Tax Insights: 2023 Federal budget ─ GST/HST and financial institutions

April 03, 2023

Issue 2023-15

In brief

On March 28, 2023, the federal government presented its 2023 budget, which included the following measures that could impact certain financial institutions:

  • the Goods and Services Tax/Harmonized Sales Tax (GST/HST) treatment of payment card clearing services
  • the tax treatment of credit unions

Also, the Canada Revenue Agency (CRA) recently released a GST/HST Info Sheet on the GST/HST treatment of credit card surcharges.

This Tax Insights provides details on these measures and how they could affect businesses and financial institutions.

In detail

GST/HST treatment of payment card clearing services

In Canadian Imperial Bank of Commerce v. The Queen, 2021 FCA 10, the Federal Court of Appeal ruled that GST/HST does not apply to supplies of payment card clearing services rendered by a payment card network operator (e.g. Visa or Mastercard), as the supply falls within the definition of a financial service.

The 2023 federal budget proposes to amend the definition of “financial service,” in subsection 123(1) of the Excise Tax Act (ETA), by excluding these services from the definition to ensure that such services are subject to the GST/HST. Draft legislative proposals released with the federal budget introduce clause (r.6) into the “does not include” section of the financial service definition, ensuring that these services are taxable.

This measure will apply to a service rendered under an agreement for a supply if:

  • any consideration for the supply becomes due, or is paid without becoming due, after March 28, 2023, or
  • all of the consideration for the supply became due, or was paid, before March 29, 2023, except in very limited situations

The change in law applies retroactively for purposes of the imported taxable supply rules and, with respect to services supplied by GST/HST registrants (e.g. Visa), the change is retroactive in situations where the supplier charged, collected or remitted:

  • an amount as or on account of GST/HST, or
  • any amount as or on account of tax "in respect of any other supply that is made under the agreement" (this exclusion may ultimately result in suppliers that stopped collecting GST/HST to issue an invoice, assuming the legislation is enacted without any change)

The new provision also allows for the Minister of National Revenue to assess, reassess or make an additional assessment at any time (despite the limitation periods provided for in section 298 of the ETA) on or before the later of the day that is:

  • one year after the day on which the legislation enacting this section receives royal assent
  • the last day of the period otherwise allowed for under section 298

For rebates that were claimed, those rebates may now be denied and any rebates that were paid may be reassessed by the CRA. The 2023 federal budget estimated that the financial impact of this change will result in revenues of $195 million.

Tax treatment of credit unions

Credit unions are subject to specific income tax and GST/HST rules. The current definition of a “credit union” for purposes of the Income Tax Act and the ETA excludes an entity that earns more than 10% of its revenue from sources other than certain specified sources (e.g. interest income from lending activities). The 2023 federal budget proposes to amend the credit union definition by eliminating this revenue test and by reflecting the way that credit unions currently operate (i.e. as full service financial institutions). These amendments will apply to taxation years ending after 2016.

Credit card surcharges

On March 27, 2023, the CRA released GST/HST Info Sheet GI-200: Application of the GST/HST to Credit Card Surcharges, which clarifies the GST/HST treatment of credit card surcharges. A credit card surcharge is generally a fee that is charged by the merchant to the customer for using their credit card to purchase goods and services at their establishment. The Info Sheet states that a credit card surcharge “will generally be treated as consideration for a separate supply of a financial service where it is shown and charged separately from the consideration for the property or service purchased” and that the credit card surcharge will be considered a financial service that will not be subject to GST/HST.

For purposes of the Info Sheet, a credit card surcharge is a fee that is:

  • charged to the cardholder solely for the acceptance of the use of the credit card as a payment method and is not charged if another payment method is used
  • imposed by the merchant who provides, to the cardholder, the property or service that is purchased with the use of the credit card, and
  • subject to the relevant payment card network rules relating to surcharging, including rules regarding the calculation and level of the fee

Based on the Info Sheet, the CRA generally views a credit card surcharge to be a financial service under part (i) of the ETA’s definition of a financial service and will therefore not be subject to GST/HST. 

The takeaway

Credit card issuers and payment processors that have purchased services from a payment card network operator should closely monitor the progress of the proposed changes and consider the impact that the retroactive changes may have on their respective GST/HST filings. To the extent GST/HST was not assessed on imported services, they should consider amending their GST/HST filings to report the GST/HST owing, including the “net tax” implications for “selected listed financial institutions.” In situations where GST/HST was paid to the respective suppliers, they should cease filing rebate claims for tax paid in error.


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Brent Murray

Brent Murray

Partner, PwC Law LLP

Tel: +1 416 947 8960

Brian Machin

Brian Machin

Director, PwC Canada

Tel: +1 416 687 9190

Samantha Delatolas

Samantha Delatolas

Senior Manager, PwC Canada

Tel: +1 514 705 3718

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Sabrina Fitzgerald

Sabrina Fitzgerald

National Tax Leader, PwC Canada

Tel: +1 613 898 2113