Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



2010 Federal Budget Contains GST Landmine for Financial Services Industry

The March 4, 2010 Canadian Federal Budget attaches a Ways and Mean Motion amending the "financial services" definition in the Excise Tax Act (a.k.a. the GST Legislation).  These legislative amendments are not discussed in the Tax Measures summaries.  This may be because the Department of Finance issued a press released on December 14, 2009 - http://www.fin.gc.ca/n08/09-115-eng.asp.

CNW Group, in an article entitled "Plan Sponsors should pay attention to nuances in the Federal Budget" states:

GST on Financial Services

The budget confirms the government's intention to address recent court decisions on the GST/HST. Of interest to employers was the Federal Court of Appeal decision in The Queen v. General Motors of Canada Ltd., which determined that General Motors was the recipient of investment management services provided with respect to the trust funds of the General Motors pension plans. The Court held that General Motors was entitled to claim input tax credits (ITCs) on such services. The proposed legislation introduced on September 23, 2009 would allow employers to recover ITCs for GST paid on expenses related to commercial activities, but not for GST paid on expenses related to investment activities of the pension plan.

Financial services are generally exempt from GST. On December 14, 2009 the government announced further proposals to specify that investment management services, facilitatory services and credit management services would not be considered financial services.

However, the effects of the changes to the GST legislation will be experienced by car dealers, investments bankers, investment managers, banks, insurance brokers, mortgage brokers, real estate brokers, credit card/affinity card companies, retailers that issue credit cards,  --- and the list goes on.  Any business that previously provided exempt "arranging for" financial services may as of December 14, 2009 be providing taxable services.

The Notice of Ways and Means Motion has retroactive effect back to 1990 (the start of the GST).  So, some businesses may be audited and may see very large of assessments for penalties for failure to collect GST.

Some of these businesses may have been following the Canada Revenue Agency's advice in GST Policy 239  http://www.cra-arc.gc.ca/E/pub/gl/p-239/p-239-e.pdf  wherein the CRA said they were providing exempt supplies and did not have to charge, collect and remit GST.  The CRA has issued a new policy using the same examples, but making different conclusions. http://www.cra-arc.gc.ca/E/pub/gi/notice250/notice250-e.pdf

Some suppliers/recipients who have filed notices of objection and/or notices of appeal to the Tax court of Canada may find some of their best legal arguments have disappeared due to the retroactive legislative amendments.

Affected financial industry businesses and other taxpayers that have agreements for services that were previously determined to be exempt "arranging for financial services" for GST purposes based on previously publishes CRA policies or written rulings should review whether the Budget amendments will negatively affect their activities and require them to change their compliance procedures.

If you have any questions, please do not hesitate to call Cyndee Todgham Cherniak at 416-307-4168.

Leave a Reply

remember my information