 108 September 2020

Forgivable loans under CECRA program

Under the CECRA program, CMHC will provide an unsecured forgivable loan to an eligible commercial property owner who enters into a rent reduction agreement that reduces an impacted small business tenant’s monthly gross rent payable by at least 75% for the 4-month period of April, May, June and July 2020. …

No GST/HST collectible by CMHC on forgivable loans

There is no GST/HST applicable with respect to payments received by the commercial property owners from CMHC under the CECRA program. …

The forgivable loans provided by CMHC under the CECRA program are exempt supplies of financial services. …

Paragraph (d)

Administrative Policy

3 September 2019 GST/HST Interpretation 173195 - […][Mutual Fund Units]

unit trust redemption fee could be consideration for the “transfer of ownership” of units to the trust

A group of private unit investment trusts (the Funds) are registered as an SLFI Group for GST/HST and QST purposes and having in every province, as well as outside Canada. All unit transactions are between the Funds and the unitholders via subscriptions or redemptions. (Funds buying back units). The Master Trust Agreement (the “MT Agreement”) between the Manager and Trustee stipulates that the Manager’s fee is determined in the Management Agreement entered into by the unitholders and the Manager and is payable by such unitholders. The MT Agreement states that the redemption and subscription charges, contemplated thereunder, are the responsibility of unitholders.

Are the subscription and redemption fees consideration for exempt supplies of a financial service or for taxable supplies? CRA responded:

[T]he units in the unit trusts that are being subscribed to or redeemed are financial instruments. Therefore, the subscription or redemption of these units constitutes a transfer of ownership of a financial instrument which is a financial service pursuant to paragraph (d) of the definition of financial service in subsection 123(1). …

The term “arranging for” is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii), such as agents, brokers and dealers in financial instruments or money. …

[T]he subscription and redemption fees could be consideration for either a supply of a financial service pursuant to paragraph (d) … [or] paragraph (l) … and would generally not be excluded … by paragraph (q) … . As it is not clear whether it is the Fund that is providing the service of subscribing and redeeming the units or the Manager arranging for the service of subscribing and redeeming the units, we are unable to specifically indicate which of paragraph (d) or (l) of the definition of financial service applies. The draft Letter of Appointment between the Manager and the unitholders seems to indicate that the fee will be a separate fee from the asset management fee implying that the fee is to be paid to the Fund. Moreover, we were informed … that the subscription or redemption fee will be paid directly to the Fund and that the Manager’s annual asset management fee won’t increase as a result of implementing those transaction fees.

However, section […] of the [MT] Agreement stipulates that management fees for services rendered to the Funds by the Manager is payable by the unitholders. This adds uncertainty as to whom the subscription and redemption fees will be paid to and whether these fees will be part of a single supply of management services supplied to the unitholders by the Manager or a separate supply of a financial service.

Words and Phrases
transfer of ownership
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) unit trust redemption fee would generally be exempted from GST/HST if it was payable by the redeeming unitholder to the trust rather than the fund manager 202
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (q) para. (q) inapplicable to any subscription or redemption fees payable by redeeming unitholders to fund manager given that they were borne by them rather than Funds 237

24 January 2018 Ruling 156434

separately stated originating fee for sourcing credit agreement was part of consideration for its assignment

An automobile dealer (the “Dealer”) has entered into various sales contracts with customers, such as conditional sales contracts, credit agreements or sales finance contracts (the “Contracts”) with the “Customers” (purchasing motor vehicles) which entitle the Dealer is entitled to receive a stream of payments from the Customer. The Dealer then assigns the Contracts to a Lender for a payment from the Lender based on the amount to be financed by the Customer under the Contract, and also may be paid a separately-stated fee (set out in the assignment) from the lender a fee in respect of the assignment of the contract. After ruling that the assignment was an exempt supply under para. (d) of “financial service” (on the basis that the conditional sales contracts or credit agreements were “debt securities,” CRA went on to state (after giving a ruling to the same effect):

A fee received by the Dealer from a lender for the assignment of a conditional sales contract or credit agreement forms part of the consideration received for the assignment of the contract, and therefore would not be subject to the GST/HST as the assignment of the contract is an exempt supply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security conditional sales contracts and credit agreements were debt securities 198

19 May 2017 Interpretation 178323

holding LP for a commercial real estate LP was not engaged in a commercial activity

The assets of a provincial limited partnership (LP1) consisted only of an interest in a real estate development partnership (LP2). Respecting a request that the registration of LP1 be changed from a date in 2016 to a date in 2013, CRA stated:

A person’s effective date of registration is the day the person first makes a taxable supply in Canada otherwise than as a small supplier. Since [LP1] undertakes activities as a member of [LP2] and makes only exempt supplies of financial services, it has not made a taxable supply. …

Paragraph (d) of the definition of “financial instrument” in subsection 123(1) includes an interest in a partnership or any right in respect of such an interest. The definition of financial service speaks of receipt as well as payment to, and so both transactions are considered exempt supplies.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) no backdating of registration of pure holding LP 80

21 December 2016 Ruling 157873

fee charged on assigning a receivable was part of the exempt consideration for the sale

An automobile dealer (the “Dealer”) enters into contracts with customers, which could be conditional sales contracts, instalment sales contracts, credit agreements or finance contracts with instalments, and assigns each contract to a lender, so that the lender receives an assignment of all amounts then due and over time. Upon assignment, the Dealer is to receive a payment based on the amount to be financed by a customer under the contract, and the Dealer also receives a fee in respect of the assignment.

In connection with ruling that the assignment is a financial supply under (d) of financial service and the fee part of the (exempt) consideration therefor, CRA stated:

[E]ach… Contract…[is] a “debt security”… as each one represents a right to be paid money. When the Dealer’s rights under each of these Contracts are assigned…the Lender is acquiring from the Dealer the right to receive the stream of payments from the Customer under the Contract. The assignment of these rights is a financial service under paragraph (d)….

The Fee received by the Dealer…under the Contracts… forms part of the consideration received for the exempt supply, that is the assignment of the Contract… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply assignment fee was part of consideration for assignment 69

17 December 2015 Interpretation 153009

share issuance a financial supply to shareholder

A corporation, which is not engaged exclusively in commercial activities, issues shares and pays dividends to its shareholders, who are both resident and non-resident. Before finding that the dividends were a financial service under para. (f) which was supplied to the shareholders, CRA stated:

Paragraph (d) of the definition of “financial service” in subsection 123(1) includes the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a “financial instrument”. Under their respective definitions in this same subsection, a "financial instrument" includes an "equity security", meaning a share of the capital stock of a corporation or any interest in or right to such a share. Therefore, by definition, shares are financial instruments for GST/HST purposes and the issuance of the shares by the Corporation is a financial service under paragraph (d) of the definition of “financial service”. Also, this financial service is “supplied” to shareholders, as this term is defined in the ETA, as the shares are provided to shareholders.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part IX - Section 1 potential zero-rating re share issuances and dividends 86
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply required shareholder communications not a supply 169
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (f) dividend a financial supply to recipient 81

18 October 2013, TMX Notice to Participating Organizations and Members, 2013-036

TSX trading execution fees are exempted]

During 2011, TMX submitted tax ruling requests to the Canada Revenue Agency (CRA) on behalf of all three marketplaces asking that CRA confirm that trading execution fees charged by TSX, TSXV and TMX Select are exempt financial services for the purposes of section 1 of Part VII of Schedule V to Part IX of the Excise Tax Act. TMX has now received the requested rulings from CRA confirming that trading execution fees are exempt financial services and thus are not subject to HST/GST.

28 January 2008 GST/HST Ruling 84428

exempted sales of mortgages on fully-serviced basis

Rulings that sales of mortgages on a fully-serviced basis were single supplies of financial services, so that the consideration received including subsequently-received fees under a “Administration Agreement” was exempted. CRA noted that "where the servicing of a mortgage loan is subcontracted to a third party (i.e., a person who did not supply the mortgage loan), the supply of the servicing will generally not be a supply of a taxable service and will be taxable."

8 February 2005 Interpretation Case No. 52141

subsequent exercise of stock option by independent contractor entailed exchange of financial services

Respecting the issuance of stock options to an independent contractor as additional compensation for services rendered, CRA indicated that the in-the-money value of the options at the time of grant would represent the amount of such additional consideration for the services, and then stated:

With respect to the exercise of the stock options (share purchase) and subsequent sale of the shares, it is our view that these are each supplies of a "financial service" as defined at paragraph 123(1)(d) of the ETA. Your client's purchase of shares (exercise of the stock option) and sale of shares are both exempt supplies of "financial services" ... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) stock options valued based on in-the-money value 112
Tax Topics - General Concepts - Fair Market Value - Options in-the-money stock option valuation 41

Paragraph (f)

See Also

Solar Power Network Inc. v. ClearFlow Energy Finance Corp., 2018 ONCA 727

additional discount fee, but not admin fee, was interest rather than fee

A typical loan made by the lender (ClearFlow) to the borrower bore base interest rate of 12% p.a. compounded monthly, an administration fee that was charged when the Loan was initially advanced, and each time it renewed (of, say, 1.81% of the loan balance), and a “discount fee” of 0.003% per day of the outstanding principal. Sharpe JA confirmed the finding of the application judge that the administration fee was not interest, as well as his finding that the discount fee was interest, stating (at paras. 42-43):

[T]he amount of the fee did not vary according to the administrative work required by the loan as in the case of the administrative fee, and the fee was charged at a daily fixed rate unrelated to any ongoing or specific events… [It] bore all the hallmarks of the test for interest: it was consideration or compensation for the use of money, it related to the principal amount, and it accrued over time.

He went on to find that the disclosure of the “rate” of such interest through the provision of a simple formula complied with s. 4 of the Interest Act. For this and other reasons the borrower was unsuccessful in its arguments that the total interest under the loan was subject to a 5% cap imposed under s. 4.

Words and Phrases
fee interest
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) daily discount fee had the 3 attributes of interest 359

Stock ‘94 Szolgáltató Zrt. v Regional Customs and Finance Directorate-General for Southern Transdanubia of the National Tax and Customs Office, Hungary, Case C-208/15, [2016] BVC 45 (European Court of Justice (5th Chamber))

interest on a loan funding a taxable supply of goods was part of the consideration for a single supply of the goods

Stock ‘94 was a company which acted as an “integrator,” i.e., it assisted Hungarian farmers (“integrated producers”) by making a loan to the farmer, which was used to purchase current assets for use on the farm. The Hungarian authority applied VAT to the loan interest. Art. 78(b) of the VAT Directive provided that “the taxable amount shall include…incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer,” and Art. 135(1)(b) exempted “the granting and the negotiation of credit.”

In upholding the Hungarian authority’s position (subject to some further findings of fact to be made by the local court), Da Cruz Vilaça J stated (at paras 27, 31, 32, 33):

[T]here is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. … In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied… .

…[T]he integrator grants a loan to an integrated producer, which that producer may use only to purchase current assets from the integrator.

In those circumstances, the grant of such loans does not constitute a supply with an independent interest from the perspective of integrated producers.

…Stock ‘94 itself acknowledges … , not having authorisation to act as a credit institution, it could not grant loans to the integrated producers without their being intended for the purchase of its current assets.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply interest on loan to fund taxable supply was part of taxable consideration 141

Administrative Policy

27 February 2020 CBA Roundtable, Q.16

payments to a retired partner generally are for a financial service

Are payments of partnership income to retired partners (i.e., a person who is no longer a partner at the payment time), including payments to which ITA s. 96(1.1) applies, considered to be for an exempt supply of a financial service? CRA responded:

If a retired partner makes a supply to the partnership such as, for example, a consulting service, the payment may be consideration for the supply and the GST/HST may be applicable to the supply.

When a partner acquires partnership units (i.e. an interest in a partnership), the partner has acquired certain rights which include a right to receive distributions. To the extent that payments made by a partnership to a retired partner are in respect of an interest in the partnership, or any right in respect of such an interest, the payment would be consideration for an exempt supply of a financial service … .

17 September 2018 Ruling 182403

partnership draws generally exempted under para. (f) without regard to s. 272.1(1)

The facts are stated to be those in 15 December 2016 Interpretation 167342. A corporation is the sole holder of Class B Units of a limited partnership holding investments. Such Class B Limited Partner has no employees and does not perform any services or take any part in the management or control of the business or affairs of the Partnership in its role as the Class B Limited Partner. The general partner appoints a manager to provide management and administration services to the Partnership. Some individuals who are shareholders or employees of the Manager are also shareholders of the Class B Limited Partner.

Partnership “Distributions” are made first as “Priority Distributions” to the holders of Class B Units and Class C Units in proportion to their respective Units until such Units have received all accrued Priority Distributions and, as to the balance, X% to the general partner and the balance to the limited partners in proportion to their ownership of Class A Units.

After ruling that the payment of a Distribution by the Partnership to a Partner is an exempt supply of a financial service (and noting that the ruling did not address amendments to s. 272.1), CRA stated:

Generally, when a partnership pays an amount of money to a member of a partnership with respect to the member's interest in the partnership, such as a distribution, the partnership is paying money in respect of a financial instrument, which is a financial service under paragraph (f) of the definition of "financial service" in subsection 123(1).

Accordingly, the Distributions, as payments of money in respect of the Partners' interests in the Limited Partnership, are financial services under paragraph (f) … . When the Partnership provides the payment of a Distribution to a Partner, the Partnership is making … an exempt supply … unless the supply is zero-rated … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 272.1 - Subsection 272.1(1) partnership draws exempted under (f) of financial service 64

8 March 2018 CBA Commodity Taxes Roundtable, Q.7

whether Bitcoin payments are exempt being reviewed

CRA indicated that it “is presently considering its position regarding the GST/HST treatment of Bitcoin and similar crypto-currencies.” It also noted that it had previously taken the position that Bitcoins do not come within the items specifically listed in the ETA definition of “money,” namely currencies and credit instruments or devices such as cheques, promissory notes, letters of credit and bills of exchange or “other similar instrument,” but implicitly acknowledged that the definition of "money" was an "includes" definition.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Money CRA reviewing whether crypto-currencies are "money" 390

17 December 2015 Interpretation 153009

dividend a financial supply to recipient

A corporation, which is not engaged exclusively in commercial activities, issues shares and pays dividends to its shareholders, who are both resident and non-resident. After finding that the issuance of the shares was a financial service under para. (d) which was supplied to the shareholders, CRA stated:

The paying of dividends is a “financial service” under paragraph (f) in subsection 123(1). When the Corporation provides the payment of the dividends to a shareholder, the Corporation is making a supply to the shareholder.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part IX - Section 1 potential zero-rating re share issuances and dividends 86
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply required shareholder communications not a supply 169
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) share issuance a financial supply to shareholder 164

21 January 2010 GST/HST Ruling 111598

supply of carbon offsets not of a commodity or of money

An entity is engaged in the purchase and sale of carbon offsets and enters into a purchase contract with Seller. Is the Offset considered a "financial instrument" for GST/HST purposes; in particular, does paragraph (f) of that term's definition apply to the Offset?

After ruling that the Offset is not considered a financial instrument and is intangible personal property, CRA first referred to para. (f) of the definition and stated:

[The] common dictionary meaning [of “commodity”] generally recognizes the term within the financial market as a bulk good, product, merchandise, article, physical asset, or other type or kind of tangible property. We have not established a direct link or connection between the Offset and any underlying commodity.

Furthermore … the wording within the Agreement, does not point towards these Offsets being in fact traded at any time on a recognized commodity exchange. However, since the Offset is not an option or a contract for the future supply of a commodity, it does not matter if they are traded on an exchange. …

Lastly … [re] paragraph (i) … i.e. "an option or a contract for the future supply of money or anything described in any of paragraphs (a) to (h)" also … has no application in the case at hand. That is, the Agreement does not represent an option or a contract for the right to buy or sell money or a financial instrument at a specified price within a stipulated future time period or a stipulated future date.

… By transferring the Seller's right or interest to the Offset, the Seller is making a supply of intangible personal property … [and] GST/HST will generally apply to this supply if the Seller is a GST/HST registrant making the supply in the course of a commercial activity.

Words and Phrases
commodity

Paragraph (f.1)

Cases

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

“financial services” definition should be applied based only on the “predominant elements” supplied

A third party (Emergis) provided automated claims processing services to Great-West Life, which administered or insured various client drug plans, so that the prescription drug claim of an employee would be processed at the pharmacy counter upon presentation of a magnetic card.

In the Tax Court below, Owen J ultimately found that the charges of Emergis to Great-West for this service were taxable under the Financial Services and Financial Institutions (GST/HST) Regulations, as they were "quintessentially administrative in nature." More interestingly, he also found that in the absence of this Regulation, the service would have been exempt as being for the payment of insurance policy claims – notwithstanding that the Emergis service entailed the provision of taxable supplies described in para. (r.4) of the financial services definition, e.g., collecting, collating or providing information. He stated that "those services do not represent the essential character or substance of the supply, which is paying drug benefits to plan members."

In the Court of Appeal, Woods JA did not comment directly on the (now, apparently ineffectual) para. (r.4) rule, but appeared to essentially agree with this general approach when she stated (at para. 48):

…[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.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) predominant character of insurance claim processing was administrative 250
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply characterization of single supply based on predominant elements 203

See Also

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

essential character of drug claim processing service was providing payment to the claimant

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.

Before finding that the supply by Emergis was excluded by s. 4(2) of the Financial Services and Financial Institutions (GST/HST) Regulations as an administrative service and before noting (at para. 89) that "the taxability of a compound supply under the ETA is based on the essential character or substance of the supply and not the constituent elements of the supply," he stated (at para. 81):

[T]he essential character of the supply provided by Emergis to Great-West is the payment to the plan member of the drug benefit claimed by the plan member under a group health benefits plan. The payment of the amount is effected through the agreement of the pharmacy to forgo the collection of the full price of the drug at the point of sale.

The other services that Emergis agreed to provide, such as setting up a network, developing software standards, and maintaining a support desk, were ancillary or incidental to, or consequent upon, Emergis' agreement to pay plan members (para. 71).

See summary under Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(2), s. 123(1) - financial services - para. (r.4), General Concepts - Payment and Receipt.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) electronic drug plan adjudication and processing was "quintessentially administrative in nature" 279
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 269
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 186
Tax Topics - General Concepts - Payment & Receipt constructive receipt by relieving obligation to pay pharmacist 236

Administrative Policy

10 January 2018 Interpretation 139614

employer payments to PHSP were exempt

Employers sponsor group medical and dental plans for the benefit of their employees, which qualify as a private health services plans (PHSPs), as described in IT-339R2. The PHSPs are self-insured programs with all claims adjudicated and paid by a third party professional plan administrator on behalf of the employer, who retains the legal and financial liability to pay for the plan benefits. Where a payment is made to an employee in satisfaction of a claim made under a PHSP in respect of a taxable supply of property or a service (for example, massage therapy), would the employer be eligible to claim an input tax credit (ITC) respecting the GST/HST paid by the employee on the acquisition of the property or service?

In finding that no GST/HST is payable by the employer for such supplies, so that it is not entitled to an ITC, CRA referenced para. (f.1) of “financial service,” and stated:

As a plan administrator generally pays out an approved PHSP claim on behalf of the employer, when the employer subsequently compensates the plan administrator, the employer is considered to be making a payment in satisfaction of a claim arising under an insurance policy (the PHSP). Therefore, the making of the payment by the employer is a supply of a financial service for GST/HST purposes.

… Since an exempt supply is a supply that is not subject to the GST/HST, the employer would not be considered to have paid tax when settling the PHSP claim, regardless of whether the claim included any GST/HST originally paid by the employee to the supplier of the property or service.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 175 - Subsection 175(1) s. 175 not available to employer who through a PHSP reimburses personal health care costs of employee 262

Paragraph (g)

Cases

Global Cash Access (Canada) Inc. v. Canada, 2013 FCA 269

commercial efficacy of arrangement involving kiosk and support services turned on the advance of money

The appellant ("Global") enabled casino patrons to use their credit cards to purchase payment instruments similar to cheques (the "cheques") from Global which they could negotiate for cash. To this end, the patron first used his or her credit card at a kiosk on the casino premises (or at a cashier cage) to get the cheque-purchase transaction approved by the credit card issuer. The casino cashier then issued, on Global's behalf, the cheque made out by Global to the casino operator, which the casino operator then negotiated for cash provided to the patron. At issue was the taxability of fees paid by Global to the casino operator (which were half of the fees earned by it from the patrons - which ranged from $17 for cash in the amount of $71 to $140, to $179.25 for cash in the amount of $3,521 to $7,050.) The trial judge found that the Casinos made three supplies to Global: allowing the kiosks on the premises, providing support services at the cashier cages, and cashing Global's cheques; and that only the third supply was of a financial service.

In finding that there was a single supply of a financial service described in para. (g) of the definition, Sharlow JA stated (at paras. 25, 28, 30):

[T]here is no evidence that Global would have been prepared to pay consideration to the Casinos for any of the three elements on its own. Since the three elements are integrally connected and there is a single consideration, there is a single supply. ... On any reasonable view of the evidence, the commercial efficacy of the arrangement depends critically on access to the Casinos' cash. ... Unless the Casinos were willing and able to supply the cash, there would have been no point in Global setting up its equipment on the Casinos' premises or specifying the documentation required to complete the transactions. [T]he heart of each transaction is an advance of money... .

Sharlow JA went on to find that the supply also qualified as a financial service under para. (i): in order to be reimbursed by the credit card issuers, Global required the casinos to complete the cheques on its behalf, which related to amounts for which credit card vouchers were issued. The carve-outs from the definition of financial service in para. (r.4) (respecting the information-gathering and clerical aspects of the Casinos' services) and in para. (r.5) (respecting the Casinos' giving Global access to terminals and kiosks) did not apply given the finding above that the predominant element of the supply was the provision of cash.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration "consideration" under law of contract 123
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply three elements integrally connected 240
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) "consideration" under law of contract 123
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) predominant element not described in (r.4) or (r.5) 183

See Also

Vega International Car Transport and Logistic — Trading GmbH v. Dyrektor Izby Skarbowej w Warszawie, ECLI:EU:C:2019:412 (European Court of Justice, 8th Chamber)

a parent’s funding of fuel costs of subsidiaries was a provision of credit rather than a purchase and on-sale of the fuel

The business of the subsidiaries of Vega International included the transport of commercial vehicles from the manufacturer to customer. International provided fuel cards to its subsidiaries which drivers used to purchase fuel, with International charging the subsidiaries on a monthly basis for the cost of the fuel plus a 2% surcharge.

In finding that International was not purchasing fuel and on-supplying the fuel to its subsidiaries, and instead was supplying credit to its subsidiaries (in this reference, its Polish subsidiary), the Court stated (at paras. 36, 44, 48):

Vega International does not dispose of the fuel in respect of the purchase of which it seeks reimbursement of VAT as if it were the owner. That fuel is purchased by Vega Poland directly from the suppliers and at its sole discretion. Accordingly, Vega Poland decides on, in particular, the fuel purchasing arrangements in so far as it may choose, from among the service stations of the suppliers indicated by Vega International, which service station to refuel at and may freely decide on the quality, quantity and type of fuel, as well as when to purchase and how to use it … .

[T]he expression ‘the granting and the negotiation of credit’ used in [the VAT] provision ... must be interpreted broadly, so that its scope cannot be limited only to loans and credit granted by banking and financial institutions … .

[B]y applying that surcharge of 2% to Vega Poland, Vega International receives a payment for the service provided to its Polish subsidiary. Vega International thus provides a financial service to Vega Poland by financing in advance the purchase of fuel and therefore acts, for that purpose, in the same way as an ordinary financial or credit institution.

Words and Phrases
granting of credit credit

Administrative Policy

29 January 2015 Ruling 93176 [commitment fee paid to loan assignor exempt]

commitment fee paid to loan assignor exempt
159222 is similar

In a Term Sheet, the lender, ACo, agrees to make a secured loan to the borrower, BCo. The Term Sheet provide for the payment by BCo of a commitment fee, plus HST, upon execution of the Term Sheet. Before any advance is made under the Term Sheet, ACo, BCo and CCo enter into an Assignment Agreement pursuant to which CCo is designated as the lender under Term Sheet and for consideration of $XX paid by CCo to ACo, ACo assigns to CCo all of its right, title and interest in the Term Sheet. Is the Commitment Fee subject to HST? CRA stated:

A financial service as defined in subsection 123(1) includes in paragraph (g) the making of any advance, the granting of any credit or the lending of money. [ACo] is making a supply of a financial service to [BCo] under paragraph (g) of the definition of financial service which is exempt under section 1 of Part VII of Schedule V to the ETA. The Commitment Fee is consideration that was paid for this exempt supply. Accordingly, [ACo] was not required to collect GST/HST on the Commitment Fee.

Paragraph (i)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109, rev'd 2021 FCA 10

Visa provided services to CIBC that related to an agreement for which credit card vouchers were issued

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. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was supplying a service described in para. (i), stating (at para. 100):

The Visa supply agreement carried with it a large number of services that Visa provided CIBC so that CIBC could issue Visa branded credit cards. This included promotion of the Visa brand, indemnification in the event of acquirers defaulting, rule making and adjudication of disputes such as in the case of chargebacks. This arrangement appears to be more comprehensive than the one featured in Costco [2009 TCC 134] … . As a result, if paragraph (i) was found to be applicable for Costco, it should also be applicable in the present case.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 162
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 268
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 239
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 191
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 199
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) 146
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 186
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" 235
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 419

Paragraph (j.1)

Administrative Policy

20 December 2018 Ruling 189221

exemption for valuing damages to insured property did not extend to valuing the property’s replacement value

The Company provides the Insurer with a report indicating the replacement value of the damaged, lost or stolen property. The Company inspects damaged property, but does not inspect the last-known place where stolen or lost property was situated. In finding that the supply of this service was not exempted under para. (j.1), CRA stated:

Although the Company may inspect the damaged [property], it provides an assessment of the replacement value of the [property], not an appraisal of the damage caused to the [property]. Also, although the Company provides a service of assessing the replacement value of the lost or stolen [property], the Company does not inspect the last known place where the [property] was situated before the loss.

Paragraph (l)

Cases

SLFI Group v. Canada, 2019 FCA 217

dominant element in MFT commission funding arrangement was the payment, or the arranging of payment, of the funding

A non-resident bank ("Citibank") agreed to fund the payment of the upfront brokerage commissions that were payable on the issuance of units in the Invesco/Trimark funds (the “Funds”) in consideration for receiving an assignment of a portion of the amounts that otherwise would have been earned by the Invesco manager as management fees. More precisely, the manager agreed to reduce its management fees (i.e., reduce its percentage charge of NAV), and the Funds agreed to pay the same percentage amounts to a special purpose non-resident Citibank-formed vehicle (“Funding Corp”) essentially in consideration for Funding Corp paying the brokerage commissions. Funding Corp then immediately sold its fee-amount entitlements to Citibank.

In finding that the services supplied by Funding Corp to the Funds were described in para. (a) or (l), Woods JA stated (at para. 43):

The dominant element of the supply by Funding Corp. is either the payment of Funding Amounts or arranging for such payments. Both types of supplies are encompassed by the inclusions in the definition of “financial service” in paragraphs (a) or (l).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (q) dominant element in supply by funder of broker commissions was a financing service rather than a management service 514
Tax Topics - Excise Tax Act - Section 261 - Subsection 261(2) - Paragraph 262(2)(b) denial includes where the CRA assessment of the tax was of another person 428
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 tax characterization not affected by securities law characterization 87

Canada v. Costco Wholesale Canada Ltd., 2012 FCA 160

Costco agreement to use Amex cards exclusively was "arranging for" support of Amex's supply of credit

The appellant ("Costco") entered into a conventional "Merchant Agreement" with the Amex Bank of Canada ("Amex") pursuant to which it agreed to pay the discount fees of Amex, and at the same time entered into a "Co-Branding Agreement" under which it agreed to accept only Amex credit cards and Amex agreed to make payments to it equal to Y% of the discount fees earned by it.

After noting (at para. 4) that "‘consideration' should be understood to include anything that would be consideration under the law of contract," Sharlow JA rejected the primary position of Costco that the amounts received by it from Amex were rebates of the merchant discount fees earned by Amex, noting that it was more consistent with the wording of the Co-Branding Agreement to consider such amounts as consideration for Costco entering into the Co-Branding Agreement or, more specifically, for the exclusivity provision. However, she affirmed the Tax Court finding that Costco provided services as an intermediary between Amex and its potential customers by supporting Amex in its business of supplying credit and that such service fell within paragraph (l) of the definition of financial service. Furthermore, in the absence of submissions by the Crown with respect to any factual basis to support the Crown's argument that paragraphs (r.3), (r.4) and (r.5) should apply retroactively, the Tax Court's finding that the supply by the taxpayer fell within para. (l) was upheld.

Words and Phrases
consideration
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) payments by credit card company to store were not merely discounts to its fees 184

Animal Rescue Missions of Canada Inc. v. Canada (Customs and Revenue Agency), [2009] G.S.T.C. 65, 2008 FCA 115

discretionary investment management

Discretionary investment management services provided by investment managers to a not-for-profit corporation that provided professional liability protection to licensed medical practitioners in Canada qualified as financial services under paragraphs (d) and (l) (namely, "arranging for ... the ... transfer of ownership ... of a financial instrument"): as to the meaning of "arranging for," the "word 'give instructions', 'make preparation for', 'prendre les dispositions pour' are all acceptable and are as wide and as elastic as one wishes them to be (para. 61); "the final order is an essential characteristic of the management of the funds by the investment manager" (para. 63); and the services provided by the investment managers could not be divided. Furthermore, the investment managers did "not provide advice, since there is no one to provide advice to except themselves" (para. 64).

Words and Phrases
arrange for

See Also

Zomaron Inc. v. The Queen, 2020 TCC 35

finding and signing-up merchants to use the services of a credit card payment processor was an arranging-for service

CRA viewed the taxpayer (Zomaron) as essentially a marketing arm of two “Processors” (e.g., “Elavon”) that accessed the credit card issuer and payment network to pay a merchant whose customer had used a credit card, and then used a portion of the fee (e.g., 2%) paid by the merchant at the end of the month to pay the interchange fees of that network and split the balance of the fee between itself and Zomaron in the agreed proportions. However, it was Zomaron who obtained the agreement of the merchants to use the processing services of Elavon and, although the agreement between Zomaron and Elavon was termed a “marketing” agreement, essentially all the marketing involved was merely that entailed in persuading merchants to agree to use Elavon’s services.

After noting (at para. 97) that the concept of "arranging for " "call[s] for the intermediary to have a sufficient amount of involvement to then 'cause to occur' or effect the financial service without involvement in every transaction" and in then finding that the net fees received by Zomaron were exempt “arranging for” fees that were not excluded by virtue of being taxable promotional services under para. (r.4) of the financial services definition, Lyons J stated (at paras. 107, 110):

[T]he essence for what the Processors is paying Zomaron for is to “arrange for” merchants to use the Processor’s card payment services. This, I find, is the predominant element of the supply provided by Zomaron to [the Processors].

… Even if the supply provided by Zomaron to the Processors involved services of a promotional nature, since these do not represent the predominant element of the supply, paragraph (r.4) has no application … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) a service of inducing merchants to use credit card processing services was an exempt financial service 510

Applewood Holdings Inc. v. The Queen, 2018 TCC 231

a car dealer who promoted and processed credit insurance to its customers was “arranging for” insurance

A car dealer entered into a “Dealer Agreement” with a distributor of credit insurance products under which it was agreed that it would “up sell” the insurance products and assist the car customers in applying for the insurance in consideration for a commission of over 50% of the insurance premium. Pizzitelli J applied the single supply doctrine in finding that the predominant element of what was being supplied by the dealer was an exempt supply of arranging for the insurance – and that the exclusion in (r.4) of the definition of an exempt financial services for promotional and various administrative services did not apply. He stated:

…[T]he “purchaser” whose perspective one must objectively look through is the consumer of the end supply that is the subject matter of the transaction. In our case, that is the car buyer who buys the insurance product and he would clearly and objectively know he was buying insurance, not the expertise or training, or commercial efficacy or profitability of the Dealer or its staff as the predominant elements of the transaction, notwithstanding that such services … may have an ancillary role to play in his decision making process… . There is simply no merit to the Respondent’s argument that the services or duties under the Dealer Agreement that may be said to be owed to [the distributor] from the Appellant constitute the predominant element of the services to be provided under the Dealer Agreement… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) promotional and administrative services of car dealer were ancillary to the customers' insurance purchases 370

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109, rev'd 2021 FCA 10

Visa arranged for payments between cardholder bank, merchant’s bank and merchant

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. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was providing an “arranging for” financial service, stating (at paras. 88, 92):

Visa satisfying paragraph (l), in conjunction with paragraph (a), is necessary in order for Visa to satisfy the financial services definition as the service provided by Visa does not involve Visa directly handling the funds that are in their possession. Instead, the transfer is done by having the issuers settle with Visa by paying the necessary funds into a designated bank account that Visa has with Scotiabank. …

Visa acts as a financial intermediary by facilitating the transfer of payments between issuers, acquirers and merchants. …The services provided by CIBC and the services provided by Visa are linked in their purpose to a degree where it can be said that Visa is “arranging for” the credit services offered by CIBC, through acting as an intermediary in the transfer of money. As a result, the conditions in paragraphs (a) and (l) are satisfied.

Words and Phrases
arranging for
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 162
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 216
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 239
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 191
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 199
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) 146
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 186
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" 235
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 419

Barr v. The Queen, 2018 TCC 86

broker fees paid to locate purchasers of a private company were HST-taxable

The appellant, who was the sole shareholder of a water distribution company (“Garibaldi”) retained the services of two companies (the “brokers”) to find a buyer for the shares of Garibaldi or its assets. The brokers pursued numerous potential leads, including providing tours of the Garibaldi facilities to 50 of the potential buyers. The eventual buyer first made an offer to purchase Garibaldi’s licences, but what culminated following negotiations was a sale to it of the Garibaldi shares. The Minister denied the appellant’s claim for a rebate of the HST that had been charged to it by the brokers on the basis that the brokers had not “arranged for” the sale of the Garibaldi shares (para. (l) of the financial services definition or, in the alternative, that the exclusion in para. (r.4) of that definition applied.

In finding that the brokers’ services were not exempted under para. (l), Pizzitelli J stated (at paras 18 and 20):

…[T]he brokers’ main duty was to find a potential buyer for the business, and not specifically for the shares of the appellant, and … once a potential buyer was found, such person was parked with the Appellant or his attorney who negotiated, drafted and documented the transaction of purchase and sale and the transfer of the shares in question. … [T]he ultimate purchaser provided a written offer to purchase the assets, [and] the brokers had no idea at that point or any control over whether a binding agreement for either assets or shares could be finalized as it was then out of their hands. …

…[T]he brokers were basically putting out the word that the business was for sale amongst their contacts. Clearly, they had no authority to enter into any contracts on behalf of the Appellant or bind him in any way nor to hire and instruct counsel and see a transaction through to the end. … [T]he brokers were not registered business or securities brokers in any event. This does not in my view rise to the level of arranging to transfer ownership of the shares even in the event a share transaction ultimately materialized and so cannot be said to qualify as a supply of a financial service under the Act. There must be far more involvement than simply placing a potential buyer at the seller’s doorstep and creating some basic brochure and attending promotional events to promote the sale of the appellant’s business and acting as a liaison with such interested parties prior to any agreement being struck.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) broker services in “promoting” the sale of a company to prospective purchasers would have come within (r.4) 216

Mac's Convenience Stores Inc. v. The Queen, 2012 TCC 393

core service re store ABM was provision of space

The registrant agreed with a bank (CIBC) that automatic banking services would be provided through ABM machines in the registrant's stores. Non-CIBC clients could use the machines for a $1.50 service charge, and CIBC paid a share of this revenue to the registrant. Hogan J., in dismissing the registrant's appeal, rejected its submission that it was making an exempt supply to CIBC of the service of arranging for financial services (the automatic banking services). An example of "arranging for" a financial service could be found in President's Choice Bank. Here, in contrast (para. 36):

The appellant did not help, assist and become directly involved in the provision of financial services by CIBC to ABM customers. Its role in the provision of such services was considerably more passive. The core element of its supply to CIBC was the provision of space in its stores.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 185 - Subsection 185(1) impulse purchases generated by ABM machine customers represented sufficient link 154

Global Cash Access (Canada) Inc. v. The Queen, 2012 TCC 173, rev'd in part 2013 FCA 269

The appellant ("Global") enabled casino patrons to use their credit cards to receive cash advances or, more precisely, to purchase cheques from Global which they could negotiate for cash. To this end, the patron first used his or her credit card at a kiosk on the casino premises (or at a cashier cage) to get the cheque-purchase transaction approved by the credit card issuer. The casino cashier then issued, on Global's behalf, a cheque made out by Global to the casino operator, which the casino operator then negotiated for cash (or gaming chips) provided to the patron. At issue was the taxability of the fees paid by Global to the casino operator.

Turning first to the activities of the casino operator in allowing kiosks on its premises and providing support services at the cashier cages, Woods J noted (at para. 70) that "the term ‘arrange for'…has been broadly interpreted," quoted from CRA Policy P-239 (since repealed), and then found (at para. 72) that these activities qualified as arranging for a financial service:

The Casinos are directly involved in the issuance of cheques and are actively engaged in doing so, since they allow kiosks on the premises and provide services such as transaction procedures and initiating transactions on behalf of patrons.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service 377
Tax Topics - Excise Tax Act - Section 138 taxable element insufficiently minor 262

President's Choice Bank v. The Queen, 2009 TCC 170

arranging for financial services played major role in selling financial products

The registrant ("PC Bank"), a subsidiary of Loblaws, had agreed with a bank (CIBC) for CIBC to provide retail banking services under Loblaws' President's Choice trademark. Lamarre J. found that the related fees paid by PC Bank to CIBC were consideration for arranging for financial services and, therefore, consideration for an exempt supply. Unlike in Royal Bank, the registrant was not merely being paid for "the issuing of points or for granting CIBC exclusive use of PC's trademark"; on the contrary, the evidence showed that the registrant played a "major role in selling attractive financial products to its [customers]" (para. 34). For example, the fees were determined based on the number of new accounts opened under the arrangement, and on the total value of the accounts under the arrangement. The registrant used its leverage to ensure that services under its brand were more attractive than comparable CIBC offerings - for example, offering lower transaction fees. The registrant maintained between 10 and 15 employees to work with CIBC and determine terms to be offered on its financial products.

Royal Bank of Canada v. The Queen, [2007] GSTC 122, 2007 TCC 281

taxable supply of frequent flyer points

The registrant had an arrangement with Canadian Airlines International Ltd. ("CAIL") under which the registrant's credit card customers would receive frequent flyer points for using one of its Visa Canadian Plus credit card (the "Affinity Card"). Hershfield J. rejected the registrant's position that the payments to CAIL were payments for financial services. Hershfield J. stated (at para. 39):

To conclude, I find that CAIL's role in arranging the credit facility was incidental to its own business of selling Points. ... Selling Points was selling travel services. The Appellant purchased travel services as a reward for use of its Affinity Card which in turn increases its revenues. All else is incidental to this synergistic arrangement. It is simply not reasonable to find on the facts of this case that CAIL played any substantive role in arranging for the granting of credit by RBC.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply taxable supply of frequent flyer points 207
Tax Topics - Excise Tax Act - Section 181 - Subsection 181(1) - Coupon frequent flyer points could be coupons 114
Tax Topics - Excise Tax Act - Section 181.2 frequent flyer points not gift certificates 121
Tax Topics - Excise Tax Act - Section 278 - Subsection 278(2) s. 278(2) precluded direct collection on assessment of recipient until supplier released from remittance obligation under CCAA 330
Tax Topics - Excise Tax Act - Section 296 - Subsection 296(1) - Paragraph 296(1)(b) no double taxation in s. 296(1)(b) assessment of purchaser because supplier had been released from its remittance obligation under CCAA plan 262

Les Promotions D.N.D. Inc. v. The Queen, 2006 TCC 63

distribution of credit card application forms was “arranging for” financial service

The appellant (“DND”), promoted credit cards for certain banks and large retailers by distributing application forms to applicants although it did not make any decisions regarding the acceptance of the applications or approving credit. DND treated the supplies as taxable and claimed ITCs accordingly. CRA assessed DND with respect to the ITCs claimed on the basis that it was arranging for an exempt financial service.

Lamarre Prouxlx J was of the view that DND was arranging for the “granting of credit” and that this was a financial service pursuant to para. (l).

Administrative Policy

24 January 2020 GST/HST Ruling 194625 - Services Provided to an Introducing Broker by a Carrying Broker

fees paid by an introducing broker to a carrying broker were GST/HST taxable

An Agreement between a carrying broker and the introducing broker provides that the carrying broker shall trade securities for the introducing broker in the exchanges and the over-the-counter markets as agreed to in Schedule, and that the introducing broker shall effect all of its trades on all of the exchanges and in the over-the-counter markets that are checked off. The Agreement further states that the carrying broker will provide:

  • Clearing services (deliveries and settlements of cash and securities respecting trades made for the introducing broker’s clients).
  • Segregation/safe-keeping services (holding securities and/or cash of the introducing broker’s clients and of the introducing broker in segregation or safekeeping).
  • Record keeping/information services (preparing and issuing confirmations of trades, monthly statements and statements in respect of inactive accounts to the introducing broker’s clients in the name of the introducing broker).

The introducing broker is solely responsible for the acceptance and the execution of securities orders.

The carrying broker charges the introducing broker "trade ticket fees" respecting the services it supplies, calculated as the higher of (a) a monthly minimum, and (b) the actual fees for the services calculated in accordance with a fee table.

The introducing broker acknowledges that all obligations to pay for securities purchased and to deliver securities sold by clients rests with the clients and the introducing broker and not the carrying broker, and agrees to indemnify the carrying broker from any loss suffered by reason of the failure of the introducing broker or any client to make any payment or security delivery to the carrying broker as and when required.

In finding that the trade ticket fees payable to the carrying broker are consideration for a taxable supply, CRA stated:

[T]he Agreement and Schedule …stipulate that the introducing broker shall trade or deal in securities where properly licensed to do so and shall cause all trades or other dealings in securities in the markets agreed to in Schedule […] of the Agreement. Accordingly, the introducing broker that effects the trade execution is making a supply of a financial service to its clients in accordance with paragraph (l), i.e., arranging for the transfer of ownership of a financial instrument.

The carrying broker is not supplying a financial service under paragraph (l) to the introducing broker. The predominant element of the supply made by the carrying broker to the introducing broker is administrative in nature. Accordingly, the carrying broker is making a single supply of administrative services … . For greater certainty, even if the overall supply of the administrative services was included in any of paragraphs (a) to (m), it would be excluded by paragraph (t) because the carrying broker is providing an administrative service and the exclusions set out in subsection 4(3) of the Financial Services and Financial Institutions (GST/HST) Regulations … do not apply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(1) - Person at Risk indemnity from introducing broker suggested that carrying broker was not a person at risk 322

3 September 2019 GST/HST Interpretation 173195 - […][Mutual Fund Units]

unit trust redemption fee would generally be exempted from GST/HST if it was payable by the redeeming unitholder to the trust rather than the fund manager

The Master Trust Agreements between the manager of various private unit investment trusts and such Funds’ trustee stipulated that redemption (and subscription) charges were payable by the unitholders on redeeming (and subscribing for) their units. It seemed likely, but unclear, to CRA, based on the limited information provided to it, that such charges were consideration for the service of the Funds in redeeming (or accepting subscriptions for) the units and, therefore, were exempted under para. (d) of the financial services definition as being consideration for the “transfer of ownership” of financial instruments (i.e., it apparently was sufficient, in the redemption situation, that the unitholders ceased to be owners and that it did not matter that there was no new owner of the units – and conversely in the subscription situation).

If, on the other hand, the redemption (or subscription) fees were consideration payable to the Fund manager for its service of “arranging for” the “transfer of ownership” of the units, CRA indicated that this created the possibility that such redemption fees were part of a single supply of management services made by the manager (pursuant to a management agreement between it and the unitholders) for periodic management fees.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) unit trust redemption fee could be consideration for the “transfer of ownership” of units to the trust 452
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (q) para. (q) inapplicable to any subscription or redemption fees payable by redeeming unitholders to fund manager given that they were borne by them rather than Funds 237

2 May 2019 GST/HST Ruling 150998 - Fees charged in relation to project loans

fee paid for taking a financing from signing through to closing is taxable

A lender retained another company in acting as its agent in doing due diligence on the borrower, with whom it had signed a credit agreement but not yet made the loan, and in managing the process through to the closing of the agreement. In finding that a non-refundable up-front fee paid by the borrower to the agent was for a taxable service under the para. (r.4) exclusion from the financial service definition (re the provision of a service preparatory to a listed financial service) rather than being an exempted “arranging for” financial service, CRA stated:

As part of the due diligence for underwriting the transaction, [the loan agent] engages an independent engineer and an insurance consultant to prepare their third-party reports, completes a financial model, prepares a confidential information memorandum for a potential lender, prepares credit documentation with its legal counsel, and arranges for the closing and the funding of the project. The predominant nature of the service … is preparatory in nature to the … potential provision of a financial service, that is, the lending … .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) non-refundable fee paid by borrower to lender’s agent to perform due diligence and take the financing project through to closing were taxable preparatory services 237
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) predominant nature of fees paid to loan agent was for loan management 159

Excise and GST/HST News - No. 106 June 2019

CRA accepts Applewood (re para. (l) exemption for car dealers who sell, explain and process credit insurance provided to their customers)

Applewood Holdings concerned a car dealer (Applewood), who entered into a dealer agreement with “Walkaway” to sell group creditor insurance products. Applewood’s services included offering the insurance to its customers, explaining the coverage options, using Walkaway’s administration website to process the documents for the group creditor insurance provided to the customer. For its services provided to Walkaway Applewood received, under the dealer agreement, commissions of 55% of the insurance premium.

The Court concluded that the predominant nature of Applewood’s service was the arranging for the sale of group creditor insurance, which was thereby exempted under s. (l) of the financial service definition.

The CRA will apply the Applewood decision in the same fact situation.

In addition, the CRA will also apply the Applewood decision where a car dealer enters into an agreement with an insurer to sell group creditor insurance to its customers to cover their lease or finance obligations upon the occurrence of certain events such as loss of employment or disability and where under the dealer agreement with the insurer, the car dealer performs the activities referred to in the Applewood decision.

Within the context of the insurance industry, the Applewood decision does not have an impact on the CRA’s position with respect to the services provided by managing general agents and similar entities performing management and administrative services for insurers. Supplies of these management and administrative services are taxable.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) car dealer's selling and processing credit insurance is exempted 202

23 March 2017 CBA Commodity Taxes Roundtable, Q.12

car dealers and travel agents generally do not supply an “arranging for” supply of insurance

The November issue of the Excise and GST/HST News indicated that car dealers and travel agents are not viewed as “arranging for” a financial services given that such term “is generally intended to include intermediation activities that are normally performed by a person whose principal business is as an insurance agent or broker.” Does this indicate that CRA is not prepared to examine all the facts on a case-by-case basis? CRA responded:

In the situations that we have examined to date, the facts indicated that the car dealer or travel agent was making a supply of a promotional and administrative service and not a supply of an “arranging for” service… .

…Where the facts in a given situation are the same or similar to those that we have reviewed, it is reasonable to expect that the same conclusions may be reached.

Excise and GST/HST News - No. 102 July 2017

Predominant element of ABM supply by downstream merchant is real estate licence or other taxable supply

…Shared cash dispensing allows a person to obtain cash or a cash advance using a debit, credit or charge card from ABMs not owned by the person’s financial institution.

The term “downstream merchant” described in GI-006 deals with a merchant (that is not a card acceptor) that provides space or a location for an ABM owned by another person. …

In these circumstances, often the predominant element of the supply made by a downstream merchant is the provision of a licence in respect of real property (that is, providing space or a location for the ABM). This is a taxable supply. … Where the predominant element of the supply consists of replenishing money, providing telephone lines, electricity or any combination thereof, the supply would also generally constitute a taxable supply.

16 December 2016 Interpretation 169841

insurance-customer handling and marketing to them were not predominantly arranging for issuance of insurance

The newly-incorporated Agency will enter into an agreement with a Canadian insurance company pursuant to which the Agency will perform activities such as all marketing of the Insurance; acting as the initial point of contact for customers for the insurance; completing enrollment information and forwarding it to the insurer; referring all claim enquiries to the insurer; and providing reports to the insurer.

CRA indicated that generally these activities:

are predominantly promotional and administrative services. A supply of a promotional or administrative service is a taxable supply….

A promotional or administrative service does not become a financial service of “arranging for” the issuance of insurance simply because the person is the only point of contact between the customer (insured) and the insurer.

Excise and GST/HST News, No. 100, November 2016

General taxability of franchise fee paid by mortgage broker franchisee

... When a mortgage broker provides an “arranging for” service under paragraph (l) of the definition of financial service in subsection 123(1) of the Excise Tax Act in relation to the supply of the mortgage loan, the mortgage broker is also making an exempt supply of a financial service. ...

When a mortgage broker is a franchisee, and is required to pay to the franchisor a portion of the revenue earned through its exempt activity as part of its franchise fee, the tax status of the franchise fee must be determined based on the franchise agreement. A franchise fee is generally paid for the right to operate a franchise which includes the right to use the name of the franchisor as an advertising tool and any systems made available by the franchisor to facilitate the operation of the franchise. The supply of such a right is a supply of intangible personal property. Supplies of intangible personal property are generally taxable and where the franchisor is a GST/HST registrant, the franchisor is required to charge and collect GST/HST on the franchise fee payable by the franchisee for this right. Where the franchisee is required to include in its franchise fee a percentage of its revenue earned through making exempt supplies of financial services, it is still required to pay GST/HST on the entire franchise fee payable to the franchisor.

The agreement between a franchisor and a franchisee may provide that the franchise fee also includes a percentage of any incentive payments paid to the franchisee by a mortgage lender. For example, a mortgage broker franchisor may enter into an agreement with a mortgage lender which provides for incentive payments to be paid by the lender to the franchisees when certain sales volumes are reached. Where a percentage of these incentive payments form part of the franchise fee, the franchisee is still required to pay GST/HST on the entire franchise fee payable to the franchisor. ...

Incidental promotion of insurance products

...[A] car dealer (the Dealer) sells a car to a customer under a financing arrangement. The Dealer offers the customer creditor disability insurance under which the insurer may pay all or part of the balance owing on the financed vehicle in the event of the disability of the customer. If a customer would like the insurance, the Dealer ensures the customer completes a short application form, the Dealer collects the insurance premium, and forwards the form and the insurance premium to the insurer. The insurer pays the Dealer for its service. The Dealer is making a taxable supply of a promotional and administrative service to the insurer. ...

In the context of insurance, the term “arranging for” in paragraph (l) of the definition of a financial service in subsection 123(1) of the Excise Tax Act is generally intended to include intermediation activities that are normally performed by a person whose principal business is as an insurance agent or broker. A taxable promotional and administrative service provided by a person such as a car dealer does not become an exempt supply of a financial service of “arranging for” the insurer’s supply of insurance simply because the person may be the only point of contact between the customer and the insurer.

4 February 2014 Interpretation 106288

taxable fee to non-resident broker for assisting in exempt sale of financial service business

The non-resident Service Provider agreed to provide advice and assistance in finding a purchaser for the Company's financial services operation, which occurred as an asset sale. In finding that there was a single supply of taxable advisory services, CRA stated that "the predominant element of the Service Provider's supply would be taxable advisory services" and that although it is a financial intermediary "the Service Provider is not ‘arranging for' the Transaction…[given] that the Service Provider is not "effecting" the Transaction as it does not exercise decision-making authority…[and] responsibility for negotiating the terms of the final agreement and closing the Transaction rests with the Company and the Purchaser." The services also would be excluded under the customer assistance and document preparation branches of s. (r.4).

20 July 2012 Ruling Case No.137528 [taxable rebate fees from credit card issuer received by retailer]

taxable rebate fees from credit card issuer received by retailer

The Company is offering a credit card program to its customers as part of its overall services and a bank issues co-branded credit cards to the Company's customers. The Company receives a rebate from the bank based on the volume of credit card purchases. Ruling that the rebate is consideration for a taxable supply. CRA stated:

[T]he Company's activities when considered as a whole are predominantly promoting and marketing the [credit card] program….Moreover, the services performed by the Company do not meet the factors that are used to determine whether a supply is arranging for a financial service under paragraph (l), such as the degree of direct involvement with the consumers or the time expended by the Company in the provision of a financial service referred to in any of paragraphs (a) to (i). Also the Company is not in the business of providing supplies of financial services or considered a financial intermediary….[Furthermore]… the supply… is excluded from the definition of financial service by paragraphs (r.3) and (r.4)….

29 June 2012 Interpretation Case No. 104941

trailer fees potentially taxable

After indicating that commissions paid by a mutual fund manager to a representative who sold mutual funds likely would qualify as being exempt as being for the arranging for a financial service, CRA stated:

Although you did not request information on future compensation programs (e.g. trailer fees), please note that a renewal commission payable in future years may not be consideration for the arranging for the supply of financial service. Whether compensation paid on an ongoing basis is for a financial service is a question of fact and it is necessary to look at the activities performed by the person in return for the renewal commission.

4 June 2012 Interpretation Case No. 131194

taxable loan broker fees

The fees earned by a loan broker from car dealers

would generally be considered predominantly administration services of obtaining credit information from purchaser, completing the loan application, explaining loan terms to purchaser, preparing contracts for the dealer, submitting the completed contracts to lending institutions, and would not be a financial service under paragraph (l) of the definition of financial service. Even if the supply would be included in paragraph (l) it would generally be excluded from the definition of financial service by paragraph (r.4) of the definition.

B-105 February 2011 "Changes to the Definition of Financial Service"

Examples include:

  • Example 4 (fees paid by a mutual fund manager to mutual fund salespersons for the sale of mutual fund units are exempt including potentially trailer fees if there is a single supply);
  • Example 9 (commissions generated by MBCo, a broker authorized under provincial law, and which entered into a mortgage broker agreement with a lender whereunder it agreed to participate in the preparation and submission of residential mortgage loan applications to the lender and assist the mortgage applicant in securing a mortgage loan, were exempt under para. (l), as “the services provided by MBCo in these circumstances, viewed as a whole, go beyond mere preparatory services described in paragraph (r.4)”);

  • Example 16 (services provided in order to find purchaser for shares of a subsidiary were taxable under (r.4) given their predominant customer assistance character and that the firm was not an investment dealer as described in s. 149(1)(a)(iii));
  • Example 17 (commission received by FinderCo as a percentage of the preferred share subscriptions received by CorpA from investors identified by FinderCo as FinderCo is not directly involved in the sale ([i.e., the closing of the sale?] of the shares).

Paragraph (q)

Cases

SLFI Group v. Canada, 2019 FCA 217

dominant element in supply by funder of broker commissions was a financing service rather than a management service

The appellant mutual funds (the “Funds”) gave investors subscribing for their units the “deferred sales charge,” or “DSC” option of deferring broker commissions when subscribing for units (or shares), so that there would be no DSC if they held their units for a specified length of time. However, the brokers were still paid their commissions shortly after the units were issued. Citibank, N.A. (“Citibank”) established a single purpose non-resident securitization entity (“Funding Corp”) to provide daily funding of the brokers’ commissions. In consideration, the Funds agreed to pay Funding Corp a portion of the management fees that otherwise would have been payable by them to the Fund manager (the “Manager”) and which the Manager had agreed to relinquish (the “Earned Fees”), which were expressed to be fees paid by the Funds for the services rendered to them in the U.S. by Funding Corp in arranging for the daily funding of the brokerage commissions. Funding Corp then sold its right to the Earned Fees to Citibank. CRA assessed on the basis that the Earned Fees were consideration for an imported taxable supply because they were not consideration for a financial service.

After finding that the services supplied by Funding Corp to the Funds were described in para. (a) or (l), Woods JA then found that the services of Funding Corp were not excluded by para. (q) (which, she noted, at para. 66, "is aimed at circumstances in which GST is avoided by having a provider of management services to an investment plan unbundle its services and provide non-management services under a separate arrangement.") She first rejected the apparent assumption of the Tax Court below “that all activities integral to the business and operations of the Funds are management duties which must be provided by the Manager” (para. 49), so that Funding Corp’s taking care of the commission funding was a management function, stating (at para. 50):

With respect to the deferred payment option, the Funds themselves entered into the agreement with Funding Corp. Therefore, these services were not among those which the Manager was required to provide as the Funds themselves assumed responsibility for them.

She then stated (at para. 63):

As for whether the supply itself is a management or administrative service, the character of the supply is determined by its dominant element, which in this case is either depositing money or arranging for the deposits. In either case, the supply is in the nature of a financing service provided by third party financial institutions. … The services do not have the usual characteristics of management services which typically involve decision-making on behalf of the business … [nor of] of administrative services which typically involve support services.

As for the Crown suggestion that “Funding Corp. provided an administrative service to the Funds by providing Funding Notices to Citibank” (para. 68), she stated:

[T]his service was not a separate supply to the Funds. It was part of the single supply, which was not a management or administrative service.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) dominant element in MFT commission funding arrangement was the payment, or the arranging of payment, of the funding 187
Tax Topics - Excise Tax Act - Section 261 - Subsection 261(2) - Paragraph 262(2)(b) denial includes where the CRA assessment of the tax was of another person 428
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 tax characterization not affected by securities law characterization 87

See Also

SLFI Group - Invesco Canada Ltd. v. The Queen, 2017 TCC 78, rev'd in part 2019 FCA 217

SPV funding MFT brokerage commissions was providing a GST-taxable management service

The appellant “Funds” were mutual funds (mostly, and treated in this summary as being entirely, mutual fund trusts) that gave investors subscribing for their units the option (the “deferred sales charge,” or “DSC” option) of deferring the broker/dealer commissions when subscribing for units (or shares), so that there would be no DSC if they held their units for a specified length of time. However, the brokers were still paid their commissions shortly after the units were issued. Citibank, N.A. (“Citibank”) established a single purpose, bankruptcy remote non-resident securitization entity (“Funding Corp”) to provide daily funding of the brokers’ commissions. In consideration, the Funds agreed to pay Funding Corp a portion of the management fees that otherwise would have been payable by them to the Fund manager (the “Manager”) and which the Manager had agreed to relinquish (the “Earned Fees”), which were expressed to be fees paid by the Funds for the services rendered to them in the U.S. by Funding Corp in arranging for the daily funding of the brokerage commissions. Funding Corp then sold its right to the Earned Fees to Citibank. CRA assessed on the basis that the Earned Fees were consideration for an imported taxable supply.

V.A. Miller J found that Funding Corp was making a single compound supply whose “dominant element…was the daily payment of the [brokerage commissions]” (para. 95), and (at para. 101) that this dominant element would be included in para. (a) of the financial service definition unless it was excluded under para. (q).

In finding that this exclusion applied, she stated (at paras 109 and 110):

The “arranging for the payment” of commissions and the payment of commissions was integral to the day-to-day business and operations of the Funds. This was a Management duty. That the Manager may have hired third parties to perform some of its duties did not alter the fact that the duties performed continued to be a management service.

...[T]he dominant service provided by the Citibank Entities was a management duty and delegating that duty to Citibank Entities did not change the nature of the duty.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 217 - Imported Taxable Supply - Paragraph (a) non-resident vehicle provided taxable imported supply in funding MFT brokerage commissions 281
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply dominant element of service provided by financing SPV was financing 180

The Colleges of Applied Arts and Technology Pension Plan v. The Queen, 2003 GTC 899-62, 2003 TCC 618

"principal activity" of a pension plan was not the investing of funds

After noting that "the measure of the 'principal activity' must be the importance of the activity to the achievement of the organization's goals or purposes", Bowie T.C.J. found that the "principal activity" of a pension plan was not the investing of funds (as contemplated by paragraph (q)). Given that its principal object was to provide pensions to retired employees, its principal (or most important) activities must be considered to be those that contributed most to achieving those objects and it could not accomplish its objects without the collection of the employer and employee contributions, and the computation of payment of payment benefits to retirees; whereas it could, at least in theory, have collected contributions and paid them out to retirees without ever investing its funds.

Words and Phrases
principal activity

Administrative Policy

3 September 2019 GST/HST Interpretation 173195 - […][Mutual Fund Units]

para. (q) inapplicable to any subscription or redemption fees payable by redeeming unitholders to fund manager given that they were borne by them rather than Funds

The Master Trust Agreements between the manager of various private unit investment trusts and such Funds’ trustee stipulated that redemption (and subscription) charges were payable by the unitholders on redeeming (and subscribing for) their units. It seemed likely, but unclear, to CRA, based on the limited information provided to it, that such charges were consideration for the service of the Funds in redeeming (or accepting subscriptions for) the units and, therefore, were exempted under para. (d) of the financial services definition as being consideration for the “transfer of ownership” of financial instruments (i.e., it apparently was sufficient, in the redemption situation, that the unitholders ceased to be owners and that it did not matter that there was no new owner of the units – and conversely in the subscription situation).

If, on the other hand, the redemption (or subscription) fees were consideration payable to the Fund manager for its service of “arranging for” the “transfer of ownership” of the units, CRA indicated that this created the possibility that such redemption fees were part of a single supply of management services made by the manager (pursuant to a management agreement between it and the unitholders) for periodic management fees.

CRA indicated that, in either event, “the subscription and redemption fees would generally not be excluded … by paragraph (q),” apparently given that such fees were payable by the unitholders rather than the Funds.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) unit trust redemption fee could be consideration for the “transfer of ownership” of units to the trust 452
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) unit trust redemption fee would generally be exempted from GST/HST if it was payable by the redeeming unitholder to the trust rather than the fund manager 202

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 14

deeming of financial services to be taxable

Corporation A, which provides management services to a partnership whose principal business is the investing of funds, also charges the partnership a fee for making an advance, granting credit or lending money (i.e., for services that would be financial services in the absence of (q).) Is the fee taxable? CRA responded:

A prescribed service includes "the issuance of a financial instrument by or the transfer of ownership of a financial instrument from" Corporation A to the partnership as well as "the operation or maintenance of a savings, chequing, deposit, loan, charge or other account" the partnership has with Corporation A. …[I] f the other service provided by Corporation A to the partnership is not included in the list of prescribed services described above, this service would not be a financial service.

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 9 ("Financial Services and Exclusion in Paragraph (q)")

para. (q) in applicable if under single-supply approach, no management or admin services are provided by mutual fund salesperson

Where a mutual fund salesperson provides its services to an investment plan rather than to the dealer, does para. (q) apply? CRA stated:

[U]nlike Example 4 in [TIB] B-105…the services of the mutual fund salesperson are paid for by an investment plan… . Accordingly, paragraph (q) could apply to exclude the service from the definition of financial service depending, in part, on the nature of the supply and the activities of the supplier. If the salesperson is a person who provides management or administrative services to the investment plan, then its supplies to the investment plan, whether they are management or administrative services, or any other services, other than prescribed services, including the distribution of mutual fund units, would be excluded from the definition of financial service under paragraph (q). In the Royal Bank decision, the Tax Court held that the Royal Bank was making a single supply to Royal Mutual Funds Inc. of distributing or arranging for the distribution of units, which was not an administrative service… . In this case, in order to determine whether the mutual fund salesperson is making a single supply or multiple supplies, the predominant element of each supply and whether paragraph (q) applies, it would be necessary to examine agreements and other documentation etc.

Paragraph (r.3)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109, rev'd 2021 FCA 10

no (r.3) service as Visa did not assist in credit authorization

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. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was supplying a service described in para. (i), and that para. (r.3) did not apply, stating (at para. 108):

The technical notes suggest that (r.3) is intended to apply to services centered around the giving and authorization of credit. In the present case however, the responsibility for authorizing the credit lies purely with CIBC, with the granting of credit being entirely the decision of CIBC and no assistance being given by Visa in the credit authorization process.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 162
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 268
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 216
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 239
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 199
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) 146
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 186
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" 235
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 419

Administrative Policy

2 May 2019 GST/HST Ruling 150998 - Fees charged in relation to project loans

predominant nature of fees paid to loan agent was for loan management

Lender A appointed the Company to act as both its Loan Agent and Security Agent. In finding that two fees payable by Lender A to the Company (the Interest Rate Differential Fee A, and also the Agent Prepayment Fee A in the event that the loan was prepaid) were not exempt, CRA stated:

The predominant nature of the service provided by [the Company] to [Lender A], for which [Lender A] pays [such fees] is managing the [Loan A] account on behalf of [Lender A] and ensuring it is properly repaid … . For greater certainty, the exclusions under paragraph (r.3) and (t) of the definition apply.

Specifically, paragraph (r.3) of the definition of “financial service” ensures that certain services are not financial services where they are managing loan accounts, including monitoring [Borrower A’s] payment record and dealing with [Borrower A’s] payments made to repay [Loan A]. In addition, paragraph (t) [applies] ... .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) non-refundable fee paid by borrower to lender’s agent to perform due diligence and take the financing project through to closing were taxable preparatory services 237
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) fee paid for taking a financing from signing through to closing is taxable 180

Paragraph (r.4)

Cases

Global Cash Access (Canada) Inc. v. Canada, 2013 FCA 269

predominant element not described in (r.4) or (r.5)

Global Cash Access, which arranged for cash advances from credit card issuers to the patrons of casinos, paid a fee to the casino, which provided space for Global's terminals (which were used to approve the transactions) as well as preparing a sort of cheque that the patron cashed in at the casino cashier. Although from CRA's perspective, what the casino was mostly getting paid for was its clerical services and the provision of the space, Sharlow JA found that the "commercial efficacy" of the whole arrangement turned on the provision of the cash by the casino, so that the fee was consideration for a single supply of a financial service under para. (g) or (i) of the definition thereof.

This same approach (that what was really being paid for was the "cheque" cashing function, even though that part of it was easy) also dictated a conclusion that the clerical/space provision aspects were not the "predominant" element of what was being supplied, so that the exclusions in paras. (r.4) and (r.5) of the financial services definition did not apply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration "consideration" under law of contract 123
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (g) commercial efficacy of arrangement involving kiosk and support services turned on the advance of money 428
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply three elements integrally connected 240
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) "consideration" under law of contract 123

See Also

Zomaron Inc. v. The Queen, 2020 TCC 35

a service of inducing merchants to use credit card processing services was an exempt financial service

The appellant (“Zomaron”) negotiated with and obtained from prospective merchants a commitment to use the card payment processing services of two companies (“Elavon” and “First Data”), which in turn accessed the VISA (or other credit card network) to access payment from the bank that had issued the card of the customer of the merchant, so that the merchant was paid. As an example, Zomaron would negotiate a transaction fee of 2% with a particular merchant, and when a customer used her card to make a purchase from the merchant for, say, $100, Elavon collects $100 from the customer’s issuing bank and deposit the $100 to the merchant’s bank account the next day. At month’s end, Elavon would collects the $2 merchant fee (2%) from the merchant’s bank account which was then distributed as follows: Elavon pays $1.50 (the interchange fee) to the card issuer and payment network; the remaining $0.50 cents (the “mark-up”) is the revenue shared between Elavon and Zomaron in accordance with a negotiated split – say, 30%/70%, so that Elavon retains $0.15 and pays Zomaron $0.35, representing its portion of the fee as consideration for its services. The mark-up was negotiated in the discretion of Zomaron with the merchant based on risk and other factors.

The Minister had found that the services of Zomaron were promotional servicers described in para. (r.4), partly on the basis of its “Marketing Agreement” with Elavon stating that it would “market” merchant services offered by Elavon – but Lyons J accepted evidence that Zomaron did not carry out such marketing services. Lyons J noted (at para. 65) that “only the predominant elements are taken into account in applying the inclusions and exclusions in the definition” and (at para. 71) that “Zomaron’s compensation is entirely dependant on whether a financial service is ultimately provided by a Processor to a merchant,” and stated (at para. 97):

… Parliament intended … the concept of “arranging for” to mean “bringing together parties to a service.” … Additionally, it … call[s] for the intermediary to have a sufficient amount of involvement to then “cause to occur” or effect the financial service without involvement in every transaction.

Lyons J found that the fees received by Zomaron were exempt “arranging for” fees, stating (at paras 107, 110):

… [T]he vital element of Zomaron’s supply was as an intermediary “arranging for” payment processing services leading to Processors successfully acquiring merchants. Without this, there would be no point to the constituent elements. Accordingly, the end product, the final result, the essence for what the Processors is paying Zomaron for is to “arrange for” merchants to use the Processor’s card payment services. This, I find, is the predominant element of the supply provided by Zomaron to Elavon and First Data.

… Even if the supply provided by Zomaron to the Processors involved services of a promotional nature, since these do not represent the predominant element of the supply, paragraph (r.4) has no application … .

Words and Phrases
arranging for
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) finding and signing-up merchants to use the services of a credit card payment processor was an arranging-for service 288

Applewood Holdings Inc. v. The Queen, 2018 TCC 231

promotional and administrative services of car dealer were ancillary to the customers' insurance purchases

The appellant (Applewood), which operated a car dealership. entered into an agreement (the “Dealer Agreement”) with a distributor (Walkaway) under which it acquired a group insurance policy underwritten by a Canadian insurer (Arch) and sold to its customers credit insurance to cover their lease or finance payment obligations from risks such as loss of employment, critical illness, disability or accidental death (the “Insurance Products”). Applewood agreed to promote and sell Standard and Elite versions of the Insurance Products for compensation equalling 55% of the premium and remitting the balance to Walkaway. Applewood promoted the products, helped customers select particular coverage, handled the completion and forwarding of the applications and held the insurance proceeds of the customers in trust until delivery to the insurer. In finding that the premiums received by Applewood qualified for exemption as consideration for the arranging for the issuance of financial instruments (paras. (d) and (l)) that was not excluded by para. (r.4), Pizzitelli J stated (at paras 32 - 34):

…[T]he “purchaser” whose perspective one must objectively look through is the consumer of the end supply that is the subject matter of the transaction. In our case, that is the car buyer who buys the insurance product and he would clearly and objectively know he was buying insurance, not the expertise or training, or commercial efficacy or profitability of the Dealer or its staff as the predominant elements of the transaction, notwithstanding that such services … may have an ancillary role to play in his decision making process… . There is simply no merit to the Respondent’s argument that the services or duties under the Dealer Agreement that may be said to be owed to Walkaway from the Appellant constitute the predominant element of the services to be provided under the Dealer Agreement… .

… The bottom line is that the Appellant’s compensation is based and only arises on a sale of the Insurance Products. …

I find that the predominant element of the Appellant’s service was the arranging for the sale of insurance which falls within the definition of a “financial service”, notwithstanding that some of the ancillary services provided by the Appellant could be considered promotional or administrative… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) a car dealer who promoted and processed credit insurance to its customers was “arranging for” insurance 244

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109, rev'd 2021 FCA 10

services provided by Visa that were listed in (r.4) were not the predominant elements

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. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was supplying a service described in para. (i), and that para. (r.4) did not apply, stating (at paras 110 and 111):

… (r.4) encapsulating ancillary elements of the supply being provided is not sufficient for the exception to be satisfied, as the services listed in the definition must include the predominant elements of the supply. …

… [T]he supply provided by Visa also involves services such as information collection, market research and product design. However, … these services do not encapsulate the predominant elements of the supply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 162
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 268
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 216
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 239
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 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) 146
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 186
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" 235
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 419

Barr v. The Queen, 2018 TCC 86

broker services in “promoting” the sale of a company to prospective purchasers would have come within (r.4)

The sole individual shareholder retained two brokers for the sale of his company or its assets. Pizzitelli J first found that the commissions that they charged on the ultimate sale of the shares to a purchaser whom they had found were not exempt from HST on the basis that their services were not those of “arranging for” the sale of the shares. The alternative position of CRA was that the services of the brokers were excluded by (r.4) of the “financial services” definition, which referred inter alia to market research and promotional services that are preparatory to an “arranging for” financial service. In finding that the brokers’ services also would have been taxable on this basis, Pizzitelli J stated (at para 21):

[I]f I had been required to [consider whether their services fall within the ambit of paragraph (r.4) of the definition of financial services in subsection 123(1)], I would have found that at best, the services … were merely preparatory to the provision or potential provision of a qualifying financial service thereunder. … [T]heir services comprised “market research” and “the collection, collation and provision of information” contemplated by paragraph (r.4.). Moreover, the brokers …clearly performed promotional and similar activities… [and that] was in fact their main and dominant activity.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) broker fees paid to locate purchasers of a private company were HST-taxable 430

Rojas v. The Queen, 2016 TCC 177 (Informal Procedure)

exclusion does not apply where a single supply of a financial service

The appellant, who was a licensed mortgage broker, acted as an agent for a mortgage brokerage firm in obtaining mortgages for its customers, with 75% of the resulting commissions being paid over to her. The Minister reassessed her on the basis that her commissions were taxable, considering that her services were administrative services and were excluded from “financial services” by para. (r.4) of the definition.

In finding that the appellant made an exempt single supply of a financial service under para. (l) as being arranging for the lending of money, D’Arcy J stated (at paras 18- 19, 23-24):

[A]s a question of fact, the Appellant made a single supply that was arranging for the lending of money. My conclusion is based upon the following facts.

- The Appellant was a licensed mortgage broker.

- She identified the potential borrower and determined whether the borrower qualified for a mortgage.

- She identified lenders who were willing to provide a mortgage loan to the borrower and the various terms under which the mortgage loan would be provided.

- Once the borrower chose a lender and a specific mortgage, the Appellant took steps to obtain a lending commitment from the lender.

- She then completed the lending process by obtaining the applicable forms from the borrower and providing them to the lender.

In short, she facilitated the entire lending process by identifying both the borrower and lender and then bringing the parties together to complete the agreement to lend and borrow money. …

[P]aragraph (r.4) will only apply if the service in question is supplied separately from the supply of the financial service that is referred to in any of paragraphs (a) to (i) or (l) of the definition of financial service.

[T]he Appellant only made one supply, the supply of arranging for the lending of money. She did not make a second separate supply that could be found to have been preparatory to or provided in conjunction with the supply of the service of arranging for the lending of money.

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

services described in (r.4) did not represent the essential character of drug claim processing service

A third party (Emergis) provided automated claims processing services to the appellant (Great-West Life), which administered or insured various client drug plans, so that the prescription drug claim of an employee would be processed at the pharmacy counter upon presenting her magnetic card.

Owen J ultimately found that the charges of Emergis to Great-West for this service were taxable under the Financial Services and Financial Institutions (GST/HST) Regulations, as they were "quintessentially administrative in nature." However, he found that in the absence of this Regulation, the service would have been exempt as being for the payment of insurance policy claims – notwithstanding that the Emergis service entailed the provision of taxable supplies described in para. (r.4) of the financial services definition. He stated (at paras. 89-90):

[T]he fact that the constituent elements of the supply may include services described in paragraph (r.4) is not a basis for excluding the supply from the definition unless the essential character or substance of the supply is described by those services.

…Here, the group of services that constitutes the compound supply does include some of the services described in paragraph (r.4). For example, Emergis does provide services to Great-West that involve collecting, collating or providing information. However, those do not represent the essential character or substance of the supply, which is paying drug benefits to plan members.

See summaries under Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(2) and s. 123(1) – financial service – (f.1).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) electronic drug plan adjudication and processing was "quintessentially administrative in nature" 279
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 306
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 186
Tax Topics - General Concepts - Payment & Receipt constructive receipt by relieving obligation to pay pharmacist 236

Administrative Policy

2 May 2019 GST/HST Ruling 150998 - Fees charged in relation to project loans

non-refundable fee paid by borrower to lender’s agent to perform due diligence and take the financing project through to closing were taxable preparatory services

Lender A agreed to provide Loan A to Borrower A pursuant to Credit Agreement A, and appointed the Company to act as both its Loan Agent and Security Agent. Under Fee Letter A, upon execution of Credit Agreement A, Borrower A pays to the Company, as the Loan Agent, a non-refundable amount (“Closing Fee A”) irrespective of whether the closing under Credit Agreement A for making the loan occurs, and states that Closing Fee A constitutes compensation for services rendered by the Company and Lender A.

In finding that Agent Closing Fee A was not exempted as an “arranging for” supply under para. (l), CRA stated:

In performing its duties for which [Borrower A] pays [the Company] [Agent Closing Fee A], [the Company] reviews the project documentation as part of the preliminary due diligence to determine if [Project A] is bankable. As part of the due diligence for underwriting the transaction, [the Company] engages an independent engineer and an insurance consultant to prepare their third-party reports, completes a financial model, prepares a confidential information memorandum for a potential lender, prepares credit documentation with its legal counsel, and arranges for the closing and the funding of the project. The predominant nature of the service … is preparatory in nature to the … potential provision of a financial service, that is, the lending of [Loan A]. This service … is excluded … by paragraph (r.4).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) predominant nature of fees paid to loan agent was for loan management 159
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) fee paid for taking a financing from signing through to closing is taxable 180

6 May 2019 GST/HST Interpretation 194986 - – […][Services of a Managing General Agent]

services of a managing general agent for an insurer are subject to GST/HST

A managing general agent (“MGA”) provides services to an insurer consisting of the recruitment, training, advising and monitoring of independent licensed insurance agents, including reviewing insurance applications prepared by the insurance agents for completeness, and receiving from the insurer a fee for its single supply. Is the service taxable? CRA stated:

Since the [MGA] main activities include recruiting, training, advising and monitoring licensed insurance agents, and promoting the insurer’s insurance products, the predominant nature of the supply made by the [MGA] is a management and promotional service. This management and promotional service is not included in paragraphs (a) to (m) of the definition of financial service …[and] would also be excluded by paragraphs (r.4) and/or (t) of that definition.

Excise and GST/HST News - No. 106 June 2019

car dealer's selling and processing credit insurance is exempted

The car dealer in Applewood entered into a “Dealer Agreement” with a distributor of credit insurance products under which it was agreed that it would “up sell” the insurance products and assist the car customers in explaining the coverage and in applying for the insurance in consideration for a commission of over 50% of the insurance premium. Pizzitelli J applied the single supply doctrine in finding that the predominant element of what was being supplied by the dealer was an exempt supply of arranging for the insurance – and that the exclusion in (r.4) of the definition of an exempt financial services for promotional and various administrative services did not apply.

CRA stated that it will apply Applewood “in the same fact situation” and also where the car dealer deals directly with the insurer (rather than with the distributor), if “the car dealer performs the activities referred to in the Applewood decision.” CRA further stated:

Within the context of the insurance industry, the Applewood decision does not have an impact on the CRA’s position with respect to the services provided by managing general agents and similar entities performing management and administrative services for insurers. Supplies of these management and administrative services are taxable.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) CRA accepts Applewood (re para. (l) exemption for car dealers who sell, explain and process credit insurance provided to their customers) 235

Paragraph (r.5)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2018 TCC 109, rev'd 2021 FCA 10

limited use of Visa logo did not engage (r.5)

The CIBC issued Visa credit cards and utilized a credit card payment system operated and managed by Visa Canada. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was supplying a service described in para. (i), and that para. (r.5) did not apply, stating (at para 113):

Visa, as part of its supply to CIBC, has provided them with a limited right to use the Visa logo, including putting in place strict standards for CIBC in how it uses the Visa logo… . Similar to Great West Life, this does not amount to a transfer of ownership of intellectual property from Visa to CIBC, as the intellectual property rights included as part of the supply are limited in scope and ancillary elements of the supply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of payment platform 162
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 268
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 216
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 239
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 191
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 199
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 186
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" 235
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 419

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

essential character of drug claim processing service was providing payment to the claimant

A third party (Emergis) provided automated claims processing services to the appellant (Great-West Life), which administered or insured various client drug plans, so that the prescription drug claim of an employee would be processed at the pharmacy counter upon presenting her magnetic card.

The Crown argued that the supply by Emergis was deemed to be taxable under para. (r.5) because Great-West had a right to acquire a non-exclusive licence from Emergis in the event of events such as insolvency or a winding-up of Emergis and Great-West had limited rights to use Emergis trademarks and the cards. In rejecting this submission, Owen J stated (at para. 87):

The use of the property of Emergis in this manner is not the essential character of the supply provided by Emergis to Great-West but an incidental aspect of retaining Emergis to provide the Services described in the Agreements.

See summaries under Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(2) and s. 123(1) – financial service – (f.1) and (r.4).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) electronic drug plan adjudication and processing was "quintessentially administrative in nature" 279
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 306
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 269
Tax Topics - General Concepts - Payment & Receipt constructive receipt by relieving obligation to pay pharmacist 236

Paragraph (t)

Cases

Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 10

VISA provided core payment processing services that CIBC could not replicate that were more than merely administrative

CIBC issued Visa credit cards and utilized the Visa payment system, for which it paid fees to VISA. It was acknowledged that such charges otherwise came within the exempt financial services definition, relevantly described as including “the services of paying money (paragraph (a)), arranging for the payment of money (paragraph (l)), and any service provided under an agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued (paragraph (i)),” and the only issue was whether the exemption was ousted by the services being of an “administrative” nature.

In finding that this exclusion did not apply, Laskin JA emphasized factual findings by the Tax Court that:

Visa’s services “form an essential part of the ability for CIBC to offer credit card based services to their clients," … they "[give] CIBC customers the ability to purchase goods and services anywhere in the world without CIBC having to individually contact each merchant to set up payment arrangements with them," and that "[i]f CIBC was forced to create such a payment network on its own, even if technically feasible, this network would invariably be much less widely accepted than the one offered by Visa." (para. 63)

He added:

Visa’s services relieve CIBC and other issuers of the need to investigate and analyze the risk profile and solvency of the merchants that accept credit cards in payment for goods and services. To describe the benefit that CIBC obtained from Visa’s services … as "quintessentially administrative," [as was done by the Tax Court] does not … adequately recognize the reality of the benefit that CIBC derived. (para. 63)

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) - Paragraph 4(2)(b) VISA provided a GST/HST-exempt financial service to CIBC 421
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (a) VISA supplied a payment service to CIBC 109

Administrative Policy

Excise and GST/HST News, No. 100, November 2016

Claims administration for insurer

... Generally, a claims administration service provided to an insurer is a taxable supply.

For example, ... AdminCo receives claim information from a person making a claim (the claimant), confirms that the claimant was insured under the insurance policy when the expenses were incurred, checks that the expenses for which the claim is made are in accordance with the terms and conditions of the insurance policy, and processes the insurer’s payment in respect of the claim.