Exempt financial services (GST/HST)

Lenders, insurers and similar businesses meet this term when a deal turns on how the business treats tax on its own costs. Section 123(1) of the Excise Tax Act defines “financial service” through a list that includes the lending or borrowing of a financial instrument, the making of an advance or the granting of credit, and the payment or receipt of an amount in full or partial satisfaction of a claim arising under an insurance policy.

What to check or ask

• Which of the business’s services fall within the list in section 123(1). Among its exclusions, the definition leaves out the service of providing advice, other than the services in paragraphs (j) and (j.1)
• Whether the business also makes taxable supplies, because the effect on input tax credits then depends on how its costs relate to each kind of supply
• Whether the business is a listed financial institution or a de minimis financial institution, which the CRA’s guide for registrants describes

The contrast with other supplies is set out in zero-rated vs exempt supplies, and the GST/HST on a business sale guide covers the sale itself.