The Department of Finance has released a backgrounder containing technical legislative proposals addressing recent court decisions, which may have created uncertainty respecting the scope of the definition of “financial service” in the Excise Tax Act.

The information is intended to “clarify for financial services businesses their GST responsibilities,” stated Finance Minister Jim Flaherty.

“It is very important that the Goods and Services Tax (GST) rules be clear in order to reduce the compliance burden on business,” Flaherty added.

The legislative proposals released Monday reaffirm the policy intent and provide certainty respecting 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.

In addition, the proposals confirm that several 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”.

The activities specified in the proposals include:

• 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.

The proposals would apply to all supplies of these services made after Dec. 14, 2009, as well as to past transactions where the suppliers treated these services as taxable.

The backgrounder released by the Finance Dept. provides further details on these measures.

The government said it would introduce legislation at an early opportunity.

IE