Tax Alerts
Fully Discretionary Investment Services Held to be Exempt for GST Purposes
July 2, 2009
A recent court case will be of significant interest to professional investment managers who provide fully discretionary investment management services to clients, as the Federal Court of Appeal recent ruled that these services are exempt for GST purposes. In the Queen v. The Canadian Medical Protective Association), funds were held on a pooled basis for members of a professional organization. An investment firm was engaged to manage the funds, and they had full discretion on investment decisions. In fact, the investment firm implemented some trades on behalf of the fund through its own investment desks. Although it was acknowledged that the firm did provide a valuable service in terms of investment research and choosing investments, and that providing this service to third parties would normally be subject to GST, it was held that those services were an integral part of actually buying and selling specific securities on behalf of the fund. Under the GST rules, services related to the acquisition or disposal of investments are exempt.
What does this mean for your organization?
- If your organization has paid GST on fees similar to those in the court case, and was not entitled to claim a full input tax credit or rebate, you may be eligible to obtain a refund of the GST that was not previously recoverable. In particular, you may be able to recover the tax paid during the last two years. Specific advice will be needed.
- If your organization provides these services and has been charging GST, it may not be entitled to claim input tax credits on expenses incurred in providing these services. For these organizations, they will need specific advice on how this decision will impact their future GST filings.
Note that the Court’s rationale may also apply to fees charged to individual investors where the investment manager has full discretion over the acquisition or disposal of investments, depending on the circumstances.
For more information on how this case will affect you, contact your BDO advisor.
