Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 81635
Business Number: […]
June 5, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Fees generated by Point of Sale Terminals
Thank you for your letter dated [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to point-of-sale (POS) terminals. We apologize for the delay in responding.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that […](Investor) has purchased POS terminals from […](Supplier). To connect the POS Terminals to the credit card and Interac networks, the Supplier relies on a third party, […](Third Party).
Under the […]([…][Program]), the Supplier sold to the Investor [#] [Program] packages on [mm/dd/yyyy], and charged GST on the total consideration. The [Program] Agreement states that each package includes a POS terminal and […] Software, and that the Supplier agrees to provide to the Investor the systems and services to connect the terminals to the credit card and Interac networks or switches with processing capabilities and access to the networks. In turn, the Investor agrees to engage the services of the Third Party to perform data processing and other services ([…]) in order to connect the POS terminals to the credit card and Interac networks, as well as all maintenance and servicing of the terminals in accordance with the [Program] Agreement.
Retailers do not pay to have a POS terminal placed in their establishment; rather, the retailers agree to charge their customers a fee for each transaction completed on the terminals. According to the Supplier’s website, a [Program] package enables the Investor to earn monthly income from transaction fees, including debit, credit, loyalty, rewards and prepaid card processing fees.
The revenues generated by the POS terminals are divided between the Investor and the Supplier. The [Program] Agreement states that the Supplier will initially receive all such revenue and that the Investor will then be paid [...]% from that amount for each qualifying transaction. […] to the [Program] Agreement explains that the amount of revenue earned by the Investor will be determined from […] based on the number of […] credit and debit transactions performed at the POS Terminals.
INTERPRETATION REQUESTED
You would like to know whether the Investor is engaged in commercial activities for purposes of establishing whether it has a requirement to register for the GST/HST.
INTERPRETATION GIVEN
The determination of whether a particular supply made by the Investor is subject to GST/HST requires a detailed review of the facts and circumstances of the transactions which generally includes a review of the agreement or agreements under which the supply is made. As the information you provided is not sufficiently detailed for us to provide a ruling, we are pleased to provide the following general information which may assist you in making that determination.
Requirement to register for the GST/HST
Subsection 240(1) requires that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST purposes unless, among other things, the person is a small supplier (as defined under section 148). Subsection 123(1) defines “commercial activity” in part as a business carried on by the person (other than a business carried on without reasonable expectation of profit by an individual or a partnership, all the members of which are individuals) except to the extent to which the business involves the making of exempt supplies.
Single / multiple supplies
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. This distinction is important in cases where a combination of services and or property is supplied by a person under an agreement, some of which would be taxable and some of which would be exempt if supplied separately.
Whether services performed by the Investor are considered to be a single supply or multiple supplies under the [Program] Agreement is a question of fact. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides additional information on determining whether a single supply or multiple supplies are being provided.
If it is determined that multiple supplies are being provided by a person, the possible application of sections 138 and 139 should be considered. However, if it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature of the supply. If the predominant element of the single supply is determined to be a financial service, then the supply as a whole will be considered a financial service. This determination will generally be based on written agreements between the person providing the service and the person’s client detailing the actions, responsibilities and obligations of the person in connection with the supply.
When reviewing the limited facts set out above, it is not free from doubt whether a single supply or multiple supplies are being provided by the Investor. If each element of the Investor’s services is determined to be intricately linked to each other with no option to acquire certain services separately, then each element would be considered an integral part of a single supply. If not, then the Investor’s services would be considered the provision of multiple supplies.
Taxable or exempt supplies
Generally, all supplies are taxable unless they are specifically exempt. For instance, services in the nature of management, administration, marketing or promotional activities are normally intended to be taxable as they are not themselves exempt services.
Supplies of financial services are exempt under Part VII of Schedule V unless they are specifically zero-rated under Part IX of Schedule VI (which generally requires that the supply be made by a financial institution to a non-resident and that certain other conditions are met). A service will be a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition.
For example, paragraph (a) of the definition of financial service includes the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange or currency, by crediting or debiting accounts or otherwise. This may be achieved through automatic payments, direct credits, electronic funds transfer or by any other means. Examples of fees for financial services include fees charged for the use of debit cards where the issuer debits the user’s account with the sum expended (via Interac); and for transferring funds through normal banking transactions.
Paragraph (g) includes the making of any advance, the granting of any credit or the lending of money, and paragraph (i) includes any service provided pursuant to the terms and conditions of any agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued. For example, a service of providing retailers with immediate payment for products or services purchased with a credit card by a customer is considered a financial service.
A service performed by a person that is the agreeing to provide, or the arranging for, a financial service is also considered a financial service under paragraph (l) of the definition of financial service. The term “arranging for” is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii), such as agents, brokers and dealers in financial instruments or money.
In determining if an intermediary’s service is included in paragraph (l), all of the facts surrounding the transaction, including the following factors, must be considered:
* the degree of direct involvement and effort of the person in the provision of a financial service referred to in any of paragraphs (a) to (i);
* the time expended by the intermediary in the provision of a financial service referred to in any of paragraphs (a) to (i);
* the degree of reliance of either or both the supplier and the recipient on the intermediary in the course of providing a financial service referred to in any of paragraphs (a) to (i);
* the intention of the intermediary to effect a supply of a financial service referred to in any of paragraphs (a) to (i); and
* the normal activities of an intermediary in a given industry (including whether the intermediary is engaged in business of providing financial services).
However, paragraph (t) of the definition of financial service excludes from its definition, a prescribed service. Section 4 of the Financial Services (GST/HST) Regulations (Regulations) provides that the transfer, collection or processing of information and any administrative service are generally prescribed for purposes of paragraph (t) unless the service is supplied with respect to an instrument by a person at risk, a person that is closely related to a person at risk (where the recipient of the service is not the person at risk or another person closely related to the person at risk), or an agent, salesperson or broker who arranges for the issuance, renewal or variation, or the transfer of ownership, of the instrument for a person at risk or a person closely related to the person at risk.
A “person at risk” is defined in the Regulations to mean a person who is financially at risk by virtue of the acquisition, ownership or issuance by that person of the instrument or by virtue of a guarantee, an acceptance or an indemnity in respect of the instrument, but does not include a person who becomes so at risk in the course of, and only by virtue of, authorizing a transaction, or supplying a clearing or settlement service, in respect of the instrument. An “instrument” is also defined in that subsection to mean money, an account, a credit card voucher, a charge card voucher or a “financial instrument” defined under subsection 123(1).
Where an intermediary provides a number of services including services described by any of paragraphs (n) to (t) as part of an agreement to provide or arrange for a supply of a financial service, the single supply of the bundled services may be a supply of a financial service depending on the facts surrounding the transaction, the above listed factors, and the predominant element of the supply.
Investor’s fee received under the [Program] Agreement
Based on the limited information provided, it does not appear that under the Interac Regulations, the Investor is an Acquirer, (i.e., a person listed as an Interac Association Member who is connected to the Interac networks and offers direct payment services) or an independent sales organisation (a person, other than an Acquirer, who markets or sells acquiring services on behalf of the Acquirer). Rather, the Investor’s business seems to be limited to the ownership of the POS terminals, choosing suitable placements for the terminals, and engaging the Third Party to deliver the processing services required to connect the terminals to the networks.
Even if the Investor’s service under the [Program] Agreement would be considered the agreeing to provide or arranging for a financial service under […][#], […] would likely apply to exclude the service as a financial service since, when considered as a whole, the Investor’s service appears to be predominantly the transfer, collection or processing of information and/or an administrative service performed by a person who is not financially at risk when providing such services.
Under these circumstances, the services provided by the Investor under the [Program] Agreement would be considered taxable services and the Investor would be regarded as being engaged in commercial activities. As such, the Investor would be required to register for the GST/HST (unless considered to be a small supplier) and charge GST/HST on the consideration for the supply of the services (i.e., the transaction fees generated from the POS terminals).
This position is consistent with GST/HST Info Sheet GI-006, ABM Services.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 941-2046. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Paul Lafond
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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