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.
DATE
August 27, 2010
TO/À
XXXXX
XXXXX
XXXXX
XXXXX
FROM/DE
Hélène Bustamante
Senior Rulings Officer
Financial Institutions and Real Property Division
Place de Ville, Tower A, 14th Floor
320 Queen Street
FILE/DOSSIER
111348
SUBJECT/OBJET :
GST/HST
Allocation of ITC on the purchase of point of sale terminals
This memorandum is in response to your XXXXX, concerning the eligibility of XXXXX to claim input tax credits (ITCs) for the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) paid on point of sale (POS) terminals. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA), unless otherwise specified.
You XXXXX would like to know if XXXXX was entitled to claim a 100% ITC on purchases of POS terminals.
XXXXX.
XXXXX the facts are summarized as follows:
• XXXXX
- acquires POS terminals from third party suppliers and pays GST on these purchases;
- rents POS terminals to merchants that require them to facilitate debit and credit card transactions between merchants and their customers;
- charges a fee to merchants for the rental of the POS terminals and collects GST on that rental fee;
- charges service fees for services they provide to merchants that are separate from the rental of POS terminals; and
- claims a 100% ITC on the GST paid for the purchase of POS terminals.
• POS terminals are devices that are used to facilitate debit and credit card transactions between merchants and their customers.
• Merchants are not required to obtain POS terminals from XXXXX. Some may already own POS terminals or the merchant may rent this equipment from another source than XXXXX.
You have provided a sample XXXXX (Agreement) entered into between XXXXX and a merchant.
Based on the Agreement:
The terms and conditions are provided by XXXXX in connection with the provision of merchant products and services provided to a merchant so that the merchant's customers can pay for the merchant's goods and services by means of credit and/or debit cards. XXXXX
• XXXXX, to be used by a Cardholder for secure entry of his or her PIN. XXXXX
• "Terminal" is defined as equipment and/or point of sale software application(s) which is provided by XXXXX or that for which XXXXX has agreed may be used by the merchant for the purpose of communicating with XXXXX with respect to Transactions. XXXXX
"Transaction" is defined as the sale of goods or performance of services by the merchant in respect of which a credit card or debit card was presented by the cardholder for payment. XXXXX
• If XXXXX provides a merchant with XXXXX or if XXXXX agrees that the merchant may use XXXXX in order to accept Debit Card Transactions with XXXXX, the merchant must comply with a list of terms and conditions. XXXXX
• If XXXXX supplies Terminals and/or XXXXX to the merchant and the merchant is not using other equipment and/or point of sale software applications, the merchant must comply with specific terms and conditions. XXXXX
• The merchant agrees to pay the fees as set out in the Agreement. XXXXX
• The XXXXX provides details on each specific fee that will be charged, including, but not limited to:
- Monthly Terminal Rental Fee;
- XXXXX;
- XXXXX;
- XXXXX;
- XXXXX;
- XXXXX; and
- XXXXX Transaction Fee
Note: As the Agreement submitted is a sample it only provides a specific amount for some of the fees listed.
Issue
You would like to know if XXXXX is eligible to claim a 100% ITC on the purchase of POS terminals.
Comments
Based on our understanding of the information provided we would like to provide you with the following comments.
Generally, under subsection 169(1) a GST/HST registrant may claim an ITC for tax paid or payable on the acquisition of property or services based on the extent to which the acquisition is for consumption, use or supply in the course of the registrant's commercial activities provided that the registrant satisfies the other requirements under section 169 for claiming ITCs. A commercial activity of a person is defined in subsection 123(1) and does not include the making of exempt supplies by the person.
Since the transaction as described in the agreement consists of several elements, it is first necessary to determine whether XXXXX is providing a single or multiple supplies.
GST/HST Policy Statement P-077R2, Single And Multiple Supplies sets out criteria to help determine whether there is a single supply or multiple supplies. The overall purpose of the Agreement is that XXXXX wishes to provide services to a merchant. Based on the documents submitted, the merchant has the option to acquire POS terminals through XXXXX, and if they do, they have to agree to additional terms and conditions related to the use of the terminals. A separate fee for the rental of POS terminals is identifiable in the Agreement. Merchants are not required to obtain POS terminals from XXXXX. Some merchants may already own POS terminals while others may rent them from another source than XXXXX. XXXXX is able to provide other services to merchants as described in the Agreement even if XXXXX does not provide a POS terminal to the merchants.
Based on these facts, the rental of POS terminals by XXXXX is a separate supply provided to merchants.
As set out in item A-01 of GST/HST Memorandum 17.2, Products and Services of a Deposit-Taking Financial Institution, a memorandum that describes services of a deposit-taking financial institution such as XXXXX, rental of POS terminals used to effect electronically the transfer of funds directly from the account of the purchaser to the account of the merchant is a taxable supply.
The Agreement submitted was a sample and the line attributed to the fee for the rental of a POS terminal is blank.
If the rental of POS terminals is provided for consideration, other than for nil or nominal consideration, XXXXX is eligible to claim a full (100%) ITC with respect to the GST/HST paid on the acquisition of the POS terminals (provided all other requirements under section 169 are satisfied) even where exempt financial services may ultimately be provided by XXXXX as a result of the use of the POS terminals by the merchant because XXXXX acquired the POS terminals to make a taxable supply of the POS terminals to the merchants.
Please note that if the rental of the POS terminals is provided for nil or nominal consideration and that supply is for the purpose of facilitating, furthering or promoting the making of exempt supplies (e.g. transaction effected through the terminals), as a result of the application of subsection 141.01(4), XXXXX would not be eligible for any ITC with respect to the GST/HST paid on the acquisition of the POS terminals.
As you are aware, section 141.02 provides specific ITC allocation rules that are to be used by financial institutions when calculating ITCs for the GST/HST paid or payable on their inputs. Therefore, that section would also have to be considered in the determination of XXXXX ITCs.
If you have any questions or would like to discuss this matter further, do not hesitate to call me at 613-952-9211.
Hélène Bustamante
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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