Working as intended

  • October 11, 2022
  • Jean-Guillaume Shooner and Vanessa Clusiau

On July 19, 2022, the Tax Court of Canada (“TCC”) dismissed a major Canadian Bank’s appeal (the “Bank” or the “Appellant”) regarding the characterization of a supply made by the President’s Choice Bank (“PCB”) to the Bank.

The dispute arose when the Canada Revenue Agency (“CRA”) reassessed PCB for uncollected GST/HST on bundled supplies made to the Bank and further denied the Bank’s rebate claims for GST/HST paid in error to PCB. The CRA was of the view that the supply of bundled rights made by PCB to the Bank was not an exempt “financial service” as defined under subsection 123(1) of Part IX of the Excise Tax Act (Canada) (“ETA”).

In dismissing the Bank’s appeal, Justice Robert J. Hogan determined that the supply made by PCB was excluded from the list of services that qualify as “financial services” in subsection 123(1) of the ETA pursuant to paragraph (r.5) of such definition and, as such, the supply was taxable for GST/HST purposes.


In 1997, as part of their business activities, the Bank and the Loblaws Companies Limited (the “LCL”) entered into two agreements (which were later assigned by LCL to PCB, its indirect wholly-owned subsidiary), a Financial Service Agreement (the “FSA”) and a Loyalty Service Agreement (the “LSA” and collectively with the FSA, the “PCF Agreements”).

Under the PCF Agreements, the Bank was gaining access to, notably, (i) a large network of retail stores where customers could be recruited by the Bank, (ii) the use of a highly regarded brand to entice LCL’s customers to acquire financial services and products from the Bank, (iii) a loyalty program where points could be issued by the Bank to customers, and (iv) the acknowledgement that the Bank would be the party that sold PCB products (collectively, the “Bundle of Rights”). In sum, the Bundle of Rights allowed the Bank to gain access to the large and loyal clientele of LCL (paras. 69-70).

Moreover, pursuant to the PCF Agreements, a team of approximately 15 employees composed of both the Bank and PCB personnel (the “Employees”) were working together to ensure that the business deal was profitable for both parties. The Employees collaborated on, inter alia, product design, promotional services and marketing initiatives with the common objective of enticing LCL’s customers to purchase financial products from the Bank. The FSA was later amended to reflect this collaboration, by changing the manner in which fees were calculated to instead include a revenue share payment.

Based on its initial determination that the supply of the Bundle of Rights was a supply of a financial service as defined in subsection 123(1) of the ETA, PCB did not collect GST/HST on the alleged exempt supply it made to the Bank pursuant the PCF Agreements.

Despite a favourable decision rendered by the TCC in 2009, in which the exempt nature of the Bundle of Rights was confirmed the “2009 Decision”), PCB and the Bank could not rely on Justice Lamarre’s conclusions and findings of fact (para. 6), thanks to a 2010 legislative amendment to the definition of “financial service” in subsection 123(1) of the ETA (with retroactive effect to December 1990) (the “2010 Amendment”) (para. 25). This retroactive amendment that specifically narrowed the scope of services that previously qualified as exempt services now requires a new legal analysis and determination based on the definition of “financial service” as modified pursuant to the 2010 Amendment.


The issue on appeal was whether the supply made by PCB to the Bank pursuant to the PCF Agreements qualified as either a taxable supply or an exempt “financial service” as defined under paragraph 123(1) of the ETA.


Definition of “financial service”

Generally, under the ETA, a supply is a financial service (and is therefore exempt1) if it is listed within any of paragraphs (a) to (m) of the definition (the “Inclusionary Paragraphs”). However, if such supply also falls within any of the exclusions in paragraphs (n) to (t) of the definition (the “Exclusionary Paragraphs”), it is deemed not to be a financial service (and is therefore taxable).

Paragraph (l), one of the Inclusionary Paragraphs, specifically refers to an agreement to provide, or the arranging for, a service referred to in any of (a) to (i) of the Inclusionary Paragraphs. In response to a perceived erosion of the GST/HST tax base following the broad interpretation of the definition of “financial service” by Justice Lamarre in the 2009 Decision, Parliament enacted the 2010 Amendment which provided for the addition of, notably, new paragraphs (r.4) and (r.5) as Exclusionary Paragraphs (para. 30).

Paragraphs (l), (r.4) and (r.5) of the definition of “financial service” in subsection 123(1) of the ETA currently read as follows:


(l) the agreeing to provide, or the arranging for, a service that is

  1. referred to in any of paragraphs (a) to (i), and
  2. not referred to in any of paragraphs (n) to (t)

but does not include


(r.4) a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l), or that is provided in conjunction with a service referred to in any of those paragraphs, and that is

  1. a service of collecting, collating or providing information, or
  2. a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service,

(r.5) property (other than a financial instrument or prescribed property) that is delivered or made available to a person in conjunction with the rendering by the person of a service referred to in any of paragraphs (a) to (i) and (l)….

(our emphasis)

The parties’ positions

The Crown took the position that the predominant element of the supply made by PCB to the Bank was the Bundle of Rights with, as secondary elements, the compound supply of marketing, product of design, and promotional services provided by the Employees (para. 31). According to the Crown, such services were excluded from the definition of “financial service” in subsection 123(1) of the ETA under both the Exclusionary Paragraphs (r.5) and (r.4), respectively. In all cases, the supply made by PCB to the Bank was argued to be a taxable supply.

On the other hand, counsel for the Appellant argued that PCB was acting as an intermediary “to bring the financial services to customers and [PCB’s] major role in the process of providing financial services by [the Bank]” (para. 13). Essentially relying on the 2009 Decision, counsel for the Appellant argued that the arrangement between the Bank and PCB consisted in “arranging for” the provision of financial services to PCB’s customers and constituted an exempt supply of a financial service within the meaning of Inclusionary Paragraph (l).

Counsel for the Appellant also emphasized that the relationship between the parties was of the nature of a partnership or a joint venture. Though the argument could have proven fruitful (since distributions of revenue between partners or joint venturers are deemed not to be a supply for GST/HST purposes), the PCF Agreements expressly excluded any partnership/joint venturer relationship between the parties. As a consequence, the argument was disregarded.


For purposes of rendering his decision, Justice Hogan used a “two-step test” developed by the Federal Court of Appeal in Global Cash Access (Canada) Inc. v. R. and Great-West Life Assurance Co. v. R. to identify the predominant elements of a single compound supply. As a first step, one needs to examine all of the components of the supply that is received. Then, in the event of a compound single supply, the predominant elements of such supply must be identified. This may be achieved by examining the contractual arrangement between the parties, the commercial efficacy of the arrangement and other relevant elements of their business relationship (para. 85).

Having considered the oral testimony and submitted evidence, Justice Hogan concluded that the main reason the Bank entered into the PCF Agreements was to gain access to the clientele of LCL. The predominant element of the supply was therefore the Bundle of Rights that enabled the Bank to sell its financial products and services to the customers of LCL. As such, the compound supply was a taxable supply of the Bundle of Rights subject to the application of Exclusionary Paragraph (r.5).

For their part, the Employees’ main contribution was assisting in marketing research, engaging in promotional activities and ensuring that the arrangement was profitable, all the while protecting LCL’s goodwill (para. 91). As noted by Justice Hogan, the Employees’ main contribution was “at best, a secondary element of the [the supply made by PCB to the Bank]” (para. 91). Notwithstanding the foregoing, even if this component of the supply had been found to be the predominant element, Justice Hogan concluded that such services would also have been excluded from the definition of “financial service” pursuant to Exclusionary Paragraph (r.4) (para. 92).

Key takeaways

This decision confirms the relative effectiveness of the Exclusionary Paragraphs enacted pursuant to the 2010 Amendment further to the 2009 Decision and several other court cases2 in which the taxpayer successfully argued that services which included certain elements of advice and/or administration were exempt financial services. Even when confronted with a prior judgment that was rendered based on the same factual components, the TCC determined it was not bound to the doctrine of res judicata following the enactment of a retroactive legislative amendment (para. 39).

As explained by counsel for the Respondent: “the new [Exclusionary Paragraphs] […] were introduced because Parliament felt that the GST tax base was being eroded by services that were being found to be financial services but that in Parliament’s mind should have been taxable supplies in the first place.” (para. 30). Based on Justice Hogan’s decision, it appears that the supply made by PCB to the Bank should have been a taxable supply from the very beginning as all elements of PCB’s compound supply fall within Exclusionary Paragraphs enacted in 2010.

Note: On August 8, 2022, the Bank filed an appeal with the Federal Court of Appeal.

The authors would like to thank Antonin Lapointe, student, for his collaboration.

Jean-Guillaume Shooner is a partner in the Tax Group at Stikeman Elliot. He specializes in commodity taxation (including Goods and Services Tax/Harmonized Sales Tax, QuĂ©bec Sales Tax and provincial sales taxes), customs, import/export controls, excise taxes, fuel taxes and various international trade issues. Jean-Guillaume acts for major Canadian and multinational corporations and provides strategic advice in the areas of international trade, customs, Goods and Services Tax/Harmonized Sales Tax, sales tax, dispute settlement and regulatory matters. Jean-Guillaume also advises on CUSMA (USMCA) compliance, valuation issues and tariff classification. He has expertise with respect to import and export license requirements for controlled nuclear substances under the Nuclear Non-proliferation Import and Export Control Regulations. Jean-Guillaume’s commodity taxation and customs matters expertise are also recognized by the legal industry’s most prominent directories, including ChambersLexpert and The Legal 500.”

Vanessa Clusiau is an associate in the Tax Group in the MontrĂ©al office of Stikeman Elliot. Having been recruited in 2016, Vanessa has had the opportunity to work in the Litigation, Corporate and Tax Groups. She also completed a litigation secondment with Air Canada and an internship with the Honourable Marie-Claude Lalande of the Superior Court of QuĂ©bec. Vanessa is a graduate of UniversitĂ© de Sherbrooke, where she was named to the Dean's list and won a scholarship from the Association des juristes italo-canadiens in recognition of her academic achievements.”


1 Such supply can also be zero-rated in certain circumstances.

2 Canadian Medical Protective Assn. v. The Queen, [2009] G.S.T.C. 65 (F.C.A.); and Costco Wholesale Canada Ltd v. The Queen, [2009] G.S.T.C. 38 (T.C.C.).