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: 222354
March 10, 2025
Dear [Client]:
Subject: GST/HST ruling and GST/HST interpretation
Services of arranging for leases and loans
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (“GST/HST”) to certain services of arranging for leases and loans supplied by […](“Agent”). […]
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.
STATEMENT OF FACTS
We understand the following:
1. The Agent was incorporated in the Province of […] and is registered for GST/HST purposes under business number […].
2. The Agent facilitates leases and loans (collectively, “Financing Agreements”) for potential lessors or borrowers (collectively, “Customers”) in respect of property (typically equipment), and similarly facilitates business loans. Agent carries on its business across Canada through a network of independent contractors. Customers may be introduced to these independent contractors through equipment vendors or the through the Agent.
3. The independent contractor works with the Customer to determine which funding option is preferred (leasing or financing) and then gathers pertinent credit information, and a completed application for forwarding to the Agent.
4. When the Agent receives the application package from the independent contractor, it:
a. investigates the credit worthiness of the Customer;
b. identifies the financial requirements and negotiates terms within certain preset limits (see Fact #9);
c. forwards the application to […](“Issuer”) for approval.
5. When the Financing Agreement pertains to an equipment lease, the Issuer purchases the equipment from the vendor and the Customer’s Financing Agreement is a lease. The Agent may arrange for the Issuer’s acquisition of equipment on the Issuer’s behalf.
6. When the Financing Agreement pertains to a loan and security agreement in respect of equipment, the Customer purchases the equipment from the vendor and the Customer’s Financing Agreement is a loan. The Agent registers a security against the Customer on behalf of the Issuer. Alternatively, equipment may not be involved and a Financing Agreement may simply be a business loan.
7. The Agent and Issuer entered into […](the “Agreement”) on [mm/dd/yyyy] in respect of the leases and loans that the Agent arranges on behalf of the Issuer. Generally under the Agreement, the Agent must investigate the applications, including credit worthiness of the customer, the identity of the equipment vendor, and the equipment in question, to ensure they meet the Issuer’s requirements.
8. Under the Agreement, the Issuer has the final right to approve or deny Customers’ applications. For approved applications, the Agent will execute the Financing Agreement with the Customer. Such Agreements are typical printed on the Agent’s letterhead. This step may be performed all or in part by the independent contractor.
9. As consideration for this service, the Issuer pays the Agent a commission in respect of each Financing Agreement successfully funded by the Issuer. The Customer pays no commission to the Agent.
10. In accordance with the Agreement, Issuer provides Agent with “rate cards” from time to time which outline the rental amounts and interest rates applicable to the potential Financing Agreements. The Agent may negotiate certain terms of the Financing Agreements within the amounts and rates specified in the rate cards.
11. Under the Agreement, the Agent is designated as an agent of the Issuer solely for the purposes of:
a. In the case of a lease, ordering the equipment to be purchased on behalf of the Issuer;
b. entering into a Financing Agreement with the Customer; and
c. in the case of a loan, completing any security registrations against the Customer in connection with the particular Financing Agreement.
12. The Agent has no beneficial interest in the Financing Agreements or any related equipment. Any amounts received by the Agent from Customers are held in trust for the Issuer.
13. Under the Agreement, the Agent has some limited authority to resolve Customer service or documentation disputes relating to Financing Agreements, provided that any such resolution is approved in writing by the Issuer prior to finalizing the matter.
14. The Agent is obliged to purchase any financing agreements at their current book value for any applications accepted and funded by the Issuer based on false or misleading representations. The Agent does not otherwise finance the acquisition of equipment that is the subject of a Financing Agreement nor does it make any payments required by a Customer under a Financing Agreement.
15. You have verbally indicated that the Customer has no direct interaction with the Issuer during the application process nor in executing the Financing Agreement.
16. You have indicated that in [yyyy], […][a large percentage] of the commissions the Agent earned were to facilitate leases, and the balance was earned to facilitate loans.
17. It is assumed that the Agent has obtained an address of the Issuer in the ordinary course of business, since the Issuer has submitted this request on the Agent’s behalf.
RULING REQUESTED
You have requested a ruling in respect of the following:
1. Is the Agent making a single supply of administrative services to the Issuer?
2. Is the Agent making any taxable supplies to the Issuer?
3. Are the Agent’s services considered to be made in the province of the Issuer’s address?
4. Is the Agent entitled to claim input tax credits (“ITCs”) in respect of inputs to its supplies made to the Issuer?
RULING GIVEN
Based on the facts set out above, we rule that:
1. The Agent is not making a single supply of administrative services to the Issuer.
2. The Agent is making separate supplies to the Issuer of effecting executed Financing Agreements. These supplies are taxable supplies subject to the GST/HST when supplied in respect of leases. When supplied in respect of loans, they are exempt supplies that are not subject to the GST/HST because they are financial services within the meaning of the ETA.
As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretation Services, the Canada Revenue Agency (CRA) will not issue a ruling where all of the pertinent facts cannot be established. In this case, we are unable to issue a written ruling with respect to requests three and four as they depend on the facts of each specific transaction. However, we are pleased to provide an interpretation, which is a general explanation of the applicable provisions, and how the legislation and/or administrative policy may apply. You will find this under the heading Interpretation Given following the Explanation section below.
EXPLANATION
The service provided by the Agent to the Issuer under the Agreement consists of several elements.
Where an agreement provides for the provision of a combination of services or property, there is an established framework to be used to determine the tax status of a supply. This first requires identifying all of the elements of property or service that are provided as part of the transaction and then determining whether, for GST/HST purposes, the transaction represents a single composite supply that comprises all of the elements, or multiple supplies, each of which constitutes one or more elements. Where a single supply is determined, the next step involves identifying the predominant element(s) of that supply. Finally, one may have to determine the essential character of each supply (be there single or multiple supplies), in order to identify the tax status.
Single/multiple supplies
Whether the provision of a combination of elements under an agreement constitutes a single supply or multiple supplies is a question of fact. GST/HST Policy Statement P-077R2, Single and Multiple Supplies provides guidance for making this determination, including the following principles:
1. Every supply should be regarded as distinct and independent.
2. A supply that is a single supply from an economic point of view should not be artificially split.
3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
The service elements supplied by the Agent under the Agreement include coordinating applications for leases or loans on behalf of Customers, validating applications within the Issuer’s preset requirements, executing Financing Agreements, arranging purchase of equipment on behalf of the Issuer, registering security against a Customer on behalf of the Issuer, and providing other general administrative services, such as collecting, collating, or providing information. Consideration is calculated as a single amount for each successfully funded Financing Agreement, not separately for each element. No commission was paid in respect of rejected applications.
Some of the elements supplied in respect of each potential Financing Agreement differed from one Financing Agreement to the next, and the service may or may not have been in relation to tangible property, depending upon the circumstances of the particular Financing Agreement. Accordingly, we view the Agent to have made a separate supply in respect of each Financing Agreement.
Characterizing the supplies
Since the Agent also performed multiple service elements in respect of each Financing Agreement, we next must determine the predominant element of each supply.
Determining the predominant element(s) of a supply involves considering all of the various components of the Agent’s supply, and identifying the element(s) upon which the commercial efficacy of the supply critically depends, considered from the perspective of the Issuer.
In this particular case, when considered from the Issuer’s perspective, it is our view that the Issuer wished to acquire the Agent’s services of effecting executed Financing Agreements. It is only the successfully funded Financing Agreements that generated revenue for the Issuer, and the Issuer wished to increase its portfolio of loans and leases. The Agent was paid on this basis, and its service was linked to the Issuer’s purpose. In performing these services, the Agent acted as an intermediary between the Issuer and each Customer and caused the Financing Agreements to be executed. Other services such as processing applications, completing security registrations and handling certain Customer issues merely served to enhance this key service element.
Tax status of supplies
Having characterized the Agent’s supplies, we may now determine the tax status of those supplies.
Financing Agreements that are loans
Supplies of financial services are exempt from GST/HST. A supply of a financial service made to a resident of Canada is an exempt supply under Part VII of Schedule V to the ETA. When a person acts as a financial intermediary, certain portions of the definition of “financial service” found in subsection 123(1) are of particular relevance. More specifically, when a person acts as an intermediary in arranging for the issuance of a loan by another person, the intermediary could be viewed to be supplying a financial service in accordance with paragraphs (d) and (l) of the financial service definition. Paragraph (d) of the definition includes the issuance of a loan, and paragraph (l) includes arranging for such issuance.
The expression “arranging for”, as used in paragraph (l) of the financial service definition, is not defined in the ETA. It therefore has its ordinary meaning. The essence of the concept of arranging for a service is bringing together parties to the service as an intermediary.
For a supply by an intermediary to constitute arranging for a financial service, the purpose of the intermediary’s supply must be clearly linked to the provision of the financial service. Further, the intermediary should be involved in the process that culminates in the provision of the financial service to the degree that the intermediary can be considered to cause the financial service to occur, although it is not necessary for the intermediary to be involved in each individual transaction.
Accordingly, when the Agent supplied services of effecting executed Financing Agreements that were loans, we view the Agent to have supplied a financial service for GST/HST purposes, of arranging for the issuance of loans by the Issuer. The Agent’s supply was linked in purpose to the Financing Agreements and the Agent was only paid for successfully executed Financing Agreements. The Agent caused the Financial Agreements to be executed, and the Issuer was wholly dependent upon the Agent’s relationship with the Customer to effect this.
As a result, the commissions that the Agent earns from the Issuer in respect of such Financing Agreements were not subject to GST/HST.
Financing Agreements that are leases
The leasing of equipment does not fall within the definition of financial service. Likewise, arranging for a lease would also not fall within the financial service definition. There are no other exemptions in Schedule V that would apply to the Agent’s services in respect of Financing Agreements that are leases.
Accordingly, the Agent was making taxable supplies to the Issuer in effecting executed Financial Agreements that are leases, and its commissions earned therefrom were subject to GST/HST.
INTERPRETATION GIVEN
As noted above, we provide some general information concerning how the legislation may apply in respect of your third and fourth requests.
Place of supply
The general rules for determining whether a supply is made in or outside Canada are set out in section 142. Paragraph 142(1)(g) deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada, while paragraph 142(2)(g) deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.
Whether a supply made in Canada is made in a participating province or non-participating province is determined by section 144.1 and Schedule IX and where applicable, the New Harmonized Value-added Tax System Regulations (the Regulations). Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Further, under section 144.1, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.
Section 3 of Part IX of Schedule IX provides that, notwithstanding any other part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province under the Regulations.
Under the Regulations, different provincial place of supply rules exist with respect to general services, services in relation to real or tangible personal property and other specific types of services. Whether a particular rule applies in respect of a service will depend upon the facts in each case. Generally, one must first consider whether any specific rule applies to a particular supply; when none of the specific place of supply rules apply, then the place of supply of the service will be determined by the general place of supply rule for services under section 13 of Division 3 of Part 1 of the Regulations.
Where the Agent’s services are limited to arranging a lease with a Customer, the place of supply would generally be determined by section 13 of the Regulations. Pursuant to subsection 13(1) of the Regulations, where a supplier of a service is able to obtain an address in Canada of the recipient, then, subject to sections 14 to 17 of the Regulations, the supply is made in a province if, in the ordinary course of the supplier’s business, the supplier obtains an address in the province that is:
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply, or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
In some cases, however, the Agent appears to arrange for the acquisition of leased equipment on behalf of the Issuer. When this occurs, the place of supply rules for services in relation to tangible personal property may apply.
As indicated in Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province (B-103), whether a service is considered to be in relation to tangible personal property depends on whether there is a direct connection between the service and the property taking into account the objective of the service and the particular circumstances of each case. There are several guidelines that are used to determine whether there is a direct connection between a service and tangible personal property, explained in B-103.
It must first be determined whether the service is designed, developed or undertaken to fulfill or serve a particular need or requirement arising from or relating to the tangible personal property. This guideline involves determining the purpose or objective of the service. The purpose or objective of the service may often be determined by examining a written contractual agreement for the supply between the supplier and the recipient of the service. If there is no formal written agreement, other documentation, such as purchase orders, correspondence between the parties or invoices or receipts may be useful in establishing the purpose or objective of the service.
It must then be determined whether the relationship between the purpose or objective of the service and the tangible personal property is direct rather than merely indirect. If something else comes between the service and the property, the connection will not be considered to be direct.
If the service is aimed at effecting or dealing with the transfer of ownership of, claims on or rights to the tangible personal property, or determining title to the property, the service will generally be regarded as being in relation to the property.
In order to apply the place of supply rules for services in relation to tangible personal property, it is necessary to determine where the property is situated while the service is performed. Note that the place of supply rules for services in relation to tangible personal property rely on the “Canadian element” of the service, which is defined under section 2 of the Regulations to mean the portion of the service that is performed in Canada.
Under section 15 of the Regulations, if a person makes a supply of a service in relation to tangible personal property that is situated in one or more provinces at the particular time when the Canadian element of the service begins to be performed and, at all times when the Canadian element of the service is performed, the property remains in the province in which it was situated at the particular time, the supply is made:
(a) in a participating province if the property is situated primarily in participating provinces at the particular time and:
(i) an equal or greater proportion of the property is not situated in another participating province at the particular time, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the property is situated in another participating province at the particular time; and
(b) in a non-participating province if the property is not situated primarily in participating provinces at a particular time.
Under section 16 of the Regulations, if a person makes a supply of a service that is in relation to tangible personal property that is situated in one or more provinces at the particular time when the Canadian element of the service begins to be performed and, at any time during the period when the Canadian element of the service is performed, the property does not remain in the province in which it was situated at the particular time, the supply is made:
(a) in a participating province if the property is situated primarily in participating provinces at any time when the service is performed, the Canadian element of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the service is not performed in another participating province, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the services is performed in another participating province; and
(b) in a non-participating province if the property is not situated primarily in participating provinces at all times when the service is performed or the Canadian element of the service is not performed primarily in participating provinces.
For additional information regarding the application of the place of supply rules for services, please refer to B-103.
Where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.
A commercial activity of a person (that is not an individual) generally includes a business carried on by the person, except to the extent that the business involves the making of exempt supplies by the person.
Therefore, a person is eligible to claim an ITC in respect of property or a service only to the extent that it has been acquired, imported or brought into a participating province for the purpose of making taxable supplies for consideration.
In this case, the Agent made both taxable supplies and exempt supplies. However it is only eligible to claim ITCs in respect of property or a service that it has acquired, imported or brought into a participating province for the purpose of making taxable supplies of effecting executed Financing Agreements that are leases.
When property or services are acquired both for the purpose of making taxable supplies, and making exempt supplies, an allocation of the consumption or use of property and services will be necessary for the purposes of determining an ITC. When doing so, it may be appropriate to view the property and services as falling into two main categories:
• single-use property and services (inputs) for consumption or use exclusively in a particular activity (i.e., either in making taxable supplies for consideration or otherwise than in making taxable supplies for consideration);
• multiple-use inputs for consumption or use in more than one kind of activity (i.e., both in making taxable supplies for consideration and otherwise than in making taxable supplies for consideration)
There is no apportionment of ITCs for single-use inputs; either an ITC equal to 100% of the GST/HST paid or payable or no ITC is available.
Once all the single-use inputs are identified, it is necessary to consider the remaining tax that was incurred on multiple-use inputs. An allocation method must be adopted to apportion the ITCs. The legislation does not specify any method or formula that must be used to allocate property or services that have been acquired, imported or brought into a participating province for consumption or use partly in the commercial activities of a registrant and partly for other purposes. However, the methods used by a registrant in determining the extent to which property or services are acquired, imported or brought into a participating province by the registrant, or consumed or used by the registrant for the purpose of making taxable supplies for consideration, or for any other purpose, must be fair and reasonable and used consistently throughout the registrant's fiscal year.
Since the Agent supplies some financial services to the Issuer, it should be familiar with the definition of a “de minimis financial institution” found in paragraph 149(1)(b), as there are special rules that apply to financial institutions. In general, a person is considered to be a de minimis financial institution if the person earns a significant amount (>$10M) of interest, certain dividends, or income from separate fees or charges for financial services (such as commissions from Financing Agreements that are loans).
The tests for de minimis financial institutions are explained in GST/HST Memorandum 17-7, De Minimis Financial Institutions. If the Agent is a de minimis financial institution, GST/HST Memorandum 17-12, Input Tax Credit Allocation Methods for Financial Institutions for Purposes of Section 141.02, provides guidance on how financial institutions must categorize their inputs and the ITC allocation methods which apply to each input based on that categorization.
Further information regarding the place of supply rules for services can be found in Technical Information Bulletin B-103, Harmonized Sales Tax – Place Of Supply Rules For Determining Whether A Supply Is Made In A Province.
Further information regarding the claiming of ITCs can be found on GST/HST Memorandums 8-1, General Eligibility Rules, and 8-3, Calculating Input Tax Credits.
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 Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the 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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