- News Release 2009-115 -

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For purposes of the Goods and Services Tax (GST), and where applicable the Harmonized Sales Tax, unless an exemption is specifically provided, services in the nature of management, administration, marketing or promotional activities that are used as inputs into financial services are intended to be taxable as they are not themselves financial services. Recent court decisions, however, have raised questions as to whether certain services fall within the existing definition of "financial service" contained in subsection 123(1) of the Excise Tax Act. The services, as described more fully below, are investment management services, services that facilitate financial services and services of managing credit.

To clarify the tax treatment of these services under the GST, the Government is announcing its intention to propose legislative amendments to reaffirm the longstanding policy intent and specifically provide that these services are excluded from the definition of financial service.

Investment Management Services

It is proposed to amend the definition of financial service to clarify that it excludes investment management services. Investment management services comprise the management by one person of the assets or liabilities of another person, with or without discretionary authority granted by the other person to manage the assets or liabilities. Investment management services include the full range of investment portfolio management and administration activities such as:

  • research, analysis and advice;
  • determining and directing which assets or liabilities of an investment portfolio are to be acquired or disposed of; and
  • acting to realize performance targets in respect of an investment portfolio.

The proposed amendment would apply to an investment management service rendered under an agreement for a supply if any consideration for the supply becomes due or is paid without becoming due after the Announcement date. It also applies to an investment management service rendered under an agreement for a supply if all the consideration for the supply became due or was paid on or before the Announcement date, unless the supplier did not, on or before that day, charge, collect or remit any amount as or on account of tax in respect of the supply or in respect of any other supply that includes an investment management service and that is made under the agreement.

It is also proposed to amend paragraph (q) of the definition of financial service. Paragraph (q) excludes from the definition of financial service a management or administrative service, or any other service (other than a prescribed service), provided by a person to a recipient that is either an investment plan or a corporation, trust or partnership whose principal activity is the investment of funds, if the person provides management or administrative services to the recipient. Paragraph (q) is proposed to be amended to clarify that the term "management or administrative service" in paragraph (q) includes an investment management service as described above.

The proposed amendment to paragraph (q) applies to a service rendered under an agreement for a supply if any consideration for the supply becomes due or is paid without becoming due after the Announcement date. It also applies to a service rendered under an agreement for a supply if all the consideration for the supply became due or was paid on or before the Announcement date, unless the supplier did not, on or before that day, charge, collect or remit an amount as or on account of tax, in respect of the supply or in respect of any other supply that includes an investment management service and that is made under the agreement.

Services That Facilitate Financial Services and Services of Managing Credit

For greater certainty, it is proposed to amend the definition of financial service to exclude from paragraph (l) of the definition (i.e., "the agreeing to provide, or the arranging for,") a facilitatory service that is preparatory to an actual or intended financial service. A facilitatory service comprises the performance or provision of one or more of the following services:

  • market research, product design, document preparation or processing, customer assistance, advertising, promotional or similar activities; and
  • the collection, collation or provision of information.

It is also proposed to exclude from paragraph (l) a service of managing credit in respect of a credit or charge card or similar payment card, or in respect of a credit, charge or loan account or an account in respect of any advance, where the service is supplied by one person to another person that is granting, or prospectively granting, credit. Managing credit includes:

  • credit checking;
  • valuation;
  • authorization services;
  • making decisions relating to a grant or an application for a grant of credit;
  • creating and maintaining records relating to a grant or an application for a grant of credit on behalf of the credit provider; and
  • monitoring payment record or dealing with payments.

For example, where a merchant enters into an agreement with a bank issuing a credit card, whereby the bank agrees to provide to the merchant the service of advancing money (with respect to the merchant's sales that are charged to the credit card) and the merchant agrees to provide to the bank the service of promoting the credit card at its stores, the proposed amendment would apply to the separate supply made by the merchant and clarify that the merchant's service of promoting the bank's credit card is not a financial service.

The proposed amendment to paragraph (l) applies to a service of managing credit, or a facilitatory service, rendered under an agreement for a supply if any consideration for the supply becomes due or is paid without becoming due after the Announcement date. It also applies to any such service rendered under an agreement for a supply if all the consideration for the supply became due or was paid on or before the Announcement date, unless the supplier did not, on or before that day, charge, collect or remit any amount as or on account of tax in respect of the supply or in respect of any other supply that includes a service of managing credit or a facilitatory service and that is made under the agreement.

Reassessment by Minister of National Revenue

In respect of all the proposed amendments discussed above, the Minister of National Revenue may reassess the net tax of a person under Part IX of the Excise Tax Act in respect of a reporting period of the person to take into account any difference between the net tax that was reported by the person for the reporting period and the net tax of the person for the reporting period that would result after applying the proposed amendments. Any such reassessment must be made on or before the later of: (1) the day that is one year after the day on which an Act containing these proposed amendments is assented to; and (2) the last day of the period for reassessment otherwise allowed under section 298 of the Excise Tax Act for making the reassessment.

However, the proposed amendments will not affect any case that has been subject to a final determination by the courts before the Announcement date.