Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 247852
Business Number: […]
Dear [Client]:
Subject: GST/HST ruling and GST/HST interpretation
Merchant card processing services
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to merchant card payment processing services acquired by […] (“Merchant”).
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
You have provided a copy of the service applications you submitted to your payment service provider, […] (“ISO”) and a sample invoice issued by ISO to Merchant. In addition, we have reviewed certain agreement Terms of Service as found on the websites of […] (“DeviceCo”), and ISO.
STATEMENT OF FACTS
Based on a review of the information received and obtained, we understand the following:
1. Merchant operates a convenience store located in […][a province], registered under the Business Number […].
2. Merchant recently established a relationship with ISO, for the purpose of acquiring card payment processing services. […]. Two separate application forms were completed:
a. one application was generally for the provision of point of sale mechanisms and/or devices, together with associated software, maintenance and connectivity by DeviceCo; and
b. the second application was generally for the provision of card payment processing services by ISO and […] (“Acquirer”)
3. Different Terms of Service applied to each application, and each application together with its related Terms of Service formed a Merchant Agreement.
4. Under the Merchant Agreement with DeviceCo (the “Device Agreement”), Merchant agreed to pay a monthly equipment rental fee […], a monthly account service fee […], a monthly […][payment card industry] security fee […], and certain transaction fees. These fees were itemized in the application. Under the related Terms of Service (found on DeviceCo’s website) DeviceCo generally provides virtual and physical point of sale mechanisms and devices, a sublicense to use related applications and software, and associated connectivity to enable payment processing and settlement transfers. It also provides warranty and repair services for any physical devices it provides.
5. Under the Merchant Agreement with ISO and Acquirer (the “Service Agreement”), Merchant agreed to pay various transaction fees, the most common of which were listed in the application, but can generally be summarized as interchange fees, transaction fees and card-brand fees. Under the related Terms of Service (found on ISO’s website), it is stipulated that Acquirer (and not ISO) will accept sales drafts from Merchant and present these to card issuers for collection against the cardholders. Acquirer (and not ISO) will also credit the value of collected sales drafts to Merchant’s account. Generally, ISO may assist in the receipt of sales drafts or processing of certain information outside of the stipulated Acquirer’s performance, and will provide most Merchant support/interaction.
6. The sample invoice you provided included all of the fees itemized in points #4 & 5 above, with the exception of the equipment rental fee […]. […][ GST/HST] […] was applied to the full invoice total. It appears the fees related to what DeviceCo provided to Merchant were listed under “Other Fees” on the invoice.
RULING REQUESTED
You would like to know whether […][GST/HST] has been appropriately applied to all the fees, as invoiced to you (as Merchant) by ISO.
INTERPRETATION GIVEN
As noted in paragraph 23 of GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, a ruling provided by the Canada Revenue Agency (CRA) applies only to the person that requested it. In this case you are enquiring about the tax status of a supply made by someone other than yourself. As the determination of the tax status of the supply does not apply to you, we are unable to provide a ruling. However, we are pleased to provide an interpretation of the relevant ETA provisions for your assistance.
EXPLANATION
Supplies made in [a province] are generally subject to [GST/HST] […], unless a specific exemption applies. Of particular relevance in your case, supplies of financial services made in [a province] are generally exempt from [GST/HST] under section 1 of Part VII of Schedule V.
The first step in determining the tax treatment of a transaction between a supplier and a recipient is to identify all of the elements of property or service that are provided as part of the transaction. Where there are multiple elements, it is necessary to determine whether, for [GST/HST] purposes, the transaction amounts to a single supply consisting of all of the elements, or multiple supplies, each of which is a distinct element or group of elements. This determination is critical when the elements would not all have the same tax status if supplied on their own.
Whether a supplier is making a single supply or multiple supplies to a recipient under an agreement between the parties in any given case is a question of fact. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides guidance in making this determination. As noted therein, the provision of property and/or services by two or more suppliers generally indicates that multiple supplies are being made, even if the various supplies are provided together.
What is provided to Merchant by DeviceCo is contracted under the Device Agreement. Where supplies of equipment (on its own) are contracted for under an agreement, this would typically be a separate supply of equipment/mechanisms. No exemption in Schedule V applies to such a supply, and [GST/HST] would typically apply to such supplies […].
The payment processing services are supplied under the Service Agreement entered into between Merchant, ISO and Acquirer. Supplies made by an Acquirer to a merchant under a merchant agreement with respect to the processing of credit and debit card payments within the payment networks are generally viewed to be exempt supplies of financial services. Accordingly, [GST/HST] does not typically apply to the fees for these services […].
You can generally claim input tax credits on your GST/HST return to recover the GST/HST paid or payable on purchases and expenses to the extent you use, consume, or supply them in your commercial activities.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 236-330-8100.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Frankie Fenton
Industry Sector Specialist
Financial Services Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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