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Status update on the GST treatment of discretionary investment management services


Canadian Indirect Tax News, June 2009 (09-5)

We previously reported that on April 16, 2009, the Federal Court of Appeal (FCA) released decisions in General Motors and the Canadian Medical Protective Association (CMPA), in both cases dismissing the appeals. It is almost certain at this point that the Canada Revenue Agency (CRA) will not appeal either decision.

In respect of CMPA, which more specifically addressed the GST treatment of fully discretionary investment management services, the FCA confirmed the Tax Court’s decision that these management services are GST-exempt financial services, entitling the CMPA to a rebate of tax paid in error on its fees paid to their suppliers for those services.

In spite of this decision, the CRA does not advise service providers to change their billing practices to cease collecting the GST on discretionary investment management services at this time. As we have been advising our clients, purchasers of these services in the appropriate fact scenarios should consider filing protective GST rebate claims for tax paid in error. Eligible claims are limited to GST payable within the past two years. Certain scenarios may not qualify for this exemption; therefore, there are cases where these services continue to be taxable. It is important to understand the particular facts of any investment structure and service relationship to determine whether relief is available in accordance with the CMPA decision.

We have been informed by the CRA that it is working on the policy guidance on this matter which is targeted for release within a couple of months. We have also been told that the Department of Finance is concurrently examining the matter on concerns that it contradicts the Department’s policy position on the tax status of investment management services. Such an examination may lead to amendments to the legislation as a result. In the meantime, protective rebate claims as noted above should be filed as soon as possible.

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