Earlier this year, Canada’s Federal Court of Appeal issued a very important decision in Her Majesty the Queen v. The Canadian Medical Protective Association. The case does not relate to medical services, but to management fees paid in connection with investment management services. As a result, the case is highly relevant to portfolio and investment managers in Canada as well as holding companies.

In a well written decision, the Federal Court of Appeal unanimously determined that:

“[T]he services performed by investment managers cannot be divided. It is a mix. They do not provide advice, since there is no one to provide advice to except themselves. The end result of their services is to ‘cause to occur a transfer of ownership … of a financial instrument.’ They fall within paragraph 123(1)(d) and (l) of the Act,… the services they provide are exempt financial services.”

The Federal Court of Appeal has determined that certain services provided by investment/money/asset managers are exempt suppliers for goods and services tax (“GST”) purposes. However, many persons in Canada have been paying GST and harmonized sales tax (“HST”) on such fees as Revenue Canada (in its various forms) has taken the position that such fees are taxable under the Excise Tax Act (Canada). The Tax Court of Canada disagreed with Revenue Canada and the Federal Court of Appeal has also disagreed with Revenue Canada.

This decision may have an important impact for individual Canadians who have entrusted their hard-earned after-tax (and RRSP) money to mutual fund companies, asset management companies, money management companies, investment management companies, etc., and companies, partnerships and trusts with such services provided within a structure like the Canadian Medical Protection Association. Such individuals, companies, partnerships and trusts may be entitled to claim a refund for GST/HST paid in error. Some amounts paid are significant. But, it does not matter if a person has paid a small amount or a significant amount in error – all would be entitled to claim a refund of GST/HST paid in error.

It is important to note that at the time of writing, it was still possible for the Government of Canada to appeal this decision to the Supreme Court of Canada. It is also important to note that the investment managers who have collected and remitted the GST are not the persons entitled to claim the refund if GST paid in error. They cannot file one big refund claim on behalf of a group of interested parties. Each person who has paid GST to an investment/asset/money manager will have to file a refund claim. The refund claim cannot go back to the beginning of the GST – rather there is a two year limitation period for refund claims of GST/HST paid in error.

We would be pleased to assist persons with large refund claims to compile the evidence to support a refund claim. Those who cannot justify asking for assistance given the amount of the refund claim may click here to obtain the form. Since there may be an appeal, the way to maximize one’s refund is to complete and submit a rebate form for payments made in the last two years and another refund claim for payments as they are made in the future. The reason for the refund claim is set out in Box 1 of the form “Amounts paid in error.” For those persons in the HST provinces, the HST would also be refundable in respect of the investment management “arranging for” fees. If you do not have the information about the investment management “arranging for” fees you have paid, contact your investment/money/asset manager and ask them to provide that information to you in a letter or summary and on their stationery.