Debt security definition
Debt security is generally defined in the Excise Tax Act as a right to be paid money. The right of one party to be paid money only comes into existence once an obligation has been performed by another party. In the case of a contingent right, however, a right to be paid money is possible, but not assured, as the payment is conditional upon the occurrence or non-occurrence of some event in the future which may never happen. Therefore, the meaning of debt security is interpreted such that a "right to be paid money" does not include a contingent right.
Ruling
The purchase for $75,000 by DEF from ABC of a right of ABC to receive fees from an investment manager firm (equal to a percentage of billings generated by that firm from clients referred by ABC to the firm) did not qualify as the purchase of a debt security because "a 'right to be paid money' does not include a contingent right." CRA stated:
The supply by ABC sales contractor to DEF sales contractor does not qualify as an exempt financial service as the supply does not constitute the transfer of a debt security. Instead, it is the Department's view that ABC sales contractor is making a supply of personal property in the course of his/her commercial activities and, accordingly, the supply is subject to the GST pursuant to subsection 165(1) of the Excise Tax Act.
