Tax & Trade Blog
New Clarity on the Meaning of "financial services"
In The Great-West Life Assurance Company v The Queen (2016 FCA 316) [“Great-West Life”], the Federal Court of Appeal upheld the TCC’s decision that services related to processing claims for drug benefits were not financial services, and so not exempt from GST/HST.
Great West Life Assurance Company (“Great-West”) provides group health benefit plans to employers. Great-West contracted with Emergis Inc. (“Emergis”) to facilitate the payments of drug and dental benefits for plan members. Great-West took the position that the services provided by Emergis were part of the insurance service, and therefore exempt from GST/HST. At trial Great-West sought a rebate for taxes paid in error. The TCC agreed with the CRA, holding that Emergis’s work was not a financial service, but an administrative service and thus subject to GST/HST.
Great-West appealed, arguing that the TCC judge erred in his interpretation of financial services, by inappropriately applying paragraph 4(2)(b) of the Regulations as a limitation on paragraph (f.1) of the definition of “financial services” in the Excise Tax Act (the “ETA”). Great-West argued that in doing so the TCC gave precedence to the Regulations over the ETA. The FCA rejected this argument observing that there is “no conflict in applying the Regulations to limit the application of paragraph (f.1) of the financial service definition”: (at para 33).
In upholding the TCC decision, the FCA affirmed the two-step analytic framework applied to the definition of financial services in Global Cash Access (Canada) Inc. v. The Queen (2013 FCA 269) and added clarity and certainty to a complex area of the law.
We commend the FCA’s decision, as this result conforms with the underlying GST/HST policy that administrative services should be taxable rather than exempt. In this regard, the ETA establishes that financial institutions who choose to outsource their administrative function meet the undesirable result that they must pay GST/HST on the supply of the administrative services, but are unable to claim ITCs on their related inputs.
From the point of view suppliers of administrative services, such as Emergis, the FCA’s conclusion, and the more narrow reading of financial services which it condones, may well be welcomed, as it conforms to the legislative intent which allows such suppliers to claim ITCs on their inputs. On the other hand, given the increased cost to their recipients, it may be that the suppliers of administrative services end up paying for the FCA’s decision, through price reduction demanded by their large institutional clients.
Kathryn Walker & Robert Kreklewetz
Millar Kreklewetz LLP