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.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 125336
Business Number: XXXXX
Attention: XXXXX XXXXX
August 27, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Application of GST/HST to services provided for a finder's fee
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided for a finder's fee. We apologize for the delay in responding to your enquiry.
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, 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.
Statement of Facts
We understand the facts to be as follows based on the copy of a standard agreement you provided, information contained in your letter, our records and our telephone conversation of XXXXX.
1. XXXXX is a corporation incorporated under the laws of XXXXX and is registered for GST/HST purposes.
2. XXXXX works with clients that are publicly traded companies.
3. Once a client is signed up with XXXXX, XXXXX will market the financing to its contacts. XXXXX sets up meetings and conference calls with potential investors and the client and follows up with investors to see if they like the deal and if they want to invest in the client.
4. You provided a standard agreement that XXXXX enters into with a client (the Agreement).
5. Based on XXXXX of the Agreement, the scope of work is described as identifying XXXXX (collectively the "Investors" or "Investor") to invest in the client and introducing the client to the Investors.
6. Based on XXXXX of the Agreement the client shall pay XXXXX the following fees in consideration for the services described in 5 above:
• A finder's fee in cash equal to XXXXX;
• A finder's fee in cash equal to XXXXX; and
• A one-time XXXXX fee of $XXXXX (plus GST) upon the signing of the Agreement.
7. XXXXX.
8. As stated in your letter, in some cases XXXXX may bring in a stock broker that would place some of the financing and XXXXX would share the finder's fee with the stock broker.
Ruling Requested
You would like to know whether the supply of services provided by XXXXX of identifying Investors to invest in a client and introducing the client to Investors is an exempt supply.
Based on our telephone conversation you also wanted us to address specifically whether the proposed amendments mentioned in GST/HST Notice 250 - Proposed Change to the Definition of Financial Service would affect the supply made by XXXXX to clients.
Ruling Given
Based on the facts set out above, we rule that the services as described in the Agreement provided by XXXXX to a client of identifying Investors to invest in the client and introducing the client to Investors is a single taxable supply.
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. Under the ETA, supplies are taxable unless they are specifically exempt.
In order to determine the tax status of a particular supply, it is necessary to consider what the supplier provided for the consideration received. 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, the tax status of the supply will be determined for purposes of issuing a ruling based on that agreement.
Services provided by XXXXX to a client are provided for under a written agreement.
Under the Agreement XXXXX agrees to identify Investors to invest in a particular client and introduce the client to the Investors. In connection with the Investors introduced by XXXXX who invest in the client's XXXXX, the client agrees to pay XXXXX in cash and XXXXX as part of its compensation. The client also agrees to pay XXXXX a one-time XXXXX fee of $XXXXX (plus GST) upon the signing of the Agreement.
The services provided by XXXXX, as provided under the Agreement, of identifying Investors to invest in clients and introducing clients to Investors is a single taxable supply.
Generally, the value of the consideration for a supply will be expressed in money. Paragraph 153(1)(a) provides that where the consideration, or any part of the consideration for a supply, is expressed in money, the value of the consideration or that part of the consideration is deemed to be equal to the amount of money.
Paragraph 153(1)(b) provides that where the consideration, or part of the consideration for a supply is not money (i.e., it is property or a service), the value of the consideration, or that part, is the fair market value of the property or service determined at the time the supply is made.
For example, where the consideration for XXXXX supply to a client consists of money and XXXXX, the XXXXX will be characterized as partial non-monetary consideration for the supply. Thus, the consideration for the supply will be the total of the fair market value of the XXXXX at the time of supply, plus the amount of monetary consideration for the supply.
Tax rate applicable to the supply of a service
As we have determined that the supply provided by XXXXX under the Agreement is a single taxable supply we are providing further clarification on whether GST or HST would apply on XXXXX taxable supplies for periods before and after July 1, 2010.
There are two important steps involved in the determination of whether GST or HST will apply to a taxable supply of a service.
The first step is to determine the place of supply of the service. As of May 1, 2010, the place of supply rules used to determine whether suppliers must charge the HST, and at what rate, have changed to accommodate variable rates of the provincial part of the HST. The new rules apply for supplies made in Canada after April 30, 2010.
The new rules for determining the place of supply for services generally rely on where the consumer of the supply is located rather than on the location of the supplier.
Under these rules, a supply of a service will generally be regarded as made in a province where the supplier obtains a single home or business address of the recipient in the ordinary course of its business and that address is situated in that province. Where the supplier does not obtain any home or business address of the recipient in the ordinary course of its business, but obtains another single address in Canada of the recipient, that address will be used in determining the place of supply.
Additional information can be found on pages 25-31 of Technical Information Bulletin B-103, Harmonized Sales Tax Place of supply rules for determining whether a supply is made in a province.
The second step is to determine when the service is performed. For example, where 90% or more of the service is performed before July 2010 and the place of supply of the service is XXXXX, only the GST would apply to any amount that becomes due or is paid without having become due for the service.
On the other hand where more than 10% of a service is performed on or after July 1, 2010, and the place of supply of the service is XXXXX generally:
• The supplier charges GST on any amount that becomes due or is paid without having become due before May 2010; and
• When an amount becomes due or is paid without having become due on or after May 1, 2010:
- GST applies to any amount that relates to the portion of the service performed before July 2010; and
- HST applies to any amount that relates to the portion of the service performed on or after July 1, 2010.
Further information on whether the GST or HST applies to services performed during the period that includes the July 1, 2010 implementation date of the HST in Ontario and British Columbia as well as information on how to account for those amounts is available in Info Sheet GI-056, Ontario and British Columbia: Transition to the Harmonized Sales Tax - Services.
Additional Information
You wanted to know if GST/HST was applicable to services provided by a stock broker that places some of the financing. We do not have sufficient information on the sharing arrangements between XXXXX and stock brokers to be able to determine whether the fee paid to a stock broker is consideration for a taxable or exempt supply.
As you requested that we examine the supply provided by XXXXX in light of the changes to the definition of financial service, we are providing the following additional information.
Generally, most supplies of financial services are exempt supplies under Part VII of Schedule V. A service will be a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition. This would include for example, in paragraph (l) of the definition of financial service the arranging for a service referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t).
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 the person is making 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.
Where 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 be generally 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.
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.
In determining if an intermediary's service is included in paragraph (l), all 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).
Where an intermediary provides a number of services including services described by any of paragraphs (n) to (t) as part of an agreement to arrange for a supply of a financial service, the single supply of the bundled services may be a supply of a financial service of arranging for, depending on the facts surrounding the transaction, the above listed factors, and the predominant element of the supply.
Although the services provided by XXXXX may result in an Investor investing in a client, the services provided by XXXXX are not themselves financial services. XXXXX services consist of activities of identifying Investors to invest in clients and introducing clients to Investors, and as such, are not included in paragraph (l) of the definition of financial service.
Even if it could be argued that the services provided by XXXXX to clients is a service of "arranging for" in paragraph (l), it would be necessary to consider the exclusionary paragraphs in (n) to (t) of the definition of financial service in subsection 123(1). Bill C-9, the Jobs and Economic Growth Act introduced new additional exclusionary paragraphs which received royal assent on July 12, 2010.
New paragraph (r.4) is added to clarify that certain services that are preparatory to or provided in conjunction with a financial service are excluded from that definition.
Specifically, paragraph (r.4) excludes from the definition of financial service, a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l) of the definition of "financial service", or that is provided in conjunction with a service referred to in any of those paragraphs, that is:
• a service of collecting, collating or providing information, or
• a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or similar service.
Currently, no services are prescribed for the purposes of paragraph (r.4).
As clarified by paragraph (r.4), even if it could be argued that the service provided by XXXXX is in paragraph (l) of the definition of financial service such services would be excluded from that definition.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9211. 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,
Hélène Bustamante
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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