Financial Service

The appellant (“Target”) administered loans made by a provider of mortgages and loans (“Shawbrook”), including by operating individual loan accounts and instigating and processing payments due from borrowers.

Article 135(1)(d) of the Council Directive 2006/112/EC (the “Principal VAT Directive”) exempted “transactions, … concerning …payments, transfers, debts, … but excluding debt collection”. Target in this regard relied on the fact that it procured payments from borrowers’ bank accounts to Shawbrook’s bank accounts by giving instructions for payment which were then automatically and inevitably carried out through the Bankers’ Automated Clearing System (“BACS”).

After referring to various decisions of the Court of Justice of the European Union (CJEU) regarding this exemption, Lord Hamblen stated (at para. 56):

[T]he services must in themselves have the effect of transferring funds and changing the legal and financial situation. It is not enough to give instructions to do so thereby triggering a transfer or payment. It is not enough to perform a service which is essential to the carrying out of the transfer or payment, nor one which automatically and inevitably leads to transfer or payment. It is necessary to be involved in the carrying out or execution of the transfer or payment - its “materialisation”. This requires functional participation and performance. Causation is insufficient, however inevitable the consequences.

Before dismissing Target’s appeal, he then stated (at para. 65):

It follows that giving instructions which automatically and inevitably resulted in payment from the borrowers’ bank accounts to Shawbrook’s bank accounts via BACS is insufficient to fall within the exemption.

For reporting periods of the Appellant commencing after May 2014 (the “Subsequent Periods”), it was found that it had agreed with owner of ATMs (“Access”) which, in turn, had access to the Interac payment network of a network operator or “acquirer,” that it would make various locations on its casino resort available for the siting of Access ATMS, load those ATMs with cash and provide utilities and provide “the utilities, security, routine maintenance and customer support necessary to operate the ATMs” (para. 59). Cardholders who accessed such ATMs agreed to pay a per-transaction “surcharge fee” of under $4.00. The cash of the Appellant disbursed out of the ATMs was reimbursed to it with funds ultimately derived from the card issuer.

After noting that the pleadings of both parties effectively required him to treat the Appellant as making a single compound supply to Access, Graham J found, notwithstanding the provision of the cash by the Appellant to the cardholder, that such single supply was a taxable supply, stating (at paras. 138, 155, 158):

… I find that [the cardholders] … paid the surcharge fee to Access for arranging for the transfer of money, not to the Appellant for transferring the money. …

Access benefited from having the Appellant transfer the money. It also benefited from having Access load the cassettes with cash. … However, it is clear to me that what Access most wanted was the exclusive right to place and operate ATMs at the Resort and to process all transactions arising therefrom. This was the predominant element of the supply it received … .

… [T]he predominant element of the single compound supply made in the Subsequent Periods was the exclusive right to place and operate ATMs at the Resort and to process all transactions arising therefrom. This licence is a taxable supply … .

Graham J also found (at para. 18), that of the words in para. (a) of the financial services definition:

[T]he word “transfer” best describes the transaction that occurs when money is dispensed from an ATM.

The arrangements for earlier reporting periods differed in that the Appellant lent the cash to Access, who loaded it for its own account to the ATMs, rather than the Appellant being the cash provider at the ATMs. For these periods, Graham J found (at para. 124):

[T]he predominant element of the single compound supply made in the Initial Periods was the exclusive right to place and operate ATMs at the Resort and to process all transactions arising therefrom. This licence is a taxable supply of property.

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.

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… .

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.

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.

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.

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.

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.

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.

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 … .

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… .

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.

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.

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.

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.

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.

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.

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 Proulx 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).

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.

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.

A supplier (“TSYS”), and a predecessor supplier (“FDR”) to a credit card company (“PC Bank”), that earned most of its revenues from interchange fees, provided an automated platform for the processing of credit card authorizations and new client applications, along with related fraud detection and data storage, in accordance with credit, security and other protocols established by PC Bank. Hogan J stated (at para. 145):

The main service offered by FDR/TSYS was the automated management and authorization of credit in real time, on behalf of PC Bank, based on the parameters and protocols established by PC Bank. These protocols included measures designed to detect credit fraud and to ensure that the terms and conditions under which PC Bank wishes to grant a credit card loan to a Cardholder are satisfied. All of this is done to avoid loan losses for PC Bank.

In finding that such supplies were excluded from being financial services by para. (r.3) of the definition, Hogan J stated (at paras. 141, 152):

The language of paragraph (r.3) indicates that “managing credit” is broader in scope than what may be commonly understood by that expression. …

I see nothing in the text of paragraph (r.3) that suggests that a service that consists of processing authorization requests via an automated system as agent for the issuer of a credit card is excluded under paragraph (r.3).

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.

A British Columbia credit union (“Westminster”), which provided wealth management services to its members but was not authorized to sell mutual fund units or securities to its members, entered into “participation agreements” with two arm’s-length companies (“CAMI” and “CSI”) which were so authorized, pursuant to which Westminster employees nominally became employees or representatives of CAMI or CSI while also remaining employees of Westminster, and became licensed and trained to sell securities while continuing to work in Westminster offices under the supervision of Westminster. Pursuant to the participation agreements, Westminster received percentages of the distribution and service fees received by CAMI from the mutual fund issuers, or of the commissions received by CSI.

In finding that the participating fees received by Westminster were exempted notwithstanding the exclusion in para. (r.4) for preparatory services, Wong J stated (at paras. 37 and 38):

The predominant element was the sale of CAMI/CSI mutual funds/securities to Westminster’s members, carried out by way of the dual employees/investment advisors using their training/licensing to recommend and sell CAMI/CSI products to Westminster members, commensurate with the members’ particular investment profiles.

Westminster arranged for the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of financial instruments, being CAMI mutual funds and CSI securities. It is the heart of the transaction and what CAMI/CSI really paid for. Therefore, Westminster provided the exempt financial service described in paragraph (l) of the definition by arranging for the financial service described in paragraph (d).

A subsidiary ("PC Bank") of Loblaw ("LCL") had agreed with CIBC for CIBC to provide retail banking services under LCL's President's Choice trademark. Hogan J found that the predominant element of the supply made by PC Bank to CIBC was the provision of a “bundle of rights” consisting mainly of the right to solicit LCL’s clients in LCL’s stores, the right to use trademarks, and the right to issue points under the LCL Loyalty Program, and that “the Bundle of Rights … enabled CIBC to sell financial products and services” by “allow[ing] CIBC to tap into LCL’s loyal and extensive customer base” (paras. 62, 70).

Given that para. (r.5) of the financial service definition provided an exclusion from financial service for “property … that is delivered or made available to” CIBC “in conjunction with” CIBC selling financial products of PC Bank (para. 21), the supply made by PC Bank to CIBC was taxable.

However, a small number of LCL/PC Bank employees (the “PC Bank employees”) provided services to CIBC. Hogan J stated (at paras. 91-92):

[T]he main contribution of the PC Bank employees was assisting in marketing research, promotional activities and, to a limited extent, product design, for the most part to ensure that LCL’s goodwill was not negatively affected because of this initiative and overall to ensure that the arrangement was profitable for both parties. This constitutes, at best, a secondary element of the PC Bank Supply.

… [T]he above services are also excluded under the definition of “financial services” by reason of the application of Exclusionary Paragraph (r.4).

After President's Choice Bank (the “2009 Decision”) determined that services supplied by a subsidiary of Loblaw (“PC Bank”) to CIBC were exempt arranging-for “financial services,” the ETA definition was then retroactively amended (through the addition of paras. (r.4) and (r.5)) to narrow its scope. CIBC nonetheless applied for a refund of GST that PC Bank had commenced charging to it (for subsequent periods) on the basis that the supplies made continued to be exempt. In connection with its appeal of the CRA denial of these rebate claims, CIBC brought a motion for its appeal to be allowed on the basis that the substance of the supply was already determined in the 2009 Decision.

In dismissing the motion on the basis that res judicata (and, in particular, issue estoppel) did not apply, Hogan J first found that the CIBC appeal did not raise the same issue as in the 2009 Decision since the scope of the financial services exemption had “been narrowed by virtue of these new exclusions” in paras. (r.4) and (r.5), and further stated (at para. 67):

The judgment … rendered [in the 2009 Decision] now hangs by a thread because of the new financial services definition. This is hardly a case where the principle of finality requires me to give effect to the issue estoppel and/or abuse of process doctrines.

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 would collect $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 collect 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.”

After having referred (at para. 94) to a statement in the 1989 GST/HST technical paper of Finance that “the services provided by insurance agents, mortgage brokers and investment dealers will be treated as tax-exempt supplies,” she stated (at para. 97) that nonetheless:

Parliament intended that 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 … .

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… .

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.

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.

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.

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).

A subsidiary ("PC Bank") of Loblaw Companies Limited (“LCL”), had agreed with a bank (CIBC) for CIBC to provide retail banking services under LCL's President's Choice trademark (“PCF”). Hogan J accepted the Crown’s submission that the predominant element of the supply made by PC Bank to CIBC was the provision of a “bundle of rights” consisting of the right to solicit LCL’s clients in LCL’s stores, the right to use trademarks, the right to issue points under the LCL Loyalty Program, and other rights acquired for the purpose of expanding CIBC’s nascent fintech banking operations (collectively the “Bundle of Rights”). Hogan J noted (at paras. 62, 70) that the “the Bundle of Rights … enabled CIBC to sell financial products and services” by “allow[ing] CIBC to tap into LCL’s loyal and extensive customer base.” He had previously stated (at para. 21):

Exclusionary Paragraph (r.5) [para. (r.5) of the financial service definition] is broad. For example, it could exclude from the “financial service” definition “property … that is delivered or made available to” CIBC “in conjunction with” CIBC selling PCF Products to new clients whom it recruited pursuant to the PCF Agreements (if we assume that such contractual rights are the predominant elements of the PC Bank Supply). The exclusion is also broad enough to cover a single compound supply consisting of a predominant element, which is the provision of property, and a secondary element, which consists of, for example, services excluded under paragraph (r.4). It is well established by the case law that in applying the Inclusionary Paragraphs and the Exclusionary Paragraphs, only the predominant elements of the supply are taken into account.

Since “the predominant element of the PC Bank Supply was, at all material times, a taxable supply by virtue of the application of Exclusionary Paragraph (r.5),” such supply was taxable.

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.

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).

Hogan J characterized supplies made to PC Bank by a supplier and its successor as follows (at para. 145):

The main service offered by FDR/TSYS was the automated management and authorization of credit in real time, on behalf of PC Bank, based on the parameters and protocols established by PC Bank. These protocols included measures designed to detect credit fraud and to ensure that the terms and conditions under which PC Bank wishes to grant a credit card loan to a Cardholder are satisfied. All of this is done to avoid loan losses for PC Bank.

After finding that such supplies were excluded from being financial services by para. (r.3) of the financial services definition, Hogan J went on to indicate that he was inclined to the view that the para. (t) exclusion also applied, noting in this regard (at para. 160) that “FDR/TSYS bore very little risk” and that an “indemnity for breach of confidential information is limited to the value of the contracts or $80 million even though the loss suffered by PC Bank may very well be significantly greater.”