On December 14, 2009, the Department of Finance released a Backgrounder containing legislative proposals that deal with recent court decisions that 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 (Canada) (“ETA”).
The proposals respond, in part, to the uncertainty that was created following the April 16, 2009, Federal Court of Appeal decision in The Queen v. The Canadian Medical Protective Association1 in which the Court concluded that fees paid by the Canadian Medical Protective Association (“CMPA”) for discretionary investment management services were exempt financial services within the meaning of the ETA (For a more complete analysis of the decision, see our May 2009 Taxation Bulletin).
The Legislative Proposals
The Government has proposed to amend the definition of “financial service” to clarify that it excludes investment management services2. Specifically, it is proposed that the definition be amended to indicate 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.
Scope of Application
The Department of Finance indicated that the proposals would apply to all supplies of these services made on or after December 14, 2009, and would also apply to past transactions where the suppliers treated these types of services as taxable.