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The Canadian government has chosen to make many financial services tax exempt under the Excise Tax Act (“ETA”). In particular, under the definition of “financial service” in ss. 123(1) of the ETA, a service is an exempt financial service where it is included in any of paras. (a) to (m), and not excluded by any of paras. (n) to (t). Unfortunately, determining what constitutes a financial service and what ancillary or supporting activities are subject to GST/HST is not always clear. It’s been particularly difficult since the introduction of Bill C-9, the Jobs and Economic Growth Act (“Bill C-9”) on March 29, 2010, which refined the definition of “financial service” in ss. 123(1) to clarify that that services that support the delivery of a financial service that are in the nature of management, administration, marketing or promotional activities are not themselves financial services and are thus taxable.

The Bill C-9 changes have created considerable uncertainty in many industries as to whether exempt financial services under ss. 123(1) prior to the enactment of Bill C-9 remained exempt after the Bill C-9 changes. The uncertainty was particularly felt by issuers, acquirers, merchants, credit card companies, and any other entity that operates in the payment/credit card processing industry where prior to Bill C-9 the ss. 123(1) definition of financial service had been broadly applied to ancillary services in cases such as Costco Wholesale Canada Ltd. v The Queen, 2009 TCC 134.

That said, the question of whether or not parties operating in the payment/credit card processing are supplying exempt financial services has gotten even more uncertain after the recent decision of the Tax Court of Canada (“TCC”) in CIBC v The Queen, 2018 TCC 109 (“CIBC”).

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Given that financial services are exempt from GST/HST under Part VII of Schedule V of the Excise Tax Act, the “financial services” definition in section 123(1) is subject of regular litigation before the Tax Court. 

The definition is structured to delineate what constitutes a “financial service” in paragraphs 123(1)(a) to (m) and what a financial service “does not include” in paragraphs 123(1)(n) to (t)

In SLFI Group - Invesco Canada Ltd. (2017 TCC 78), the Tax Court of Canada recently had another opportunity to deal with these inclusions and exclusions in the financial services definition.  In doing so, the Tax Court applied an unexpectedly broad interpretation of the exclusion found in paragraph 123(1)(q), which deals with the supply of “management services”. 

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