Section 149

Subsection 149(1) - Financial Institutions

Paragraph 149(1)(a)

Administrative Policy

Memorandum 17-6 "Definition of ‘Listed Financial Institution'" July 2014

Dealer/broker examples

8. Subparagraph 149(1)(a)(iii)…generally includes a person whose principal business is that of an investment dealer, stock and bond broker, securities trader, or an insurance agent or broker.

Meaning of "principal"

11. … CRA considers that "principal" refers to the person's chief or main business activity.

"Credit union"

15. The term "credit union" includes a caisse populaire. [See 17.8]

Non-licensed "insurer"

17. A person who is not an insurer as defined… but whose principal business is providing insurance under insurance policies is also a listed financial institution…[f]or example, a person whose principal business is issuing…accident and sickness insurance… .

Money-lender examples/Fincos

21. Generally…a finance company, acceptance company, factor, venture capitalist, or a loan, mortgage, or investment company is…[included] in subparagraph 149(1)(a)(viii)…[as is a] person whose principal business is lending money to related corporations or purchasing debt securities from related corporations…[as s.] 149(4) does not apply for purposes of determining whether the person is a listed financial institution… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 149 - Subsection 149(3) 86

Guide for Providers of Financial Services under "Listed Financial Institutions"

General synopsis of definition of listed financial institution.

Subparagraph 149(1)(a)(iii)

Cases

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

company in a cheque-cashing business was a "dealer in … financial instruments"

The appellant derived 80% of its revenue from cashing cheques, i.e., it would receive endorsed cheques from clients, and charge them a fee for depositing the cheques in its bank account. Whether it was subject to compensation tax under Part IV.1 of the Taxation Act (Quebec) turned on whether it was a financial institution under ETA s. 149(1)(a).

The Court found that the appellant was a financial institution under s. 149(1)(a)(iii) as a person “whose principal business is as a … dealer in … financial instruments.” The Court first found (at para. 26) that the cheques were “debt securities,” namely, “a right to be paid money.”

Turning to the meaning of “dealer,” the Court stated (at para. 29, TaxInterpretations translation):

[T]he author Simon Labrecque properly states that the term “dealer” … relates to a person “whose business consists of dealing in financial instruments for its own account…” where this is for the purpose of profit. This entails, according to him, “an elevated level of transactions, in volume and frequency.”

In finding that the appellant was thus a dealer, the Court stated (at para. 31):

Indeed, its cheque-cashing service consisted of dealing in financial instruments for its own account, and where this was for the purpose of profit. Furthermore, the role of the appellant – which was to the receive a cheque endorsed by the client, to whom it made the charges, followed by cashing it into its own bank account as endorsee – indicates that it was acting as a financial intermediary, the criterion identified by … Labrecque… .

Words and Phrases
dealer
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security cheques were debt securities in context of cheque-cashing business 152

Administrative Policy

23 March 2017 CBA Commodity Taxes Roundtable, Q.1

principal business determination generally need not be made on an annual basis

Leasing companies and third-party administrators (e.g., insurance companies) might have their mix of exempt and taxable activities fluctuate annually above and below 50%. How is “principal business” determined, and is the determination made on an annual basis? CRA responded:

[I]n the context of section 149 … the CRA considers that "principal" refers to the person's chief or main business activity. …

Some factors to be considered, but not limited to, include:

  • the total number of supplies made and the total value of the revenue received from supplies made in each business activity;
  • the relative value of the assets employed in each business activity;
  • the commercial practices of the person, including the time, attention, and efforts expended by the employees, managers, or corporate officers in each business activity; and
  • the terms of any partnership agreement if the person is a partnership, or corporate objects in the case of a corporation.

[G]enerally a person does not need to determine its “principal business” on an annual basis; this determination should be made any time there is a significant change to the person’s business activities.

Words and Phrases
principal business
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(a) - Subparagraph 149(1)(a)(viii) multi-factor determination to whether Holdco has a principal business of money-lending 97

Subparagraph 149(1)(a)(viii)

Administrative Policy

23 March 2017 CBA Commodity Taxes Roundtable, Q.1

multi-factor determination to whether Holdco has a principal business of money-lending

A holding company holds debt and shares of a subsidiary with respective values of $200,000 and $100,000 and generating respective incomes of $5,000 and $1,000. Would its principal business be considered to be lending under s. 149(1)(a)(viii)?

After noting that the factors which CRA would consider in comparing two business activities in the context of a principal business determination include the relative revenues and number of supplies made, assets, and time and efforts required, CRA stated that, in this holding company example, “there are a number of factors to be considered in making this determination,” and insufficient information was provided.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(a) - Subparagraph 149(1)(a)(iii) principal business determination generally need not be made on an annual basis 181

Paragraph 149(1)(b)

Administrative Policy

Memorandum (New Series) 17.7 De Minimis Financial Institutions February 2013

Meaning of separate charge

13. A separate fee or charge for a financial service refers to an amount separate from the financial service. …[I]f for example,… a manufacturing company charged a fee for providing a loan to its customers, such a fee would be considered to be a separate fee or charge for a financial service

Partnerships included

15. …[A]mounts used to calculate a partnership's income under section 96 of the Income Tax Act for a particular taxation year should also be used to calculate the partnership's revenue amounts for purposes of the de minimis threshold tests.

Zero-rated precious metal sales included

25. If a refiner's revenue from zero‑rated supplies of precious metals were included in its financial revenue, the ratio of the refiner's financial revenue to total revenue could be relatively high, which could result in the refiner meeting the first de minimis threshold test. …

GST M 700-4 "De Minimis Financial Institutions"

Guide for Providers of Financial Services under "Listed Financial Institutions"

Whether income from interest and dividends is income from a business or property is a question of fact which depends on all the relevant facts and circumstances.

Paragraph 149(1)(c)

Administrative Policy

Memorandum (New Series) 17.7 De Minimis Financial Institutions February 2013

Secondary bond purchases generate good interest

35. However, if a person purchases bonds on the secondary market (that is, from a person other than the issuer of the bonds or an agent thereof), the person is not considered to have lent money to the bond issuer.

Cash generates bad interest
Example 3

. … [I]nterest earned from [for example, a manufacturer's] bank accounts and Guaranteed Investment Certificates is considered to be interest with respect to making advances, lending money or granting credit and is included in the calculation of the de minimis threshold test under paragraph 149(1)(c).

Articles

Brent F. Murray, "De Minimis Financial Institutions", Canadian GST Monitor, No. 280, January 2012, p. 1:interest earned on bonds purchased from a previous holder is not included.

Subsection 149(2) - Amalgamations

Administrative Policy

Guide for Providers of Financial Services under "Listed Financial Institutions"

General synopsis of ss.149(2) and (3).

Subsection 149(3) - Acquisition of Business

Administrative Policy

Memorandum 17-6 "Definition of ‘Listed Financial Institution'" July 2014

FI v. listed FI

30. …[W]here a person acquires a business as a going concern from a person who, immediately before that time was a financial institution, the person acquiring the business is considered to be a financial institution for the remainder of the taxation year if the acquired business is continued as the purchaser's principal business immediately after the purchase. However, the person acquiring the business would be considered to be a listed financial institution only if it is a person referred to paragraph 149(1)(a).

Subsection 149(4) - Exclusion of Interest and Dividend

Administrative Policy

Memorandum (New Series) 17.7 De Minimis Financial Institutions February 2013

Meaning of separate charge

13. A separate fee or charge for a financial service refers to an amount separate from the financial service. …[I]f for example,… a manufacturing company charged a fee for providing a loan to its customers, such a fee would be considered to be a separate fee or charge for a financial service

Partnerships included

15. …[A]mounts used to calculate a partnership's income under section 96 of the Income Tax Act for a particular taxation year should also be used to calculate the partnership's revenue amounts for purposes of the de minimis threshold tests.

Partnership interest revenues not excluded

22. Since the exclusion in subsection 149(4) applies only to interest or dividends received from a corporation related to the person, interest that a person receives from a partnership must, therefore, be included in calculating financial revenue.

Interest revenue from partner excluded

23. However, under subsection 126(3), a member of a partnership is deemed to be related to the partnership. Therefore, interest paid by a corporate partner to the partnership would be excluded from the calculation of a partnership's financial revenue, for the purposes of either de minimis threshold test.

Zero-rated precious metal sales included

25. If a refiner's revenue from zero‑rated supplies of precious metals were included in its financial revenue, the ratio of the refiner's financial revenue to total revenue could be relatively high, which could result in the refiner meeting the first de minimis threshold test. …

Secondary bond purchases generate good interest

35. However, if a person purchases bonds on the secondary market (that is, from a person other than the issuer of the bonds or an agent thereof), the person is not considered to have lent money to the bond issuer.

Cash generates bad interest
Example 3

… [I]nterest earned from [for example, a manufacturer's] bank accounts and Guaranteed Investment Certificates is considered to be interest with respect to making advances, lending money or granting credit and is included in the calculation of the de minimis threshold test under paragraph 149(1)(c).

Subsection 149(5)

Paragraph 149(5)(f.1)

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Implications of ILP being an investment plan (p. 6)

It is proposed that new paragraph 149(5)(f.1) would add an ILP to the definition of investment plan in subsection 149(5). As an investment plan under proposed paragraph 149(5)(f.1), an ILP would be a listed financial institution under subparagraph 149(1)(a)(ix) and subject to the rules for financial institutions and listed financial institutions. For example, an ILP that is not an SLFI could be a reporting institution and required to file an annual information return for financial institutions, such as, Form GST111, Financial Institution GST/HST Annual Information Return.

Timing of becoming an investment plan (p. 6)

This proposed amendment would apply to any taxation year of an ILP that begins after 2018. The coming into force provision for proposed paragraph 149(5)(f.1) also provides that an ILP could elect to have proposed paragraph 149(5)(f.1) apply to its taxation year(s) that begins in 2018 (ILP election) and takes into account the possibility that an ILP may have more than one taxation year that begins in 2018. ...

Election to become an ILP (pp. 6-70

Where an ILP makes an ILP election, proposed paragraph 149(5)(f.1) would apply to any taxation year of the ILP that begins in 2018. This election would be made in prescribed form, containing prescribed information and be filed with the Minister of National Revenue in prescribed manner on or before the day that is 60 days after the day the legislation enacting this provision receives royal assent or any later day the Minister may allow. ... [disclosure of address]

The letter must indicate in the subject line “Investment limited partnership election” and include the following information:

  • the name and contact information (telephone number and mailing address) of the ILP;
  • the business number and the GST/HST program account of the ILP, if applicable;
  • the taxation year(s) of the ILP that begins in 2018;
  • a statement that the ILP elects to have proposed paragraph 149(5)(f.1) apply to its taxation year(s) that begins in 2018;
  • the first day of the taxation year with respect to which the election is being made;
  • an indication of whether the ILP making the election would be an SLFI for GST/HST or QST purposes or both as a result of making the ILP election; and
  • the signature of an authorized person of the ILP.