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: 111790
Business Number: […]
April 13, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
[…][intermediary - financing]
Thank you for your letter of […] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to transactions contemplated by […] (Corporation). We apologize for the delay in responding.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, 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.
Note that GST/HST Technical Information Bulletin B-105, Changes to the Definition of Financial Service (TIB B-105) has replaced, among other publications, GST/HST Policy Statement P-239, Meaning of the Term “Arranging for’ as Provided in the Definition of “Financial Service”, thereby making the Policy Statement obsolete.
We understand that the Corporation is currently engaged in business as […].
You explained that the Corporation is considering […] assisting customers (Buyers) secure financing on their […][Product A] purchases (Service). Specifically, the Corporation would be approached by the Buyer and the […] (Seller) after a binding purchase and sales agreement has been entered between the two parties to perform the Service for the Buyer.
The Corporation would not be providing financing itself. Rather, its Service would be to facilitate the placement of financing with various financial institutions (Lenders).
As part of the Service, the Corporation would:
* obtain the required credit information from the Buyer;
* complete the financing application form and submit the application to the Lender;
* ensure the […] [Product A] is free of liens and similar encumbrances;
* issue payment to the Seller for the amount financed once the financing application is approved and accepted by the Lender and the funds are transferred to the Corporation; and
* provide any additional information or further assistance to the Buyer or the Seller.
The Lenders would require the Corporation to use standard conditional sales contracts (Contracts) supplied by the Lenders in order to apply for financing on behalf of the Buyer. This requirement ensures that not only the Sellers would have responsibility for providing clear titles to [Product A] but the Contract would require that this obligation be extended to the Corporation.
You provided two sample Contracts with your letter for our review: Contract 1, […], used by […] (Lender1); and Contract 2, […], used by […] (Lender2). You have indicated that other Lenders use similar Contracts.
Contract 1 states, in part, that: […]
Contract 2 states, in part, that: […]
You confirmed that once the financing is approved by the Lender, the Buyer would be aware that it has entered into a Contract with the Lender (i.e., that title to [Product A] would pass to the Buyer only after all instalment payments have been made to the Lender on [Product A]).
[…]
We understand that the Corporation would charge a fee to the Lender for each financing application (Contract) accepted by the Lender. The Corporation may also charge the Buyer a documentation fee if it succeeds in procuring the financing. The Seller would not be charged a fee for the Corporation’s Service. If the Corporation does not succeed in securing the financing, its involvement would end and no fee would be charged to either the Lender or the Buyer.
INTERPRETATION REQUESTED
You would like to know if the Corporation would have a GST/HST obligation with respect to the sale of [Product A] since the Corporation, in its capacity as an intermediary, would be listed as the Seller on the Contract. In particular, you have asked that we confirm that the Corporation would not be required to charge, collect or remit GST/HST in respect of [Product A] since the Corporation’s Service would only be to facilitate the financing of [Product A].
INTERPRETATION GIVEN
The determination of whether the Corporation would have a GST/HST obligation requires a detailed review of the facts and circumstances of the transactions which generally includes a review of all the agreements that clearly describe the actions, responsibilities and obligations of each party involved to the transactions. Although you could not provide us with a factual situation that demonstrates the Corporation’s Service, and a copy of an actual purchase and sale agreement between the Seller and the Buyer, we are pleased to provide the following information based on the facts provided above in order to assist you with this determination.
Generally under a conditional sales contract, the Lender would be assigned the Contract and [Product A] for value equal to the face amount of the contract. The Seller(s), as the legal owner(s) of all the rights and title to [Product A] prior to the acquisition by the Lender, would be deemed to have made a taxable supply of [Product A] and the assignment of the contract to the Lender and therefore would be the person(s) required to charge, collect and remit GST/HST on the supply.
Whether the Corporation would be considered a supplier of [Product A] for GST/HST purposes would be based on the legal substance and commercial reality of the transaction evidenced by the intentions of the parties. Based on the fact that the Lenders would require the Corporation be identified as the Seller on the Contract suggests that the Lenders may presume that the Corporation would hold all the rights and title to [Product A] prior to their acquisition by the Lenders. If this is the case, the Corporation as the supplier of [Product A] would be considered to have made taxable supplies of [Product A] and therefore would have an obligation to charge, collect and remit GST/HST in respect of those supplies.
ADDITIONAL INFORMATION
Under the ETA, all supplies are taxable unless specifically exempt. The determination of whether the supply of the Service made by the Corporation is exempt or subject to GST/HST requires a detailed review of the facts and circumstances of the transactions including a review of the Application / Contract under which the supply is made.
The Corporation’s Service, which is in the nature of a conditional sales credit application processing service, is intended to be taxable as it is not itself a financial service. Moreover, the Corporation’s Service would not be considered the “arranging for” a financial service under paragraph (l) of the definition of financial service in subsection 123(1) since the exceptions to the definition under paragraphs (r.3), a credit management service, and (r.4), a service that is preparatory to the provision of a financial service, would apply to the Service. Accordingly, the Corporation would be required to […] and charge the tax on the Service.
For more information on the application of the GST/HST to financial services, please refer to TIB-B105 mentioned above.
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) 952-9262. 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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