On March 26, 2010, the Honourable Jim Flaherty, Minister of
Finance, issued a statement (the
"Statement") "to confirm" that
the December 14, 2009 news release and backgrounder (the
"Backgrounder"), which outlined proposed
technical changes to the definition of "financial
service" under the Excise Tax Act was intended only
to address "the uncertainty arising from certain court
decisions and not as a change in policy". In our tax update of
February 26, 2010, we noted that the Canada Revenue Agency (the
"CRA") released GST/HST Notice No. 250
("Notice 250") in response to the
Backgrounder, and that while the Backgrounder stated that the
proposals were to "clarify" and confirm the
government's policy, in Notice 250, the CRA went beyond
clarifying, and actually reversed a number of the CRA's own
published positions with respect to what constitutes an exempt
service of "arranging for" a financial service. The
proposed changes contained in the Notice of Ways and Means Motion
as announced in the budget and tabled in the House of Commons on
March 22, 2010 were extremely broad and when combined with Notice
250, suggested a significant change in policy.
The Minister of Finance appears to be responding to critics from
the industry, stakeholders and professionals that Notice 250 and
the proposed rules would result in a large increase in taxes. In
the Statement, the Minister mentions that the legislative proposals
were only intended to "confirm [its] long-standing policy
intent and restore the situation that existed prior to the court
decisions." Mr. Flaherty also clearly states that the
government is not imposing new taxes. In this respect, the
Statement provides that the CRA is currently "reviewing and
updating the technical guidance it has provided in regard to these
matters" in Notice 250, in order to be in line with the
expressed intent of the legislative proposals. Based on the
Minister of Finance's comments, we believe that the CRA will
likely decide to reverse the positions it took in Notice 250 which
were contrary to previously published interpretations. In other
words, if the CRA had previously stated in writing that something
was not taxable (such as automobile dealerships' financing
departments arranging for loans, and trailer commissions on mutual
funds), we believe the CRA is likely to state that these supplies
will continue to be exempt in the revised version of Notice
Unfortunately, as the draft legislation proposed by the Department
of Finance is still extremely broad, unless the draft proposal
language is changed, there will continue to be much uncertainty,
and a number of services which were previously considered exempt
under the old legislation will likely be considered taxable under
the revised legislation even if the CRA revises Notice 250.
The content of this article is intended to provide a general
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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