CRA finds that a fee paid for taking a financing from signing through to closing bears GST/HST

A lender retained another company in acting as its agent in doing due diligence on the borrower, with whom it had signed a credit agreement but not yet made the loan, and in managing the process through to the closing of the agreement. In finding that a non-refundable up-front fee paid by the borrower to the agent was for a taxable service under the para. (r.4) exclusion from the financial service definition (re the provision of a service preparatory to a listed financial service) rather than being an exempted “arranging for” financial service, CRA stated:

As part of the due diligence for underwriting the transaction, [the loan agent] engages an independent engineer and an insurance consultant to prepare their third-party reports, completes a financial model, prepares a confidential information memorandum for a potential lender, prepares credit documentation with its legal counsel, and arranges for the closing and the funding of the project. The predominant nature of the service … is preparatory in nature to the … potential provision of a financial service, that is, the lending … .

In light of the italicized passage, this ruling arguably is inconsistent with the Global Cash Access line of cases, which finds there to be an exempt financial service if that was what predominantly was being paid for, even if the fee recipient was also doing substantial work to that end.

CRA also ruled that a fee paid to the loan agent by another lender was a taxable loan-management under the para. (r.3) exclusion from “financial service.”

Neal Armstrong. Summaries of 2 May 2019 GST/HST Ruling 150998 under ETA s. 123(1) – financial service – para. (r.4), para. (r.3).