24 January 2018 Ruling 156434

An automobile dealer (the “Dealer”) has entered into various sales contracts with customers, such as conditional sales contracts, credit agreements or sales finance contracts (the “Contracts”) with the “Customers” (purchasing motor vehicles) which entitle the Dealer is entitled to receive a stream of payments from the Customer. The Dealer then assigns the Contracts to a Lender for a payment from the Lender based on the amount to be financed by the Customer under the Contract, and also may be paid a separately-stated fee (set out in the assignment) from the lender a fee in respect of the assignment of the contract. After ruling that the assignment was an exempt supply under para. (d) of “financial service” (on the basis that the conditional sales contracts or credit agreements were “debt securities,” CRA went on to state (after giving a ruling to the same effect):

A fee received by the Dealer from a lender for the assignment of a conditional sales contract or credit agreement forms part of the consideration received for the assignment of the contract, and therefore would not be subject to the GST/HST as the assignment of the contract is an exempt supply.

An auto dealer sold conditional sales contracts or credit agreements arising from its sales to customers to a lender. In connection with ruling that the assignment was an exempt supply under para. (d) of “financial service” (on the basis that the conditional sales contracts or credit agreements were “debt securities,” CRA stated:

The CRA considers a conditional sale to take place when the seller transfers possession of goods to a customer, but ownership passes only after certain conditions are met, such as when the purchase price has been paid in full. In this type of sale, the customer agrees to make payments for the goods over a defined period of time. The customer takes possession of the goods, but the seller keeps title or ownership of the goods until the customer has met the specified conditions. …

Conditional sales contracts and assignments of those contracts provide a financing mechanism to the customer. A credit agreement is similar to a conditional sales contract that entitles the Dealer to receive a stream of payments from the customer. The CRA considers such a contract to be a “debt security” and a “financial instrument” as it represents a right to be paid money.