CRA provides questionable ruling that fees generated by non-Interac-member provider of point-of-sale terminals are not exempt from GST/HST

CRA has ruled (in 17 May 2012: 62492, with a similar interpretation provided in 5 June 2012: 127795) that "independent sales organizations" or ISOs (i.e., organizations which are not Interac Association Members) which sell point-of-sale terminals to merchants and engage an Interac member to provide payment processing services to the merchants are not providing (GST/HST exempt) financial services as the service provided by them is predominantly the transfer, collection or processing of information and/or an administrative service performed by it without being financially at risk - and therefore is deemed to be a taxable service under the Financial Services (GST/HST) Regulations.

This ruling is questionable given that the Interac member is engaged as a subcontracter of the ISO, so that insofar as the merchant is concerned, what it is getting from the ISO is predominantly a payment service.  However, a crucial feature of the structure is that, when the merchant contracts with the ISO, it agrees to pay the fees of the Interac processer out of the per-transaction fees generated from the merchant's customers - so that, arguably, there is a direct supply being made by the Interac processer to the merchant.  Having said that, the ruling is internally inconsistent as it also indicates that the ISO is providing a single supply including [Interac] processing services to the merchant.

Neal Armstrong.  Summaries of 17 May 2012 Ruling 62492 under Financial Services (GST/HST) Regulations and ETA - s. 123(1) - Financial Service and summary of 5 June 2012 Interpretation 127795 under ETA - s. 123(1) - Financial Service.