LEGAL TAX SERVICES

LEGAL TAX SERVICES

Lang Michener Internal Presentation April 6, 2010

Cyndee Todgham CherniakTel No.: 416-307-4168E-mail: [email protected]

PROPOSED CHANGES TO “FINANCIAL SERVICES” DEFINITION IN GST

LEGISLATION & GST/HST NOTICE 250

LEGAL TAX SERVICESCyndee Todgham Cherniak, LL.M., J.D., LL.B., B.A.Barrister & Solicitor

Canada Revenue Agency Addition to GST/HST Notice 250

Given the recent tabling of Bill C-9, the Jobs and Economic Growth Act, outlining proposed amendments to the GST/HST treatment of financial services on March 29, 2010 (see http://www.fin.gc.ca/n10/10-025-eng.asp), the CRA will be reviewing and updating this notice to reflect policy intent and the proposed legislation.To ensure that any further guidance has the full benefit of industry and stakeholder input, the CRA is currently considering views, comments and suggestions as it conducts this review.Comments should be sent to:DirectorFinancial Institutions and Real Property DivisionExcise and GST/HST Rulings Directorate14th Floor, Place de Ville, Tower A320 Queen StreetOttawa ON K1A 0L5Telephone: (613) 952-9248Fax: (613) 990-3602


OPPORTUNITIES

• The Addition to GST/HST Notice 250 creates a small window of opportunities

= opportunity for affected financial services businesses

= opportunity to be heard

= opportunity to help prepare CRA administrative position

= opportunity to prevent unnecessary disagreements with auditors

= opportunity to save money in the long run


Slide 4

Department of Finance Announcement

March 26, 2010 Announcement

Minister of Finance Confirms Intent of Proposed GST Changes Affecting Financial Services

Minister of Finance issued a statement to confirm that the December 14, 2009 release, which outlined certain technical proposals with respect to the definition of “financial service” under the Excise Tax Act, was intended to address the uncertainty arising from certain court decisions and not as a change in policy.

“Businesses need clear GST rules,” “The proposed changes contained in the Notice of Ways and Means Motion tabled

in the House of Commons on March 22, 2010 are designed to confirm our long-standing policy intent and restore the situation that existed prior to the court decisions. We are not imposing new taxes.”

Given the foregoing, the Canada Revenue Agency (CRA) is reviewing and updating the technical guidance it has provided in regard to these matters in GST/HST Notice 250. The CRA has also indicated that it welcomes industry and stakeholder views and suggestions as it conducts this review.


Slide 5

News Reports

Week After 2010 Budget Globe & Mail - Ottawa changes GST rules, setting up finance

battle Financial Post - Looming HST will affect nest eggs Financial Post - Critics slam proposed GST applications Financial Post - Opposition cries foul over plans to extend GST Toronto Sun - Flaherty denies new taxes on financial services Times Colonist - HST confusing many in financial services:

Some sections still awaiting assurance they won't be affected


Budget 2010 / Bill C-9

• 55. (1) Paragraph (l) of the definition “financial service” in subsection 123(1) of the Excise Tax Act is replaced by the following:(l) the agreeing to provide, or the arranging for, a service that is (i) referred to in any of paragraphs (a) to (i), and(ii) not referred to in any of paragraphs (n) to (t),

• (2) The definition “financial service” in subsection 123(1) of the Act is amended by adding the following after paragraph (q):(q.1) an asset management service,


Budget 2010/Bill C-9

“asset management service” means a service (other than a prescribed service) rendered by a particular person in respect of the assets or liabilities of another person that is a service of(a) managing or administering the assets or liabilities, irrespective of the level of discretionary authority the particular person has to manage some or all of the assets or liabilities,(b) providing research, analysis, advice or reports in respect of the assets or liabilities,(c) determining which assets or liabilities are to be acquired or disposed of, or(d) acting to realize performance targets or other objectives in respect of the assets or liabilities;“

“management or administrative service” includes an asset management service;



• (3) The definition “financial service” in subsection 123(1) of the Act is amended by adding the following after paragraph (r.2): (r.3) – not applicable to this discussion – relates to credit cards(r.4) a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l), or that is provided in conjunction with a service referred to in any of those paragraphs, and that is (i) a service of collecting, collating or providing information, or (ii) a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service,(r.5) property (other than a financial instrument or prescribed property) that is delivered or made available to a person in conjunction with the rendering by the person of a service referred to in any of paragraphs (a) to (i) and (l),



RETROACTIVE APPLICATION(5) Subsections (1) to (4) are deemed to have come into force on December 17, 1990, except that, for the purposes of Part IX of the Act, other than Division IV of that Part, those subsections do not apply in respect of a service rendered under an agreement, evidenced in writing, for a supply if

(a) all of the consideration for the supply became due or was paid on or before December 14, 2009;

(b) the supplier did not, on or before December 14, 2009, charge, collect or remit any amount as or on account of tax under Part IX of the Act in respect of the supply; and

(c) the supplier did not, on or before December 14, 2009, charge, collect or remit any amount as or on account of tax under Part IX of the Act in respect of any other supply that is made under the agreement and that includes the provision of a service referred to in any of paragraphs (q), (q.1) and (r.3) to (r.5) of the definition “financial service” in subsection 123(1) of the Act, as amended by subsections (1) to (4).


Canada Revenue Agency – GST/HST Notice 250 (Feb 2010)

• Issued in reaction to the December 14, 2009 Department of Finance News Release

• Issued in anticipation of changes definition of “financial services” in Excise Tax Act

• Changes previously stated positions in administrative statements P-239 re “arranging for” P-119 re trailer fees rulings CRA presentations / Q&As, etc.


Slide 11

December 14, 2009 News Release

Minister of Finance released a backgrounder containing technical legislative proposals addressing recent court decisions which may have created uncertainty respecting the scope of the definition of "financial service" in the Excise Tax Act.

"It is very important that the Goods and Services Tax (GST) rules be clear …" “… will clarify for financial services businesses their GST responsibilities." 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": 1) facilitatory services, comprising market research, product design, promotional

services, advertising and the collection of information; and 2) 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.


GST/HST Notice vs GST Policy 119

• In the course of providing services to investors, an investment dealer arranges to purchase units of a mutual fund for an investor. A commission is paid to the investment dealer at the time the units are purchased. In addition, the investment dealer will receive a fee referred to as a "trailer commission or fee" from the fund manager. The prospectus describes these fees as being paid in recognition of the investment advice and ongoing administrative services rendered by the investment dealer to the investors. The “trailer commission or fee” is paid annually subsequent to the arrangement for

the purchase of the units.

• GST/HST Notice 250 (2010): The services provided by the investment dealer, including advice, arranging for the purchase of the units and on-going administrative services for which the investment dealer is paid the commission and subsequent fees would not be a supply of a financial service.

• GST Policy 119 (1994): The trailer fee is part of the consideration for the supply of a financial service under paragraph (l) of the financial services definition in subsection 123(1) of the Act, and is hence exempt from tax.



• InsuranceCo provides specialized group insurance coverage for members affiliated with particular organizations such as banks, large retailers, or associations (the group policyholder). A group insurance master policy is issued by InsuranceCo to a retailer, the group policyholder, who makes the coverage available to its members (certificate holders) under the terms and conditions of the master policy.

The group policyholder offers access to specialized insurance coverage

at a reduced rate to its members in order to enhance the value of the membership relationship.

InsuranceCo is required by contract with the retailer to conduct the necessary insurance coverage-placing activities with members and is usually permitted to use a telemarketing agency for this purpose.

TeleMarketCo is contracted by InsuranceCo to conduct the necessary

insurance coverage-placing activities with the group members.

• The insurance coverage-placing activities consist of a marketing process

which follows a predetermined script jointly prepared by InsuranceCo

and TeleMarketCo. The retailer and/or InsuranceCo may approve/monitor this marketing process. TeleMarketCo contacts the member by telephone, presenting themselves as calling on behalf of InsuranceCo and the retailer, explaining the insurance coverage available, answering questions regarding the insurance coverage, screening the eligibility of the person, preparing the application and forwarding the completed applications to InsuranceCo who grants final approval, underwrites and issues the insurance to the member. TeleMarketCo is compensated on a per-hour basis.

• GST/HST Notice 250 (2010): The supply made by TeleMarketCo to InsuranceCo would not be a supply of a financial service.

• GST Policy 239 (2002): The service provided by TeleMarket Co. to XYZ Co. falls within the meaning of the term “arranging for” in paragraph (l) of the definition of financial service.



• As part of a reorganization of its business Company D wants to sell the business carried on by its subsidiary. Company D enters into an agreement with BBCo, a GST/HST registrant, whereby BBCo will provide a business broker service in order to facilitate the sale of Company D’s subsidiary by means of a sale of the shares of Company D’s subsidiary. BBCo performs the following:

• obtains "listing" for the sale of the business;

• assists Company D in calculating the likely worth of the subsidiary and the price at which the subsidiary’s shares will be offered;

• assists Company D in putting together financial and operating information sufficient to allow BBCo to solicit expressions of interest;

• advertises the subsidiary’s business as being for sale;

• contacts likely purchasers and/or persons who might identify likely purchasers, such as lawyers, accountants and bankers;

• prepares or obtains an offer to purchase the subsidiary’s business from a potential purchaser;

• acts as intermediary between Company D and the purchaser in negotiating the terms of purchase and sale;

• assists a purchaser in arranging financing and advising Company D on providing financing; and,

• liaises with legal counsel for Company D, the purchaser or both

in preparing sales documentation.

• GST/HST Notice 250 (2010): The supply made by BBCo to Company D would not be a supply of a financial service.

• GST Policy 239 (2002): The service provided by BB Co. to the vendor falls within the meaning of the term “arranging for” in paragraph (l) of the definition of financial service.


GST Cases

• 2 Key Cases that Canada Revenue Agency Does Not Like: 1) Canadian Medical Protective Association (FCA 2009,

TCC 2008) - that the investment management services supplied to the CMPA were financial services

2) General Motors (TCC 2008) - that the investment management services rendered in respect of pension plan investments were not financial services

LEGAL TAX SERVICES

Documents

Transcript of LEGAL TAX SERVICES