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Investment Advice Taxable, Clarifies Canada's Flaherty

by Mike Godfrey,, Washington

17 December 2009

Canadian Minister of Finance, Jim Flaherty, on December 14 issued a statement containing technical legislative proposals addressing recent court decisions which may have created uncertainty over 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 in order to reduce the compliance burden on business," explained Flaherty, continuing:

"The information that the government has today released will clarify for financial services businesses their GST responsibilities."

The legislative proposals reaffirm the policy intent and provide certainty regarding 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 aforementioned rules will apply to all supplies of these services made after December 14, as well as to past transactions where the suppliers treated these services as taxable.

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