Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
TO:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
CASE NUMBER:
103795
DATE:
May 20, 2008
SUBJECT:
_GST/HST Interpretation
Amounts paid under agreements related to shared cash dispensing transactions
Thank you for your enquiry regarding the application of the Goods and Services Tax (GST) / Harmonized Sales Tax (HST) to amounts payable under two agreements related to shared cash dispensing transactions.
All legislative references are to the Excise Tax Act and the regulations thereunder, unless otherwise specified.
You have provided us with the following two unrelated agreements:
• An XXXXX Agreement (referred to in the rest of this memorandum as the "XXXXX Agreement"), effective XXXXX, entered into between XXXXX and a XXXXX consisting of XXXXX.
• A XXXXX Agreement (referred to in the rest of this memorandum as the "XXXXX Agreement"), entered into between XXXXX.
You would like us to review the two above listed agreements to determine the tax status of the supplies provided under the XXXXX Agreement and under the XXXXX Agreement. Specifically you would like to know:
1. How GST/HST applies to the XXXXX amount paid by XXXXX to XXXXX under XXXXX Agreement and the one-time payment made by XXXXX to XXXXX under XXXXX Agreement.
2. How GST/HST applies to the amounts paid by XXXXX to XXXXX as transaction fees under XXXXX Agreement.
3. Whether XXXXX is entitled to claim ITCs for GST/HST paid or payable on the purchase of ABMs.
Statement of Facts
XXXXX Agreement
1. XXXXX is a XXXXX and is registered for GST/HST purposes. XXXXX owns, leases or operates automated bank/teller machines (ABMs).
2. XXXXX owns, leases or operates XXXXX in Canada under the XXXXX. XXXXX is registered for GST/HST purposes.
3. The parties involved in the XXXXX Agreement have previously entered into agreements governing XXXXX arrangements. Those agreements have been terminated and renegotiated under the XXXXX Agreement.
4. XXXXX Agreement defines XXXXX as any of the XXXXX facilities operating on the Effective Date that are under the control of, and owned by, or leased to or by, XXXXX, and includes the building and other improvements and surrounding access ways, parking areas and other grounds controlled by XXXXX and related to such location. XXXXX Agreement defines XXXXX as any XXXXX facilities under the control of, and owned by or leased by or to, XXXXX that are purchased, leased, opened, obtained or otherwise acquired by XXXXX subsequent to the Effective Date.
5. XXXXX Agreement defines the term "XXXXX Fee" as a fee charged by XXXXX and paid by an ABM user over and above their bank fee and the XXXXX fee in exchange for the privilege of conducting a Transaction.
6. A Transaction is defined in XXXXX Agreement as any cash withdrawal transaction (but not electronic transfers between accounts) by XXXXX and non-XXXXX clients through any XXXXX ABM. A "XXXXX Transaction" is defined in XXXXX as a withdrawal transaction by clients of XXXXX or of XXXXX affiliated or subsidiary companies, banks or other financial institutions on any XXXXX ABM.
7. XXXXX.
8. Based on XXXXX Agreement, XXXXX grants to XXXXX the following:
• The exclusive right to place and maintain (as applicable) XXXXX ABMs in XXXXX and in XXXXX added from time to time;
• An uninterrupted access to each XXXXX containing XXXXX ABMs and to each XXXXX ABM within each XXXXX, during hours that such XXXXX is open for business to the general public;
• Access to each XXXXX for the purpose of installing, maintaining and servicing each XXXXX ABM, including access for armored car servicing for cash-management purposes.
9. XXXXX Agreement provides that nothing in the XXXXX Agreement shall convey ownership of any ABM from XXXXX to XXXXX.
10. XXXXX Agreement provides that XXXXX will charge XXXXX Fees for Transactions. As of the Effective Date, the XXXXX Fee is XXXXX for each cash withdrawal.
11. XXXXX Agreement provide that XXXXX will pay XXXXX an amount based on the number of Transactions conducted at XXXXX ABMs in accordance with the terms set out in XXXXX Agreement (referred to as the XXXXX). XXXXX will only apply to Transactions conducted at XXXXX ABMs located at XXXXX.
12. XXXXX Agreement states that in consideration for XXXXX agreeing to an extension and renegotiation of arrangements governing the operation of XXXXX ABMs in the XXXXX Agreement, XXXXX is to make XXXXX payment to XXXXX. It is to be calculated as the aggregate of :
• The difference between the amount that has been paid to XXXXX under previous XXXXX arrangements for the period from XXXXX to XXXXX, and the amount that would have been earned by XXXXX if the XXXXX terms set out in XXXXX Agreement had been in effect for the same period; and
• An amount equal to XXXXX for each XXXXX ABM referred to in XXXXX Agreement.
13. XXXXX Agreement provides that XXXXX will have the exclusive right to place XXXXX or third-party advertisements on XXXXX ABMs (including toppers), XXXXX screens and transaction receipts.
14. Based on XXXXX Agreement, XXXXX is responsible for the installation, servicing, operation and maintenance of all XXXXX ABMs at XXXXX.
15. Based on XXXXX Agreement and XXXXX Agreement, XXXXX has acquired communication services from a third party provider. XXXXX must pay to XXXXX an amount to compensate XXXXX for the shared use of these telecommunication services.
16. Under XXXXX Agreement, XXXXX is responsible for all expenses related to utilities, including electrical power, lighting, heat and air conditioning and for janitorial services on and around the ABMs in order to keep such areas clean and sanitary.
17. Under XXXXX Agreement, XXXXX shall designate a suitable, accessible and well-trafficked area inside each XXXXX for the location of an ABM. XXXXX shall provide at least XXXXX of space for each XXXXX ABM, and, in any event, at least the amount of space necessary for each such ABM, including space necessary for the installation of each ABM and for its operation and potential servicing.
18. Based on XXXXX Agreement, upon termination of the XXXXX Agreement by XXXXX or the expiration of the Agreement, XXXXX shall pay all expenses for removing the ABMs from the XXXXX and returning the area where the ABM was located to its former condition.
Comments
How GST/HST applies to the XXXXX Amount and XXXXX Payment
Under the XXXXX Agreement, XXXXX provides XXXXX, among other things, the exclusive right to place and maintain XXXXX ABMs in the XXXXX added from time to time. XXXXX is required to pay a fee under XXXXX Agreement.
Also, XXXXX Agreement provides that XXXXX is to pay XXXXX to XXXXX in consideration for XXXXX agreeing to an extension and renegotiation of arrangements governing the operation of XXXXX Agreement.
The amounts that are paid by XXXXX to XXXXX under XXXXX Agreement are consideration for taxable supplies. There is no exempting provision that would apply to these supplies and as a result these supplies are taxable.
It should be noted that the amounts payable by XXXXX to XXXXX under XXXXX Agreement are also consideration for taxable supplies.
Whether GST or HST should be collected in respect of the supply depends on where the supply is made. GST/HST Technical Information Bulletin B-078, Place of Supply Rules Under the HST, provides information on determining where a supply is made.
Generally, under subsection 169(1), as a GST/HST registrant, XXXXX is entitled to claim ITCs for GST/HST paid or payable on purchases acquired for consumption, use or supply in the course of making these taxable supplies. Please refer to the heading "Input tax credit rules" on pages 2 and 3 of the GST/HST Info Sheet GI-006, ABM Services, issued December 2006, for information on the eligibility for ITCs for GST/HST paid or payable on various purchases.
XXXXX Agreement
1. XXXXX and XXXXX are each registered for GST/HST purposes. XXXXX is also registered for GST/HST purposes. XXXXX owns or leases ABMs placed in various XXXXX. XXXXX either owns or leases the XXXXX. XXXXX have entered into a XXXXX Agreement on XXXXX (the XXXXX Agreement).
2. Based on the recitals in the XXXXX Agreement, XXXXX or its third party XXXXX provides systems and services to connect ABMs to the XXXXX network or other networks or switches with processing capabilities and access to the XXXXX network. XXXXX wishes to engage XXXXX to perform data processing and other services in order to provide XXXXX with an online or dial-up system connecting the ABMs owned, leased or placed by XXXXX to the XXXXX system. XXXXX and XXXXX are collectively referred to in the XXXXX Agreement as XXXXX.
3. XXXXX transaction processor for, ABMs, debit terminals and prepaid cash card businesses since XXXXX. XXXXX may use a third party transaction processor that is a member of a payment network to connect ABMs to the payment network.
4. XXXXX Agreement states that XXXXX is to perform for XXXXX data processing and other services in order to provide the System (all necessary software and hardware and peripheral devices operated by or on behalf of XXXXX to enable XXXXX to process ABM Transactions) for each ABM owned, rented or leased by XXXXX is not to purchase, lease, rent or place any third party's ABM in the premises described XXXXX Agreement.
5. Under XXXXX Agreement, XXXXX agrees that it will exclusively process all ABM transactions through XXXXX System for each ABM owned, rented or leased.
6. XXXXX Agreement states that XXXXX will make available, upon XXXXX request, a surcharge that will be levied to all XXXXX network transactions. XXXXX Agreement indicates that the surcharge for approved transactions is XXXXX.
7. XXXXX Agreement provides XXXXX duties and warranties including:
• Provide a space which is adequate for traffic visibility and size for the ABM(s).
• Replenish the cash in the ABM(s) and maintain the cash in an adequate condition and at a level to support the cash withdrawal functions of the System.
• Replenish the ABM supplies in a timely manner so that no customer transaction is delayed, lost or interfered with by the lack of such items.
• Balance the ABM(s) no less than twice weekly or as outlined in the operating instructions.
• Provide customer assistance services to any cardholder needing assistance.
• Participate with XXXXX in training a sufficient number of XXXXX employees to provide replenishment, balancing and customer assistance services.
• Provide and pay for access to electrical power and communication circuits as is necessary to permit operation and utilization of the System.
• Maintain a bank account for settlement purposes.
• Accept financial liability for any out-of-balance condition not corrected by a valid adjustment and for any network penalties or sanctions accessed for adjustments processed untimely or not at all.
• Provide documentation or other assistance required by XXXXX employees or its agents to assist in resolving any chargeback claims.
• Comply with all XXXXX rules, regulations, guidelines, policies and bylaws as amended from time to time.
8. XXXXX Agreement indicates that XXXXX is to pay XXXXX for the services in XXXXX Agreement according to the pricing schedule. XXXXX Agreement lists the fee structure including a fee of XXXXX for each change to the surcharge amount and XXXXX per month for an extended parts warranty. All other services required or requested by XXXXX will be invoiced on an hourly basis or quote basis. An XXXXX fee and XXXXX fee have been crossed out in the XXXXX or waived.
9. XXXXX Agreement provides the details of an extended parts warranty contract. The XXXXX to this contract indicates that XXXXX will provide 7 day per week, 24 hour support and first and second line service for ABM owners. XXXXX contract states that XXXXX will be responsible for rectifying all service and maintenance problems with XXXXX ABM, including the provision of all parts and shipping costs. XXXXX provides for a payment to be made by XXXXX to XXXXX per month in consideration for the services provided by XXXXX.
10. XXXXX Agreement states that XXXXX is entitled to advertise on the exterior or on the screen of the ABM and that XXXXX is to pay XXXXX per month during each month in which any third party advertisement initiated by XXXXX is utilized on the ABM.
11. XXXXX Agreement indicates that the parties to the XXXXX Agreement are not to be construed to be in the relationship of partners, joint venturers, employer and employee or principal and agent.
12. XXXXX Agreement indicates that XXXXX will receive a payment of XXXXX per Transaction.
13. XXXXX Agreement indicates that XXXXX is to pay to XXXXX a transaction fee outlined in XXXXX for each approved XXXXX transaction processed by certain XXXXX ABM after XXXXX. The transaction fees payable to XXXXX are XXXXX per approved XXXXX transaction using a dial-up ABM communication method and XXXXX per approved XXXXX transaction using a hi-speed DSL communication method.
14. XXXXX Agreement provides a listing of contract rates for maintenance services during the term of the XXXXX Agreement.
15. XXXXX Agreement states that XXXXX is required to pay for all infrastructure and operating costs of any high speed communication methodology.
16. XXXXX Agreement states that XXXXX will provide the services of pulling ABM journals from all ABMs located in XXXXX and responding to customer queries for the fee of XXXXX per month per ABM to begin on XXXXX.
17. XXXXX Agreement states that when journal services are being supplied, XXXXX may request XXXXX to provide the service of downloading of predefined coupons and screen graphics to ABMs in XXXXX every four weeks for an additional fee of XXXXX per ABM per month.
How GST/HST applies to the amounts paid by XXXXX to XXXXX as transaction fees
XXXXX owns or leases and operates ABMs placed in its XXXXX. As indicated in XXXXX Agreement, it receives a surcharge fee of XXXXX from cardholders for withdrawing cash from an ABM it owns or leases and operates. The service provided by XXXXX to the cardholder in exchange for this fee is a financial service and is exempt under section 1 of Part VII of Schedule V provided it is not zero-rated under section 1 of Part IX of Schedule VI. XXXXX is not required to collect GST/HST on this supply.
The amounts paid by XXXXX to XXXXX as transaction fees specified XXXXX Agreement as XXXXX per Transaction and the transaction fees specified under XXXXX Agreement payable after XXXXX, are consideration for dispensing cash from the ABM to the cardholder. The service provided by XXXXX to XXXXX in exchange for this payment is a financial service and exempt under section 1 of Part VII of Schedule V provided it is not zero-rated under section 1 of Part IX of Schedule VI. XXXXX is not required to collect GST/HST on this supply.
It should be noted that where XXXXX is making a supply to XXXXX of a right to advertise on the exterior or on the screen of an ABM under XXXXX Agreement that supply is a taxable supply. The XXXXX per month per ABM payable by XXXXX during each month in which any third party advertisement initiated by XXXXX is utilized on the ABM to XXXXX is consideration for that taxable supply. XXXXX would have to collect GST/HST on that supply calculated on the consideration for that supply.
The amounts payable by XXXXX to XXXXX under XXXXX Agreement, which includes fees paid under XXXXX are consideration for a taxable supply of services in XXXXX Agreement. As a GST/HST registrant, the supplier is required to collect and account for tax calculated on the consideration for the supply.
Amounts payable by XXXXX to XXXXX under the XXXXX Agreement, is consideration for a taxable supply of services of pulling ABM journals from all ABMs located in XXXXX and responding to customer queries. As a GST/HST registrant, the supplier is required to collect and account for tax calculated on the consideration for the supply.
Is XXXXX entitled to claim ITCs for GST/HST paid or payable on the purchase of ABMs?
Generally, under subsection 169(1) a GST/HST registrant may claim an ITC for tax paid or payable on the acquisition of property or services based on the extent to which the acquisition is for consumption, use or supply in the course of the registrant's commercial activities. A commercial activity of a person is defined in subsection 123(1) and does not include the making of exempt supplies by the person.
Generally, for capital personal property, subsection 199(2) does not allow an ITC for GST/HST paid or payable on its acquisition unless the capital personal property was acquired primarily (greater than 50%) for use in the registrant's commercial activity. Where the property is to be used primarily in the registrant's commercial activity, the registrant would generally be entitled to claim a full ITC.
Where XXXXX acquires an ABM with the intention of using it for making exempt supplies of financial services only (i.e., dispensing cash to a cardholder), it is not entitled to claim an ITC for GST/HST paid or payable on the purchase of the ABM. However, if XXXXX later begins to use an ABM primarily in a commercial activity (e.g., it leases the ABM to a third party) it may be entitled to claim an ITC related to the ABM at that time.
Generally, under subsection 141.01(5), the method used by a person in a fiscal year to determine the extent to which properties or services are acquired, consumed or used for the purpose of making taxable supplies or for other purposes is to be fair and reasonable and used consistently throughout the year.
Based on our understanding that XXXXX is not a financial institution as defined in subsection 123(1), the above information with respect to ITCs does not take into account any of the special rules for financial institutions.
Should you have further questions or require clarification on the above please contact me at 613-952-9210.
Yours truly,
Dawn Weisberg
Manager
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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