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Paying GST on Investment Management Fees

13/07/2009


​A recent decision rendered by the Federal Court of Appeal (the “Court”) may impact the GST required to be collected, and that has been paid, on investment management fees. In The Queen v. the Canadian Medical Protective Association (CMPA), the Court ruled that discretionary investment management services provided in respect of the management of certain segregated accounts and pooled funds are “exempt financial services” and should not be subject to GST.

The time period to appeal the CMPA case to the Supreme Court of Canada has just passed. Therefore, the government may simply decide to amend the GST legislation in order to effectively overrule, or render inapplicable the Court’s decision. We are now waiting for further direction from the Government.

In the meantime, based on the CMPA decision, there is an opportunity to apply for a rebate of the GST paid on these investment management fees. GST rebate applications are subject to a two year limitation from the date of payment. If you use the services of a discretionary investment manager and pay significant fees to have your portfolio managed, there may be an opportunity to recover the GST paid on the investment management fees.

Please be advised that filing a rebate application may not result in a rebate from the tax authorities. The final outcome of a rebate application will depend on its particular facts and any legislative action taken by the Government.

Are you an Investment Manager?

Are you wondering what will happen if the CMPA case is upheld? How will this impact your business?

Recently, there has been much uncertainty in the tax community as to whether Investment Managers should stop charging GST. At the moment, the consensus seems to be to continue as before and still charge GST and see whether the investors are able to obtain refunds for tax paid in error.

Should the rebates for tax paid in error be accepted as filed, what will that mean for businesses that have been charging GST on their investment management fees?

When a business stops providing commercial, taxable activities and begins to provide exempt activities, there are a number of issues that must be dealt with. Carrying on an exempt business for GST purposes means that GST is not required to be charged on your services provided; however GST can not be recovered on the expenses incurred to run your business.

There is a change in use of all assets no longer being used in taxable activities. There would also be limits as to what, if any, input tax credits can be claimed. These issues could impact how a business is structured. If a business existed by hiring subcontractors who are required to charge GST, it may make more sense to have employees, to limit the non recoverable tax paid. Changing from a taxable business to an exempt business may also impact inter-company transactions such as management fees.

It is important to look at your company’s unique situation to ensure that all possible implications of changing your business to an exempt business are dealt with.

To find out if this is applicable to your situation, please contact one of our ​Tax Team members.