Federal Court On VISA Supplying Financial Services: Tax Guidance

• Published date: 19 April 2021
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Sales Taxes: VAT, GST, Tax Authorities
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

A recent GST/HST Federal Court of Appeal decision will benefit financial institutions

In Canadian Imperial Bank of Commerce v Canada, 2021 FCA 10, CIBC (the appellant) which issues Visa credit cards, was seeking GST/HST rebates on fees charged by Visa for the supply the bank received as a participant via the Visa payment system. Subsection 123(1) of the Excise Tax Act, defines a supply as "the provision of property or a service in any manner." A supply is any good or service provided by a business, in other words sales. By operating, your business is making supplies (sales) to clients and customers. Transfers, barters, exchanges, licences, rentals, leases, gifts and dispositions are also explicitly captured under the definition of a supply. CIBC argued the tax paid on inputs incurred for purposes of supplying the Visa transaction processing services was in error because the Visa supply was exempt as a financial service. The Canada Revenue Agency, on the other hand, rejected those rebate claims. The Federal Court of Appeal ruled that banks and credit unions can no longer collect GST/HST on credit card transaction processing services, which will benefit financial institutions greatly.

The Tax Court of Canada ruled that Visa supply was subject to GST/HST

Under Canada's GST/HST statutory regime, the supply of a financial service is an exempt supply, on which no GST/HST is payable. The statutory scheme contains a lengthy and complex definition of the term "financial service," a definition that states both what the term means and what it does not include. One of the exclusions is "any administrative service," unless the supplier of the service is a "person at risk," as defined.

Before the case went to the Federal Court of Appeal, CIBC first appealed to the Tax Court of Canada which ruled that Visa's services met the conditions of the inclusions in Paragraphs (a) and (i) of s.123(1) of the Excise Tax Act, which meant that the services are taxable The Tax Court of Canada also delved into paragraph (l) of the inclusions provisions and found that Visa's services were for the purposes of "arranging for" the bank's credit services because it involved the facilitation of payments transfer among issuers, acquirers and merchants. The Tax Court of Canada characterized the Visa supplys "quintessentially administrative in nature because "the benefit that Visa offered CIBC was cost saving and logistical simplification." In conclusion, the Tax Court determined the Visa...