General taxability of franchise fee paid by mortgage broker franchisee
... When a mortgage broker provides an “arranging for” service under paragraph (l) of the definition of financial service in subsection 123(1) of the Excise Tax Act in relation to the supply of the mortgage loan, the mortgage broker is also making an exempt supply of a financial service. ...
When a mortgage broker is a franchisee, and is required to pay to the franchisor a portion of the revenue earned through its exempt activity as part of its franchise fee, the tax status of the franchise fee must be determined based on the franchise agreement. A franchise fee is generally paid for the right to operate a franchise which includes the right to use the name of the franchisor as an advertising tool and any systems made available by the franchisor to facilitate the operation of the franchise. The supply of such a right is a supply of intangible personal property. Supplies of intangible personal property are generally taxable and where the franchisor is a GST/HST registrant, the franchisor is required to charge and collect GST/HST on the franchise fee payable by the franchisee for this right. Where the franchisee is required to include in its franchise fee a percentage of its revenue earned through making exempt supplies of financial services, it is still required to pay GST/HST on the entire franchise fee payable to the franchisor.
The agreement between a franchisor and a franchisee may provide that the franchise fee also includes a percentage of any incentive payments paid to the franchisee by a mortgage lender. For example, a mortgage broker franchisor may enter into an agreement with a mortgage lender which provides for incentive payments to be paid by the lender to the franchisees when certain sales volumes are reached. Where a percentage of these incentive payments form part of the franchise fee, the franchisee is still required to pay GST/HST on the entire franchise fee payable to the franchisor. ...
Incidental promotion of insurance products
...[A] car dealer (the Dealer) sells a car to a customer under a financing arrangement. The Dealer offers the customer creditor disability insurance under which the insurer may pay all or part of the balance owing on the financed vehicle in the event of the disability of the customer. If a customer would like the insurance, the Dealer ensures the customer completes a short application form, the Dealer collects the insurance premium, and forwards the form and the insurance premium to the insurer. The insurer pays the Dealer for its service. The Dealer is making a taxable supply of a promotional and administrative service to the insurer. ...
In the context of insurance, the term “arranging for” in paragraph (l) of the definition of a financial service in subsection 123(1) of the Excise Tax Act is generally intended to include intermediation activities that are normally performed by a person whose principal business is as an insurance agent or broker. A taxable promotional and administrative service provided by a person such as a car dealer does not become an exempt supply of a financial service of “arranging for” the insurer’s supply of insurance simply because the person may be the only point of contact between the customer and the insurer.
