Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 78650
XXXXX
June 17, 2008
Subject:
GST/HST INTERPRETATION
Third Party Collection Services
Dear XXXXX:
Thank you for your letter concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to third party collection services. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
We understand that you would like clarification regarding whether all third party collection agency services would be excluded from being financial services as a result of the addition of paragraph (r.2) to the definition of "financial service". You would also like clarification on whether a third party collection agency service provided by a person "at risk" or a person "closely related to a person at risk" would be considered a financial service.
We also understand that you do not have an agreement at this time for us to review to confirm whether a particular supply provided may be considered a financial service.
Interpretation Requested
Are third party collection services provided by a person at risk, or a person closely related to a person at risk, considered supplies of financial services?
Interpretation Given
Generally, most supplies of financial services are exempt supplies under Part VII of Schedule V. In order for a supply to be considered to be a financial service it must first be a supply included in paragraphs (a) to (m) of the definition of "financial service" in subsection 123(1). If a particular service (e.g., a third party debt collection service) is not included in one of these paragraphs, it will not be considered to be a financial service, even if it is included in paragraphs (n) to (t) of the definition of "financial service" or in the Financial Services (GST/HST) Regulations (the Regulations). A service that is both included in any of paragraphs (a) to (m) and not excluded by any of paragraphs (n) to (t) of the definition of "financial service" is a financial service and an exempt supply under Part VII of Schedule V unless it is a zero-rated supply included in Part IX of Schedule VI.
It is a question of fact as to whether a service is included in any of paragraphs (a) to (m) and not excluded by any of paragraphs (n) to (t) of the definition of "financial service."
A creditor may enter into an agreement with a third party collection agency to collect its outstanding debt. Under the agreement the third party collection agency may agree to perform the following tasks/activities:
(a) verifying or obtaining contact information for the debtor;
(b) sending out letters to the debtor advising that the account had been assigned;
(c) calling and writing the debtor advising that the account had been assigned;
(d) persuading the debtor to make payments;
(e) performing financial capacity assessments and making recommendations with respect to the settlement of debts;
(f) maintaining a running calculation of accrued interest on the debt;
(g) monitoring the arrangement to make sure that payments are made by the debtor;
(h) providing weekly collection reports to the creditor;
(i) operating and maintaining access systems so that the creditor can remotely monitor the status of its accounts; and
(j) taking legal action, with the consent of the creditor.
In this case, the third party collection agency is generally considered to be making a single supply of a debt collection service to the creditor that is not included in paragraphs (a) to (m) of the definition of "financial service".
Even where a debt collection service falls within paragraphs (a) to (m) of the definition of "financial service", it will generally be excluded by paragraph (r.2) of the definition of "financial service".
Specifically, paragraph (r.2) excludes from the definition of "financial service", a debt collection service rendered under an agreement between a person agreeing to provide, or arranging for, the service and a particular person other than the debtor, in respect of all or part of a debt, including a service of attempting to collect, arranging for the collection of, negotiating the payment of, or realizing or attempting to realize on any security given for, the debt. It does not exclude a service that consists solely of accepting from a person (other than the particular person) a payment of all or part of an account unless
(i) under the terms of the agreement the person rendering the service may attempt to collect all or part of the account or may realize or attempt to realize on any security given for the account, or
(ii) the principal business of the person rendering the service is the collection of debt.
Only where a third party debt collection service is a service described in any of paragraphs (a) to (m) of the definition of "financial service" and not excluded from the definition by paragraph (r.2) of the definition of "financial service" does the application of paragraph (t) of the definition of "financial service" have to be considered.
Paragraph (t) of the definition of "financial service" excludes a prescribed service from the definition. Section 4 of the Regulations prescribes services for the purposes of paragraph (t). Generally, a prescribed service for this purpose will include the collection and processing of information and any administrative service unless the administrative service relates solely to the making of a payment or the taking of a receipt of dividends, interest, principal, claims, benefits or other amounts. The collection and processing of information or any administrative service will not be a prescribed service if it is supplied with respect to an instrument (e.g., an account) by:
(a) a person at risk,
(b) 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
(c) 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.
As most third party debt collection services are either not included in paragraphs (a) to (m) of the definition of "financial service" or excluded from the definition under paragraph (r.2), it is generally not necessary to consider paragraph (t) of the definition of "financial service" in such a situation. As a result, the fact that the service was to be provided by a person at risk or a person closely related to the person at risk (i.e., a service specifically excluded from being a prescribed service under subsection 4(3) of the Regulations) is generally not relevant.
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
Manager
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content