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
Case Number: 102654
Business Number: XXXXX
July 10, 2009
Dear XXXXX
Subject:
GST/HST RULING
GST status of Finder's Fee on Private Placements of Shares
In your letter of XXXXX you requested that we review our ruling issued XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your supplies of services for which the consideration is a finder's fee. We apologize for the delay in providing you a response.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
As part of our review of the above noted ruling, we have also carefully considered and thoroughly reviewed the information and various documents provided by you including the following:
• your letters of XXXXX;
• the blank sample Finder's Fee Agreement (standard FFA);
• the blank XXXXX including XXXXX and related correspondence to that placement;
• various signed agreements between XXXXX and the following persons:
- XXXXX
- XXXXX
- XXXXX
- XXXXX
- XXXXX
- XXXXX
- XXXXX
- XXXXX
- XXXXX;
• a letter agreement issued by XXXXX confirming payment of a finder's fee to you XXXXX;
• a letter from XXXXX referring to a payment of the finder's fee earned in connection with a recent private placement;
• a list of XXXXX invoice numbers for finder's fees related to private placement offerings; and
• various correspondences between you and certain corporations seeking financing through private placements (Issuers).
Statement of Facts
Based on the information provided including during various telephone conversations with you, we understand the following:
1. You are registered for GST/HST purposes XXXXX. According to our records, your business activity includes XXXXX.
2. You are a Canadian resident.
3. In XXXXX, you extended your business to act as a finder of "accredited investors" for corporations that are issuers of a "private placement" offering.
• "Accredited investor" refers to person who meets the definition of "accredited investor" as defined in Part 1.1 of National Instrument 45-106 entitled "Prospectus and Registration Exemptions" implemented by the Canadian Securities Administrators.
• "Private placement" refers to an issuance from treasury of securities for cash without Prospectus disclosure, in reliance on one or more of the exemptions under applicable Securities Laws, including the issuance of shares for debt, acquisition, take-over bid or offering by a Short Form Offering Document.
4. To act as a finder, you research and may correspond with companies to find investing opportunities that meet the objective criteria of your investors in order to identifying an issuer in need of financing and ascertain the dollar amount sought, timeline, share price, warrant price and other terms of the offering. Once an issuer has been identified, you discuss the specific terms of the financing and negotiate a finder's fee with the issuer.
5. Once you have an accredited investor or accredited investors interested in the suggested terms provided by a specific issuer, the issuer will forward a blank subscription agreement for each potential investor with the signed Finder's Fee Agreement.
6. In all XXXXX private placement transactions, you have forwarded, either by email, fax or in person, the applicable blank subscription agreement to the accredited investor(s). Prior to forwarding the subscription agreement, you review the agreement to ensure that the terms and conditions are as agreed. Where you have found errors, you have taken steps to have these errors corrected. You are not contractually obligated to the issuer or an investor to carry out these activities.
7. You communicate with the investors to facilitate timely delivery of funds and executed subscription agreements to the appropriate issuer. XXXXX.
8. XXXXX.
9. The Finder's Fee Agreements (based on the standard FFA) entered into between the Issuer and you (the Finder) provides, in part:
• XXXXX.
• XXXXX:
- XXXXX
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
10. The Finders Agreement dated XXXXX between you (XXXXX) and XXXXX XXXXX. (XXXXX) (XXXXX) states that it is to confirm the agreement of the parties regarding finder's fees which may be payable to you in respect of private placements (XXXXX) by XXXXX of its securities to accredited investors (Investors) introduced to XXXXX by you and provides, in part:
• XXXXX.
• XXXXX:
- XXXXX.
- XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
11. The Finder's Agreement dated XXXXX between you (XXXXX) and XXXXX states that it is to confirm the agreement of the parties regarding finder's fees which may be payable to you in respect of private placements (XXXXX) by XXXXX of its securities to accredited investors (Investors) introduced to XXXXX by you and provides, in part:
• XXXXX.
• XXXXX:
- XXXXX; and
- XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
12. XXXXX.
13. XXXXX.
14. Since XXXXX, you have been charging GST on your supplies of services for which the consideration is a finder's fee.
15. You are not a licensed securities broker, dealer, or investment advisor XXXXX.
16. XXXXX.
Ruling Requested
You would like to know if the supply of your services as a finder is an exempt supply of a financial service.
Ruling Given
Based on the facts set out above, we rule that the supply of your services to an issuer of a private placement offering for which the consideration is a finder's fee is taxable for purposes of the GST/HST.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The GST/HST is a transaction based tax and for each transaction the supplier must determine whether GST/HST is applicable.
In order to determine the tax status of a particular supply, it is necessary to consider what the supplier provided for the consideration received. In doing so, it is also necessary to consider what the parties to the supply transaction agreed to in the context of the recipient's needs. Where a supply and the obligations and entitlements related to the transaction are provided for under a written agreement between the parties to the particular transaction, it is based on that agreement on which the tax status of a particular supply will be determined for purposes of issuing a ruling.
Supplies provided by you to issuers of private placement offering are provided for under a written agreement. Under these agreements you agree to identify and introduce to an issuer accredited investors as defined in Part 1.1 of National Instrument 45-106 from whom the issuer may secure private financing and the issuer agrees to pay you a finder's fee upon completing its financing transaction with the investor. We are confirming our ruling issued XXXXX. This is a taxable supply and is not a supply of "arranging for" the supply of a financial service.
Based on the documentation you have provided and as set out in the above statement of facts, you also provide a number of services to the investors which you introduce to the issuers, however, these investors do not pay you a fee for your services. Generally, no GST/HST is payable where there is no fee paid for a supply. There are certain exceptions when the parties are not dealing at arm's length with respect to a taxable supply. In determining the tax status of the supplies you provide to these investors, you may wish to refer to GST/HST Policy Statement P-239, Meaning of the term "arranging for" as provided in the definition of financial service.
Additional Information
Section 169 of the ETA sets out the general rules for determining a registrant's eligibility to claim input tax credits (ITCs). It provides that, where a person acquires or imports property or a service or brings it into a participating province and during a reporting period of the person in which the person is a registrant, the GST/HST in respect of property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.
The definition of "commercial activity" of a person in subsection 123(1) of the ETA includes a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person.
For further information on ITCs, please refer to GST/HST Memorandum 8.1, General Eligibility Rules.
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,
M. Dawn Weisberg
Manager, Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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