Personal Finance

Fiancial Services are Exempt from GST/HST -- Question.

  • Last Updated:
  • Nov 14th, 2011 8:10 pm
Tags:
None
Member
User avatar
Aug 3, 2010
362 posts
139 upvotes

Fiancial Services are Exempt from GST/HST -- Question.

Ok, so Financial services are exempt from having to charge/remit GST/HST which also means they cannot claim ITCs however are they then not suppose to be charged GST/HST by other companies when these financial services (e.g. TD CanadaTrust) advertise on TV, or make purchases to improve their business (e.g. more office equipment)? Or do these exemptions only apply to the management of money in their care from consumers and not on company-related activity such as advertising or office management?
7 replies
Jr. Member
Jun 4, 2007
117 posts
8 upvotes
Ottawa
brand404 wrote: Ok, so Financial services are exempt from having to charge/remit GST/HST which also means they cannot claim ITCs however are they then not suppose to be charged GST/HST by other companies when these financial services (e.g. TD CanadaTrust) advertise on TV, or make purchases to improve their business (e.g. more office equipment)? Or do these exemptions only apply to the management of money in their care from consumers and not on company-related activity such as advertising or office management?

The tax status of your supplies (in this case exempt) do not affect how other companies invoice you. It only affects your eligibility (in this case, none) for the corresponding ITC.
Member
User avatar
Aug 3, 2010
362 posts
139 upvotes
a1lama wrote: The tax status of your supplies (in this case exempt) do not affect how other companies invoice you. It only affects your eligibility (in this case, none) for the corresponding ITC.

So to clarify are you saying if other companies unrelated to financial services charge GST/HST to this financial institution (e.g. advertising on tv) then they still can claim ITC?
Deal Addict
User avatar
Jun 28, 2005
3361 posts
1108 upvotes
brand404 wrote: So to clarify are you saying if other companies unrelated to financial services charge GST/HST to this financial institution (e.g. advertising on tv) then they still can claim ITC?
What do you mean by "they"? When an exempt entity gets charged GST/HST by its suppliers, the entity has to eat the GST/HST. So if the entity gets charged $113 for advertising ($100 + HST), the entire amount is expensed as the entity cannot claim ITC's.

It is different for zero-rated goods (basic groceries e.g. milk). So if you only sold milk in your store, you would not charge GST/HST but you would be able to recover the $13 for the advertising.
Member
User avatar
Aug 3, 2010
362 posts
139 upvotes
agent86 wrote: What do you mean by "they"? When an exempt entity gets charged GST/HST by its suppliers, the entity has to eat the GST/HST. So if the entity gets charged $113 for advertising ($100 + HST), the entire amount is expensed as the entity cannot claim ITC's.

It is different for zero-rated goods (basic groceries e.g. milk). So if you only sold milk in your store, you would not charge GST/HST but you would be able to recover the $13 for the advertising.

Yes i understand all that but what i am asking is, is a Financial Institution wholly exempt from GST/HST even down to the activities to run the business (ie Advertising, electric bill), or does the exemption just apply to the "services" they provide to their customers. In other words does the exemption (and hence, no ITC claims) only apply to activities such as deposits/withdraws/mortgage/trading (anything connected to their customers) but not to, eg, the business advertising on TV, and so in this case they then can claim ITCs since advertising doesnt relate to the servicing/product aspect of their financial business but actually the running of the business?

From what i am gathering it seems CRA is implying financial institutions services are exempt, but not the entity itself which leaves one to believe they could claim ITCs for any activity not related to financial servicing matters. Please correct me if i am wrong.
Deal Addict
User avatar
Jun 28, 2005
3361 posts
1108 upvotes
brand404 wrote: Yes i understand all that but what i am asking is, is a Financial Institution wholly exempt from GST/HST even down to the activities to run the business (ie Advertising, electric bill), or does the exemption just apply to the "services" they provide to their customers. In other words does the exemption (and hence, no ITC claims) only apply to activities such as deposits/withdraws/mortgage/trading (anything connected to their customers) but not to, eg, the business advertising on TV, and so in this case they then can claim ITCs since advertising doesnt relate to the servicing/product aspect of their financial business but actually the running of the business?

From what i am gathering it seems CRA is implying financial institutions services are exempt, but not the entity itself which leaves one to believe they could claim ITCs for any activity not related to financial servicing matters. Please correct me if i am wrong.
OK. Exempt means exempt. All inputs that is related to the exempt service is not eligible for ITC claim. So if you're a pure financial service bank (just deposits/withdrawals/mortgages) or a condo corp for example, even if you buy a pen for the office or pay parking for your employees, you cannot claim ITC's on any expenses that involve any aspect of the business, period. There is no classification of activities "related to the servicing the product" and "not related to the servicing of the product".

Having said all this, most big banks are not pure banks in that they are involved in some taxable activities such as investment dealer services (e.g. RRSP administration) or safekeeping charges (safe deposit box). The bank must allocate some portion of its costs to these activities (Don't ask how they come up with the formula). It then claims ITC's on the portion of total costs related to these actvities as it must collect GST/HST on these activities.

Hope this clears things up.
Deal Addict
Nov 26, 2005
3214 posts
387 upvotes
Vancouver
bank charges are hst exempt but
brokerage arm of the bank will charge HST on portfolio management fee.
Member
User avatar
Aug 3, 2010
362 posts
139 upvotes
agent86 wrote: OK. Exempt means exempt. All inputs that is related to the exempt service is not eligible for ITC claim. So if you're a pure financial service bank (just deposits/withdrawals/mortgages) or a condo corp for example, even if you buy a pen for the office or pay parking for your employees, you cannot claim ITC's on any expenses that involve any aspect of the business, period. There is no classification of activities "related to the servicing the product" and "not related to the servicing of the product".

Having said all this, most big banks are not pure banks in that they are involved in some taxable activities such as investment dealer services (e.g. RRSP administration) or safekeeping charges (safe deposit box). The bank must allocate some portion of its costs to these activities (Don't ask how they come up with the formula). It then claims ITC's on the portion of total costs related to these actvities as it must collect GST/HST on these activities.

Hope this clears things up.


Big Thank you! That definitely clears things up!

Top