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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 207227
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Tax status of supplies made to a payment processor
Thank you for your letter of February 27, 2020, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies made to a payment processor.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
From your letter and the information provided during your telephone conversations with GST/HST Rulings, we understand the following:
1. […](the Contractor) is a Canadian corporation […].
2. The Contractor entered into […](the Agreement) with […](the Company) on [mm/dd/yyyy].
3. The Company is a member of […](the payment networks).
4. The Contractor markets the Company’s services to prospective merchants for the processing of credit and debit cards. This includes the solicitation, investigation, and inspection of merchants as well as obtaining applications from prospective merchants which meet the Company’s […] Guidelines. The Contractor will provide all information obtained about the prospective merchant to the Company.
5. The Contractor will provide training to the merchants on equipment use and Card Association rules and regulations.
6. The Contractor will go door to door to locate prospective merchants and to expand the Company’s customer base. The Contractor will promote the Company’s benefits, such as being a lower cost option for the processing of credit and debit cards, and will show the prospective merchant the software and terminals that would be used if the prospective merchant signs a merchant agreement with the Company.
7. The Contractor is not authorized to commit the Company to any contractual terms with any merchant or to make any other representations on behalf of the Company.
8. The Contractor will complete the prospective merchant’s application online which is then submitted to the Company for approval. The Company receives a fully negotiated contract for its approval. The Company’s approval process is done electronically, and is processed almost instantly. If the Company requires any additional information, the Contractor will obtain and forward the additional information to the Company.
9. The Contractor is not a party to the merchant agreement between the Company and the merchant.
10. All merchant fees payable under the signed merchant agreements are paid to the Company.
11. The Contractor is provided with a pricing schedule by the Company which sets out the basis for the fees to be charged to the merchant under the merchant agreement, however the Contractor has the scope to establish the fees to be paid by a particular merchant.
12. The Contractor’s fee for its services is based on the amounts collected by the Company that are in excess of the rates set out in the pricing schedule.
13. The Contractor’s compensation is calculated as a proportion of the amount collected from the merchants referred by the Contractor for credit card processing net of various fees and deductions.
14. The Company will provide the Contractor with notice to any changes to the compensation or pricing structures, including any adjustment of merchant discount rate to reflect increases or changes in credit card association interchange fees, or assessments.
15. There is no partnership, joint venture, or agency relationship between the Contractor and the Company.
RULING REQUESTED
You would like to know if the Contractor’s supply to the Company under the Agreement is an exempt financial service under Part VII of Schedule V to the ETA.
Although you have requested a ruling, as you have not provided all of the relevant documentation, such as the Schedules to the Agreement and a sample merchant agreement, we are unable to provide a ruling. However, we are pleased to provide you with the following interpretation on this matter.
INTERPRETATION GIVEN
Single/multiple supplies
The determination of whether a particular supply made by the Contractor 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(s) under which the supply is made. 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 Contractor are considered to be 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.
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 as set out above as they relate to the Agreement, it is clear that the elements of the Contractor’s service are integral components that are inextricably linked to each other. Accordingly, the Contractor’s supply to the Company under the Agreement would be considered to be a single supply.
Characterization of the supply
A GST/HST registrant is generally required to charge GST/HST on a taxable supply of property or a service made in Canada (other than a zero-rated supply that is taxable at 0%) but not on an exempt supply. A supply of a financial service is exempt under Part VII of Schedule V to the ETA unless it is specifically zero-rated under Part IX of Schedule VI to the ETA. A financial service is defined in subsection 123(1) to mean anything that is included in any of paragraphs (a) to (m) of that definition and is not excluded by any of paragraphs (n) to (t) of that same definition.
Paragraph (a) of the definition of “financial service” includes the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise.
Paragraph (l) of the definition of “financial service” means the agreeing to provide, or the arranging for, a service that is referred to in paragraph (a) to (i) and not referred to in any of paragraphs (n) to (t) of that same definition. 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.
As explained in Technical Information Bulletin TIB B-105, Changes to the Definition of Financial Service, in determining whether an intermediary's service is included in paragraph (l) of the definition of “financial service”, 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 a business of providing financial services).
Supplies made to a merchant under a merchant agreement with respect to the processing of credit and debit card payments within the payment networks are generally supplies of financial services that are referred to in any of paragraphs (a) to (i) of that definition and not referred to in any of paragraphs (n) to (t). On this basis, there may be scope to consider that the Contractor may be making a supply of “arranging for” an exempt financial service under paragraph (l).
Based on the information provided in the Agreement, we understand that the Contractor represents the Company with respect to soliciting merchants on behalf of the Company so that the Company may make supplies to the merchant under a merchant agreement between those parties. There is indication that the Contractor has direct involvement and effort in the provision of the Company’s supplies of financial services made to merchants under the merchant agreement. The Contractor has some autonomy to recommend fees and rates to the Company with respect to the merchant agreements. There appears to be a significant degree of reliance by both the Company and the merchant on the Contractor in concluding the merchant agreement and the information substantiates the Contractor’s intention of effecting a supply of a financial service.
As noted above, to the extent that the essential character of the Company’s supply to the merchant is referred to in any of paragraphs (a) to (i) of the definition of “financial service” and is not referred to in any of paragraphs (n) to (t), the Company’s supply to a merchant would generally be accepted to be that of a financial service. Based on the nature of the supply provided by the Contractor and the facts surrounding the Agreement, there is indication that the essential character of the Contractor’s supply to the Company would fall within paragraph (l) of the definition of “financial service” on the basis that the Contractor arranges for the supply of an exempt financial service made by the Company to the merchant. Although some aspects of the Contractor's supply may be preparatory in nature, these elements would not be considered the essential character of the supply made to the Company.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 902-719-7843. 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,
Stacy Furlong
Financial Services Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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