Financial Services and the GST/HST: What is Taxable?

There has been some question as to what constitutes a financial service and what ancillary or supporting activities are subject to GST/HST. Financial services are listed in subsection 123(1) of the Excise Tax Act and are exempt from GST/HST. Activities that support the delivery of a financial service, such as management, administration and promotion, are excluded from the definition of financial services and are, therefore, taxable.  Bill C-9, the Jobs and Economic Growth Act, attempted to refine the definition of these activities and there has been further discussion since it was introduced on March 29, 2010. Bulletin B-105, released on February 9, 2011, attempts to clarify this through eighteen examples taken from a cross section of the industry.

Highlighted in Bulletin B-105 are three activities that are not financial services: asset management services, credit management services and preparatory services. The question of a group of services, some of which are taxable and some of which are tax exempt, is also discussed. The distinction between single supply and multiple supply must be made, and the reader is referred to GST/HST Policy Statement P-077R2 Single and Multiple Supplies. The term "arranging forî in the context of financial activities is also discussed; this refers to services provided by intermediaries.

Several of the examples in B-105 will resonate with readers of the Knowledge Bureau Report. Example 3 refers to a full service broker; his activities are considered to be "arranging for a financial serviceî and, therefore, within the definition of "financial serviceî and tax exempt. Example 4 refers to a mutual fund salesperson in receipt of sales and trailing commission for sales and ongoing client service. He is considered a "financial intermediaryî and his activities too fall within the definition of "arranging for a financial serviceî. Although there is no example for a fee-for-service financial planner, the list of exclusions in the Excise Tax Act includes "the service of providing adviceî so one would assume that this service is GST/HST taxable. It is always a good idea to enlist the advice of an accountant to make sure that any business activities undertaken comply with current tax legislation.

ADDITIONAL EDUCATIONAL RESOURCE: Master Your Money Management, Basic Bookkeeping, Advanced Bookkeeping and EverGreen Explanatory Notes