Thank you, Mr. Chairman.
Good afternoon, members of the committee. Thank you for the opportunity to make some comments this afternoon.
My comments are restricted to those parts of part 2 of Bill C-9 that deal with amendments to the Excise Tax Act in relation to the application of GST/HST to financial services and financial institutions. My comments are mainly directed to section 55 of part 2, which excludes a number of specific services from the definition of an exempt financial service, in some cases from January 1, 1991, and in other cases from December 14, 2009. I will identify some real concerns with the unworkability and the widely acknowledged overreach specific to these amendments. I will also highlight escalating, grave, and very widely held concerns among corporate GST registrants and their professional advisors that, whilst they are common to the current amendments, extend to many other amendments to the Excise Tax Act over recent years and to the GST overall.
These concerns relate to the current poor state of legislative maintenance of Canada's GST. Two prominent indicators of that decay are the increasing recourse to very tardy and harsh retroactive amendments many years after the tax and appeal courts have clearly illuminated the effect of the legislation; and the now routine expectation that taxpayers are to file returns and remit very significant amounts of tax, incremental to the effect of the current legislation, based on effective dates of press releases containing no legislation. Subsequently, taxpayers are then expected to file for a further number of years on the basis of a sequence of draft legislative versions, evolving as a function of consultations all conducted after the effective date.
I will refer to the GST throughout, but of course I do mean the GST and the HST as they apply in participating provinces.
Turning now to the specific amendments, section 55 of part 2 changes the GST status of a number of services from being a defined financial service, and therefore from being exempt from GST to being taxable. I will comment first on subclause 55(3) of the bill, dealing with proposed paragraphs 123(1)(r.4) and (r.5) to the act. In the interests of dealing with the time constraints, I have provided committee members with a copy of an article entitled "Semantics Antics", published in the March 2010 CCH Canadian GST Monitor. It provides much more detail on this specific amendment.
In the general scheme of a VAT like our GST, when a financial service or instrument is exempt from GST, then to avoid creating a distortion between those suppliers who sell directly using their employees and those who use independent intermediaries, it is necessary and desirable to also exempt financial intermediation services. These intermediation services include the roles of insurance brokers, mutual fund brokers, agents selling commercial and retail finance, mortgages, and so on.
The wording of this amendment would appear to render taxable a very wide range of financial intermediation services. In fact, it may, at a stroke, completely obliterate exemption of all financial intermediation in Canada.
A brief history of this amendment will be helpful to understanding its stressful impact on Canadian taxpayers. On December 14, 2009, the Department of Finance included five lines in a press release describing an exclusion from exempt intermediation of a service "facilitatory" or preparatory to the provision of a financial service. No specific examples were given.
Two months later, on February 11, 2010, the Canada Revenue Agency, which I will henceforth refer to as the CRA, published GST/HST notice number 250, which provided more information on the effect of the 2009 press release amendment. This notice contained a number of very specific examples of services that were, in the CRA's view, newly taxable effective December 14, 2009. Included within this key change were all commissions paid to mutual fund dealers; commissions paid to anyone, such as an automobile dealer, arranging for the provision of finance; and a range of other intermediation services, all of which had been clearly understood and identified previously as exempt. These were complete U-turns in the government's policy.
