Government to Change GST Legislation

Government Clarifies Its Intentions

As most financial services are exempt from GST, the announcement clarifies the government's intention to clarify through legislation that "certain management services" are not considered financial services and therefore are taxable for GST purposes.   

Below is an excerpt from the proposal.

"The legislative proposals reaffirm the policy intent and provide certainty respecting the GST (and, where applicable, the Harmonized Sales Tax) treatment of certain administrative and management services and promotional services by clarifying that such services are not financial services under the Excise Tax Act, and are therefore taxable for GST purposes. The proposals specify that:

investment management services, including discretionary investment management services, are not financial services; the following activities are not financial services as they do not constitute "the agreeing to provide, or the arranging for," a financial service for the purposes of the definition of "financial service":

facilitatory services, comprising market research, product design, promotional services, advertising and the collection of information; and credit management services in respect of a credit or charge card or similar payment card, or a credit, charge or loan account such as credit checking, authorization, valuation, record keeping and monitoring and dealing with payments.

The proposals would apply to all supplies of these services made after today, as well as to past transactions where the suppliers treated these services as taxable."

Background

A recent decision rendered by the Federal Court of Appeal may have impacted the GST required to be collected, and that has been paid, on investment management fees. Based on the decision at the time, there is an opportunity to apply for a rebate of the GST paid on investment management fees.

In The Queen v. the Canadian Medical Protective Association (CMPA), the Court ruled that discretionary investment management services provided in respect of the management of certain segregated accounts and pooled funds are “exempt financial services” and should not be subject to GST.

Canada Revenue Agency (CRA) decided not to appeal the Federal Court’s decision to the Supreme Court of Canada; however, the expectation in the industry and amongst the legal and accounting firms is that CRA will take steps retroactively to ensure that investment management services provided to clients are subject to GST. The government may simply amend the GST legislation in order to effectively overrule, or render inapplicable the Court’s decision.

What this means for clients 

Based on the CMPA decision, there is an opportunity to apply for a rebate of the GST paid on investment management fees. GST rebate applications are subject to a two year limitation from the date of payment. This means that you can apply to CRA to have GST refunded for up to the last two years. You will need to complete CRA Form GST189 (enclosed), and the facts of your situation must be comparable to the facts of the CMPA case.

 We recommend that clients seek independent tax and/or accounting advice to deal with their specific situations.

 To assist clients who decide to file an application for rebate of GST, we have mailed the following documents:

 1. Schedule of the GST amounts paid in the past two years ending Sept 30, 2009.

2. Rebate Form GST 189 (which will need to be completed)

3. Sample of completed Form GST 189

 A guide containing general information and instructions about completing Form GST 189 is available in the link on trhe righthand side of this page. 

 Please be advised that filing a rebate application may not result in a rebate from the tax authorities. The final outcome of a rebate application will depend on its particular facts, and any legislative action taken by the Government.

Going forward

This situation has been discussed in detail at the Investment Counsel Association of Canada (ICAC) of which our firm is a member. The ICAC’s discussions with the Federal Department of Finance and CRA, as well as legal advice we have received, confirms the expectation that we will collect and remit GST, and that clients may choose to make a claim back to CRA. Therefore, we will continue to collect and remit GST on your account(s) to CRA until we receive a directive from CRA to the contrary.