Words and Phrases - "lending of money"

a
88
b
44
c
79
d
52
e
38
f
31
g
19
h
14
i
74
j
2
k
2
l
32
m
56
n
25
o
38
p
81
q
3
r
76
s
90
t
47
u
16
v
9
w
23
y
2

Royal Bank of Canada v. The King, 2024 TCC 125

Summary Under
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part IX - Section 1 - Paragraph 1(a)
foreign interchange fees generated by Canadian credit card issuer related to the granting of credit rather than the making of a loan by it, and were not excluded under s. 1(a)(ii)

When cardholders of credit cards issued by the appellant (RBC) used their cards for purchases from a foreign merchant, RBC would earn an “interchange fee” from the foreign bank (or other “merchant acquirer”) of the foreign merchant for accepting the charge. Upon such acceptance, the cardholder discharged their purchase obligation to the merchant, RBC advanced the amount charged (less its interchange fee) to the merchant acquirer for crediting to the merchant’s account, and RBC would then request payment of the balance from the cardholder at the end of the applicable billing cycle.

Smith J rejected the Crown position that such interchange financial services supplied by RBC to the non-resident merchant acquirer (found at para. 87 to be the recipient) were not zero-rated under Sched. VI, Pt. IX, s. 1 by virtue of the exclusion in para. 1(a) thereof for a “service [that] relates to (a) a debt that arises from … (ii) the lending of money that is primarily for use in Canada”. He found (at para. 76) that “the phrase ‘relate to’ should be narrowly construed as a broad interpretation of the carve-outs would defeat the policy objectives”. He noted that, in contrast to para. (g) of the financial service definition, which referred to “the making of any advance, the granting of any credit or the lending of money”, the carve-out in subpara. 1(a)(ii) referred only to the “lending of money”. He then stated (at paras. 79, 81-84):

[T]he jurisprudence has recognized a clear distinction between the granting of credit and the lending of money. …

Dahl … v. Royal Bank of Canada, 2005 BCSC 126 … affirmed in 2006 CBCA 369 … noted that because the “cardholder is permitted to defer payment of the debt, credit is advanced on the date of the purchase or service” and “this deferral of debt results in an extension of credit” …

[U]nlike a loan, “such credit is not initially paid out to the debtor in the form of money.” …

As indicated in Dahl … “the cardholder’s liability to the merchant is discharged by the merchant’s acceptance of the credit card” and “the Bank becomes liable to the merchant, and the cardholder becomes liable to the Bank.”

I thus agree with the Appellant that “when a cardholder uses a credit card to purchase goods or services, there is no transfer of money from the credit card issuer to the cardholder” and therefore there is no loan that arises from the lending of money.

Accordingly, the foreign interchange fees were zero-rated, and it was not necessary to determine whether funds were relevantly used in Canada.

Words and Phrases
relate to granting of credit lending of money
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1.11) issue should be stated "reasonably" 131
Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(21) pre-approval of method for allocating inputs between foreign and domestic supplies did not stop CRA from assessing to deny zero-rating of the foreign supplies 202
Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(31) - Paragraph 141.02(31)(f) s. 141.02(31)(f) is merely confirmatory of normal taxpayer onus 98
Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(1) - Direct Input expenses of redeeming credit card loyalty points were inextricably linked to the issuer’s extension of credit, and only remotely linked to its earning zero-rated interchange fees 368
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) expenses of redeeming credit card loyalty points were an integral component of the issuer’s extension of credit, and not sufficiently connected to earning interchange fees 181
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient merchant acquirer was the recipient of credit card interchange services even though it was a conduit to the merchant 156
Tax Topics - Statutory Interpretation - Exclusionary provisions exclusionary provisions should be narrowly construed 267
Tax Topics - Excise Tax Act - Section 301 - Subsection 301(1.2) - Paragraph 301(1.2)(a) taxpayer not precluded from raising an argument that the Minister was bound by an ITC method that it had described in detail in its pleadings 175