Tax Alerts
Government Retroactively Amends GST Rules for Fully Discretionary Investment Services
December 17 , 2009
In July 2009, we alerted you to a Federal Court of Appeal ruling that that stated that fully discretionary investment services were tax 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 financial services.
On December 14, 2009, the Department of Finance announced that the GST rules will be amended to specifically exclude the following activities from the definition of financial services:
- investment management services, including discretionary investment management services;
- facilitatory services, comprising market research, product design, promotional services, advertising and the collection of information; and
- 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.
With this change, these services will again be subject to GST. These proposed changes will apply to all supplies of these services made after December 14, 2009, as well as to past transactions where the suppliers treated these services as taxable. In other words, the changes will apply on a retroactive basis to past transactions where GST was charged, and all refund requests that may have been sent to the Canada Revenue Agency will be denied.
For more information, contact your BDO advisor.
