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: 131194
June 4, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Services supplied related to a loan with respect to the purchase of a vehicle
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the scenario described below. We apologize for the delay in our response.
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.
Based on your incoming letter and a telephone conversation on [mm/dd/yyyy] with a representative of CRA, we understand that your client (ABC Co. Ltd.) provides services to a […] vehicle dealership (dealer) to assist the dealer’s customers in obtaining financing for […] vehicle purchases, such as […]. ABC Co. Ltd. has an agreement with each of its contracting dealers. You have provided a sample of this agreement.
You have indicated that ABC Co. Ltd. is required to register as a Loan Broker in [Province A] and is soon to be registered in [Province B] as well. You have also advised that in [Province C] and [Province D], ABC Co. Ltd. is viewed as a Sales Finance Company.
In your letter you state that ABC Co. Ltd. will provide the following services to the dealer:
* Provide each dealer location with a software program for loan credit applications.
* Obtain credit information from the dealer’s customer (the customer). The credit information is entered into the software program at the dealer's location by the customer or dealer or provided over the phone or by fax directly to ABC Co. Ltd.'s personnel.
* Complete and submit the loan application to up to [#] lending institutions for processing. This includes a review of the application by ABC Co Ltd.’s personnel, matching the credit application of the appropriate lending institution and submitting the loan application.
* Explain to the dealer’s customer the different loan terms, interest rate and payment options available. This is done over the phone or by email.
* Help the dealer’s customer select the type of loan which best suits the customer’s needs.
* Review the terms and conditions with the dealer’s customer.
* Provide and discuss options for credit insurance protection such as life, critical illness, or disability and extended warranties relating to the loan and the product purchased.
* Prepare the contract(s) for the dealer and the dealer’s customer signature;
- contracts are emailed to the dealer;
- the dealer physically presents the contract to the customer for signature;
- the dealer reviews the contract with the customer, obtains a void cheque, photocopies the customer's driver licence, obtains proof of insurance from the customer and collects the down payment if applicable.
* Submit the completed contract to the lending institution for processing;
- the completed contracts are delivered to ABC Co. Ltd. by the dealer;
- ABC Co. Ltd. reviews all documents and delivers the package to the lending institution;
- the lending institution transfers the loan funds to the dealer and then the dealer issues a cheque to ABC Co. Ltd. for the services they performed as well as any other amounts to be settled for the credit insurance protection and extended warranties;
- ABC Co. Ltd. then settles the credit insurance protection and extended warranty contracts.
Based on a telephone conversation of [mm/dd/yyyy] it was confirmed that a finance fee for processing the loan is charged by the dealer to the purchaser. For each successful transaction ABC Co. Ltd will get paid […]% of the finance fee and a percentage of the payment made by the financial institution to the dealer. If a customer agrees to get additional products such as credit insurance protection such as life, critical illness or disability insurance and extended warranties relating to the loan, ABC Co. Ltd will complete the necessary paperwork related to those products and will get paid a percentage of the amount received by the dealer for that work. Currently, HST is being collected and remitted on amounts that are received with respect to the warranties.
ABC Co Ltd. is not a party to any of the agreements with the financial institutions. It is the dealer that has a contractual relationship with the financial institutions. The dealer is paid by the financial institutions and ABC Co Ltd. gets a share of the proceeds for the services they provide to the dealer.
INTERPRETATION REQUESTED
You would like to know:
* if the supply of the service provided by ABC Co. Ltd. to the dealer is a supply of an exempt financial service;
* if the finance fee charged to the customer by the dealership is subject to GST/HST;
* if the portion of the finance fee paid by the dealer to ABC Co. Ltd. is subject to GST/HST; and
* if ABC Co. Ltd. is considered a financial institution pursuant to subsection 149(1).
INTERPRETATION GIVEN
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.
Based on the information provided, ABC Co. Ltd. provides a number of services to the dealer. Whether ABC Co. Ltd. is making a single supply or multiple supplies 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, including the following principles.
1) Every supply should be regarded as distinct and independent.
2) A supply that is a single supply from an economic point of view should not be artificially split.
3) There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
When reviewing the information above, it appears that each element of the service is intricately linked to each other and that ABC Co. Ltd. would be providing a single supply to the dealer. Where ABC Co. Ltd. is providing a single supply to the dealer, the predominant element of the supply must be established. If the predominant element of the single supply is a financial service, then the supply as a whole will be considered a financial service.
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.
A financial service includes, for example, under paragraph (d), the issue, granting and transfer of ownership or repayment of a financial instrument. A “financial instrument” is defined in subsection 123(1) and includes a “debt security” which, in turn, is defined under that provision to include a right to be paid money (e.g. under a loan). A financial service also includes under paragraph (g), the making of any advance, the granting of any credit or the lending of money. An activity performed by a person that is the “arranging for” a financial service is also a financial service and is included under paragraph (l) of the definition of financial service in subsection 123(1).
Where a person is assisting customers in obtaining a loan, it is important to determine whether the person is providing a supply of a financial service under paragraph (l), of “arranging for” a service referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t). To do so, it must first be determined whether an “arranging for” service is provided and if so whether that financial service is the predominant element of the supply.
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 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 a business of providing financial services).
Where a dealer charges a fee for processing a loan some of the activities undertaken by the dealer, such as assisting with the loan application, may fall within paragraph (l) of the definition of financial service. However, as clarified by paragraph (r.4), most of the services being provided by the dealer as described in the facts would generally be excluded from the definition of financial service. For additional information on this issue please refer to example 14 of GST/HST Technical Information Bulletin B-105, Changes to the Definition of Financial Service, that illustrates a similar situation.
Paragraph (r.4) excludes from the definition of financial service, 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) of the definition of financial service, or that is provided in conjunction with such a service referred to in any of those paragraphs, that is:
• a service of collecting, collating or providing information, or
• a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service.
Currently, no services are prescribed or proposed to be prescribed for the purposes of paragraph (r.4).
Where a dealer provides a service in relation to obtaining financing for their customers (whether it is “arranging for” or not) and subcontracts ABC Co. Ltd. to provide part or all of that service, the service performed by ABC Co. Ltd. would generally not in itself qualify as an “arranging for” service as it would generally be considered an input to the dealer’s service. Moreover, services in the nature of management, administration, marketing or promotional activities are intended to be taxable as they are not themselves financial services.
Based on the information provided the services performed by ABC Co. Ltd. would generally be considered predominantly administration services of obtaining credit information from purchaser, completing the loan application, explaining loan terms to purchaser, preparing contracts for the dealer, submitting the completed contracts to lending institutions, and would not be a financial service under paragraph (l) of the definition of financial service. Even if the supply would be included in paragraph (l) it would generally be excluded from the definition of financial service by paragraph (r.4) of the definition.
Financial Institutions
A listed financial institution under paragraph 149(1)(a) includes a bank, a credit union, an insurer and a person whose principal business is a trader or dealer in, or a broker or salesperson of, financial instruments or money.
A person may also be considered a de minimis financial institution under paragraphs 149(1)(b) or (c) if they earn a significant amount of interest, certain dividends, or income from separate fees or charges for financial services.
Based on the information provided ABC Co. Ltd. would not generally be considered a financial institution as described in subsection 149(1). For additional information on financial institutions, please refer to GST/HST Memoranda Series 17-6, Definition of "Listed Financial Institution” and p.5 of GST/HST Guide RC4419, Financial Institution GST/HST Annual Information Return.
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 613-952-9210. 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,
Dawn Weisberg
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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