Tax & Trade Blog

A recent case has hopefully clarified a huge issue for so called "derivative assessment" of directors and other person potentially at risk for a corporate taxpayer's tax liability.

A recent audit initiative of the Canada Revenue Agency (CRA) has targeted financial service intermediaries – and in particular, member service providers (“MSPs”) that are engaged in business in the credit card/electronic payment industry.  These are the businesses that provide “point of sale” (POS) visa machines to merchants, for customers to use when paying for goods and services purchased in various retail establishments.

While seemingly providing goods and services to the retail merchants, in fact, the MSPs usually enter into contracts with credit card payment processing companies (“Members”), whereby they recruit retail merchants to contract with the Members for the retail merchants’ payment processing needs. The MSPs’ services include negotiating fees with the merchants on behalf of the Members and otherwise acting as the main point of contact for the merchants in respect of their credit card processing matters. The MSPs also provide services in relation to the installation and operation of the point-of-sale credit card processing equipment at the merchants’ retail locations.

Should you really dispute the CRA’s finding that your supplies are taxable and not exempt?

Many of the “exempt” versus “taxable” cases that we see from the GST/HST perspective put the recipient (the one usually arguing for “exempt” treatment) and the supplier at odds.

The recent decision of the Federal Court of Canada (the “FC”) in Canada v. Toronto Dominion Bank, 2018 FC 538, (“TD Bank”) could make it much more difficult for business owners to get personal loans and mortgages.

Subsection 141.01(2) of the Excise Tax Act (“ETA”) deems a property or service acquired for use in a business to be for use in commercial activities only to the extent that it is used in the making of taxable or zero-rated supplies. On the other hand, subsection 141.1(3) provides that any action of a person in connection with the acquisition, establishment, disposition, or termination of a commercial activity is deemed to occur in the course of commercial activities. An apparent conflict therefore exists where a property or service is acquired by a registrant in connection with the acquisition, establishment, disposition or termination of a commercial activity, but where taxable supplies have not yet been made or have ceased: a registrant is deemed to have incurred the property or service in the course of commercial activities by subsection 141.1(3), but also deemed to have incurred same in the course of non-commercial activities by subsection 141.01(2).