Are the services you provide to your clients GST-taxable? If you are not sure, you might be interested in a revised notice CRA issued in June regarding the application of GST on the delivery of financial services. Notice 250 - Proposed Changes to the Definition of Financial Services defines when GST is required to be charged on financial services and contains several lengthy examples outlining the obligations of investment managers, full service brokers and financial intermediaries like mutual fund sales people. The rules have left much to interpretation of facts, and this has advisors worried, rightly so.

In general, financial services, as defined in subsection 123(1) of the Excise Tax Act (the Act) are exempt. This includes the sale of insurance policies and trailer fees. However, the proposals specify that the following services are not financial services and therefore taxable:

• asset management services;
• credit management services; and
• certain services that are preparatory to or provided in conjunction with a financial service.

Although paragraph (q) of the definition of financial service is not directly amended, its scope will be clarified by the proposed addition of new definitions of the terms "asset management service" and "management or administrative service" to subsection 123(1) of the Act. What is important, according to the Notice, is that " asset management services, provided to an investment plan, or any corporation, partnership or trust whose principal activity is the investing of funds, are considered to be management or administrative services and therefore excluded from the definition of "financial service".” That means, they are taxable.

An investment plan includes a trust governed by:

• a registered pension plan;
• a registered retirement savings plan;
• a registered education savings plan; and
• a mutual fund trust

Example 4 in the notice discussed mutual fund sales: "The buying and selling of mutual fund units are supplies of financial services. In the course of providing services to clients and to the dealer, the mutual fund salesperson agrees to assist investors in purchasing, redeeming and exchanging units held in accounts. While the salesperson provides some services that are preparatory to a supply of a financial service, such as customer assistance, information and advice, the nature of the business and the degree of reliance by the dealer and the investor on the salesperson in effecting a supply of a financial service indicate that the services provided by the salesperson go beyond those that are merely preparatory. The services provided by the salesperson in these circumstances would be included in paragraph (l) as arranging for a financial service and not excluded by any of paragraphs (n) to (t) or proposed paragraphs (q.1) and (r.3) to (r.5).   In other words, the activity would be defined as a financial service under subsection 123(1) of the Excise Tax Act and therefore, exempt from tax.

The notice goes on to explain that "it would be a question of fact as to whether the services provided in any particular case are considered to be a single supply that is made only in consideration of the commission on the purchase of the units or a combination of the commission on the purchase and the trailing commission. The facts and circumstances of each transaction would have to be considered on their own merits.”

• dividend income is not earned income and does not create RRSP contribution room;
• dividend income is investment income for purposes of computing the Cumulative Net Investment Loss account, and the receipt of a dividend may increase access to the capital gains deduction;
• dividends paid from a private corporation to a minor will normally attract the kiddie tax, meaning that they are taxed at the highest possible rate;
• because of the dividend tax credit, the tax treatment of the dividend must be modeled closely where the taxpayer has relatively low income and may be in danger of not utilizing all of his or her personal credits.

Deductions that do not require Approval

• the employee's contributions to a registered pension plan,
• the deduction available to an employee who resides in a prescribed Northern zone,
• union dues,
• contributions to a Retirement Compensation Arrangement or certain other pension arrangements, and
• certain contributions to a Registered Retirement Savings Plan.

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Media Passes Available: Contact The Knowledge Bureau toll free: 1-866-953-4769. Join us for a concentrated, focused day on issues of concern to taxpayers, investors and professional planners in major centres across North America. At this time, we run workshops two times each year: January and November. The Knowledge Bureau workshops are designed to be a solid investment of your time and money. The sessions begin with 8:00 a.m. registration, session begins promptly at 8:30, provide a one-hour break for lunch and end promptly at 4:00 p.m. They are structured to cover taxation topics in the morning and wealth management topics in the afternoon.

The dates are:

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