The Minister reassessed the Appellant to, in
part, include in her net tax HST collectable on commission income that she
received for services rendered in respect of mortgages granted by certain third
The issue before the Court is whether the
services the Appellant rendered in consideration of the commission constituted a
financial service as that term is defined in subsection 123(1) of Part IX of
the Excise Tax Act (the “GST Act”).
The appeal was heard under the Court’s informal
appeal process. The Appellant acted for herself. She was well prepared and was
a credible witness.
I. Summary of Facts
The Appellant acts as a real estate agent and
also assists clients in obtaining mortgages on properties they intend to
She testified that she is required by the
Ontario government, as a result of the nature of the services she provides in
respect of mortgages, to be licensed as a mortgage broker and registered under the
umbrella of a mortgage brokerage firm.
She provided the Court with a copy of her
mortgage broker’s licence issued by the Financial Services Commission of
Ontario. The licence is a “Mortgage Broker/Agent
Licence” and is issued in the Appellant’s name. She testified that she
is a member of the Canadian Institute of Mortgage Brokers and Lenders and the
Canadian Association of Accredited Mortgage Professionals.
With respect to the requirement of being
registered under the umbrella of a mortgage brokerage firm, the Appellant
stated that her brokerage firm is a company that carries on business under the
name The Mortgage Centre.
The Respondent filed a copy of a contract
between the Appellant and The Mortgage Centre. The contract is titled “Independent Contractor Agreement”. Clause 1 of the
agreement states the following:
Company desires to appoint the Mortgage Specialist as a sales representative
for the Company and in consideration for the services to be performed by the
Mortgage Specialist for the Company . . . the Company and the Mortgage
Specialist agree as follows:
The Company shall
retain the Mortgage Specialist, effective as of the date of this Agreement, as
a sales representative of the Company with the specific duties of originating
mortgage and ancillary products and services from consumers. . . .
The Appellant described her role in the issuance
of mortgages as follows:
She first determines the borrowing needs of the
potential borrower (the “client”).
As part of this process she receives a written
mortgage application from the client.
Using an on-line computer program that is only
available to mortgage brokers, she determines if the client qualifies for a
mortgage. She also determines which lenders are willing to loan the funds and
on what terms.
She then explains to the client the various
mortgage products that he/she qualifies for and the identity of the various
lenders that are willing to provide the funds.
Once the client makes a decision, he/she
completes the necessary paperwork and provides the paperwork to the Appellant,
who ensures that it is sent to the chosen lender.
The Appellant works with The Mortgage Centre to
obtain a lending commitment from the chosen lender.
The lender then pays a commission to the
Appellant’s brokerage firm, The Mortgage Centre. The Mortgage Centre retains
25% of the commission and pays the remaining 75% to the Appellant.
The Appellant deals with any subsequent issues
that arise between the client and the lender.
Positions of the Parties
The Appellant argued that her services constituted
the arranging for the granting of mortgages and thus were exempt financial
services under paragraph (l) of the definition of financial services in
subsection 123(1) of the GST Act.
The Respondent argued that the services supplied
by the Appellant were in the nature of administrative services, primarily the
collection of information for The Mortgage Centre. As a result, the services were
not financial services due to the application of paragraph (r.4) of the
definition of financial services in subsection 123(1) of the GST Act.
Application of the Law to the Facts
Subsections 165(1) and (2) of the GST Act
impose the HST on taxable supplies made in Ontario. Taxable supplies are
supplies made in the course of commercial activities.
The Appellant’s activities with respect to
acting as a real estate agent and her activity with respect to mortgages
constituted a business as that term is defined in subsection 123(1) of the GST
As a result, pursuant to the definition of
commercial activity in subsection 123(1) of the GST Act, the services
she provided in the course of this business were supplied in the course of a
commercial activity, unless the supply involved the making of an exempt supply.
The supply of a financial service that is not
zero-rated constitutes an exempt supply (Part VII of Schedule V to the GST
Act). Financial service is defined in subsection 123(1).
Paragraph (l) of the definition reads as follows:
. . .
(1) the agreeing to provide, or the arranging
for, a service that is
(i) referred to in any of paragraphs (a) to (i), and
(ii) not referred to in any of paragraphs (n) to (t).
The Appellant argues that the services she
rendered in respect of mortgages constituted the arranging for the lending of
money. The lending of money is referred to in paragraph (g) of the definition
of financial service.
On the evidence before me, I agree with the
Appellant. I have concluded that, as a question of fact, the Appellant made a
single supply that was arranging for the lending of money. My conclusion is
based upon the following facts.
The Appellant was a licensed mortgage broker.
She identified the potential borrower and
determined whether the borrower qualified for a mortgage.
She identified lenders who were willing to
provide a mortgage loan to the borrower and the various terms under which the
mortgage loan would be provided.
Once the borrower chose a lender and a specific
mortgage, the Appellant took steps to obtain a lending commitment from the lender.
She then completed the lending process by
obtaining the applicable forms from the borrower and providing them to the
In short, she facilitated the entire lending
process by identifying both the borrower and lender and then bringing the
parties together to complete the agreement to lend and borrow money. It is
difficult to think of a clearer situation in which a person (the Appellant) is
arranging for the lending of money.
The Respondent argues that paragraph (l) of the
definition of financial service does not apply because the service provided by
the Appellant is a service referred to in paragraph (r.4) of the definition of
financial service and thus is excluded from paragraph (l) as a result of
subparagraph (ii) of paragraph (l).
Paragraph (r.4) of the definition of financial
service reads as follows:
. . .
but does not
. . .
(r.4) a service
(other than a prescribed service) that is preparatory to the provision or the
potential provision of a service referred to in any of paragraphs (a) to (i)
and (l), or that is provided in conjunction with a service referred to in any
of those paragraphs, and that is
(i) a service of collecting, collating or providing information, or
(ii) a market research, product design, document preparation,
document processing, customer assistance, promotional or advertising service or
a similar service.
Paragraph (r.4) only applies if the service in
question is a service that is preparatory to the provision or the potential
provision of a service referred to in any of paragraphs (a) to (i) or (l) of
the definition of financial service or if the service is provided in
conjunction with a service referred to in any of those paragraphs.
In my view, paragraph (r.4) will only apply if
the service in question is supplied separately from the supply of the financial
service that is referred to in any of paragraphs (a) to (i) or (l) of the
definition of financial service.
In the current appeal, the Appellant only made
one supply, the supply of arranging for the lending of money. She did not make
a second separate supply that could be found to have been preparatory to or
provided in conjunction with the supply of the service of arranging for the
lending of money.
Counsel for the Respondent referred me to the
decision of the Federal Court of Appeal in Global Cash Access (Canada) Inc.
v. The Queen, 2013 FCA 269. My finding is consistent with the finding of
the Federal Court of Appeal in the Global Cash Access appeal. The
Federal Court of Appeal found that there was a single supply of a service set
out in paragraph (g) of the definition of financial service, namely “the making of any advance, the granting of any credit or the
lending of money”. Further the Court held, at paragraphs 37 and 38, that
paragraph (r.4) did not apply since the only supply before the Court was a
single supply of a financial service described in paragraph (g) of the
definition of financial service.
For the foregoing reasons, the appeal is allowed
and the reassessment dated June 26, 2014 is referred back to the Minister for
reconsideration and reassessment on the basis that the supply made by the
Appellant in consideration of the mortgage commissions constituted an exempt
supply of arranging for the lending of money.
Costs are awarded to the Appellant in the amount
at Antigonish, Nova Scotia, this 27th day of July 2016.