The 2010 Canadian federal budget was delivered on March 4, 2010.
The budget contains a number of interesting developments and
implications for the Canadian structured finance market.
CSCF ends amid signs of life in the securitization market
The budget confirmed that the Canadian Secured Credit Facility
(CSCF) provided by the Business Development Bank of Canada (BDC)
will, as originally contemplated, conclude at the end of March
2010. In the view of the federal government, the CSCF is having a
positive impact on the availability and cost of financing for
vehicles and equipment. BDC has posted details of completed
transactions (all of which have been completed by way of public
prospectus offerings) on the BDC website (www.bdc.ca/).
New financing initiative for equipment and vehicles
While the CSCF may be drawing to a close, the budget announced
the creation of the Vehicle and Equipment Financing Partnership as
part of the Business Credit Availability Program, which forms part
of Canada's Economic Action Plan. This program will be funded
and managed by the BDC with an initial allocation of $500 million
in funding. The program is intended to provide financing for small
and medium-sized finance and leasing companies. Further details are
to be announced in the coming weeks. Hopefully this program, in
conjunction with an increasingly vibrant securitization market,
will provide a much needed boost to this sector.
A number of Canadian banks have already entered the European and
domestic covered bond market but news from the budget indicates
that there may be increased activity ahead. The government has
indicated that it intends on developing a legislative framework for
the issuance of covered bonds in order to encourage investment and
assist federally regulated financial institutions in diversifying
their funding sources. There are no indications as of yet as to the
anticipated timeline, but this is an encouraging sign for the
covered bond market, which has a lengthy history in Europe but has
only in recent years been accessed by Canadian issuers.
A change in the GST landscape
Generally speaking, financial services are exempt from GST,
whereas services in the nature of management, administration,
marketing or promotional activities are subject to GST. The budget
introduced proposed changes to the definition of "financial
service" and specified certain "asset management
services" that are expressly carved out of the definition of
financial services. Asset management services are services rendered
by a particular person in respect of the assets or liabilities of
another person that is a service of (a) managing or administering
the assets or liabilities, irrespective of the discretionary
authority vested in the particular person; (b) providing research,
analysis, advice or reports in respect of the assets or
liabilities; (c) determining which assets or liabilities are to be
acquired or disposed of; or (d) acting to realize performance
targets or other objectives in respect of the assets or
liabilities. While it remains to be seen how significant the impact
of these changes will be, market participants are encouraged to
review their agreements to determine whether any previously exempt
services have become taxable.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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