Words and Phrases - "transfer of ownership"

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.