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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 125382
Business Numbers: XXXXX XXXXX
July 8, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
PROPOSED LAW/REGULATION
Services with respect to loan and mortgage applications
Thank you for your XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services that you supply with respect to loan and mortgage loan applications.
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 will continue to apply at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following information based upon XXXXX.
You are registered for GST/HST purposes as XXXXX operating as XXXXX and your Business Number is XXXXX; XXXXX is registered for GST/HST purposes and its Business Number is XXXXX.
You indicated in our telephone conversation that in the course of your business you provide the following services, as stated in your fax:
• gathering applications and supporting documents with regard to loans, submitting these loan applications to lenders, and gathering signed agreements; and
• gathering applications and supporting documents with regard to mortgage loans, submitting these applications to mortgage brokers, gathering closing documents, making lawyer appointments and general client/associate follow-up.
You are not the lender. You are paid by the lender for the work you do gathering the loan applications and supporting documents. With respect to the mortgage loan applications, you are paid by the mortgage broker. In certain cases where a written agreement is made with the client, you are paid by the client with respect to the work you do related to the mortgage loan applications.
The XXXXX is an agreement between a lender and a borrower whereby the XXXXX (borrower) has executed a promissory note in consideration of the principal sum loaned by the XXXXX (lender). The XXXXX also states that the lender requested and the borrower agreed to grant to the lender, as security interest, XXXXX as security for repayment of the principal, interest and all other amounts owing by the borrower to the lender. Neither XXXXX nor XXXXX is the lender.
The XXXXX Web site states that XXXXX.
Interpretation Requested
You would like to know if the services that you supply in your business, described in your XXXXX, as gathering applications and supporting documents for loan and mortgage loan applications, submitting these applications to lenders and mortgage brokers, gathering signed agreements and closing documents, making lawyer appointments, and general client/associate follow-up are GST/HST exempt supplies.
Interpretation Given
The application of the GST/HST to supplies depends upon the application of the ETA to the transaction. Under the ETA, all supplies are taxable, including a supply of a service of collecting, collating and providing information, unless they are specifically exempt.
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.
In determining whether an intermediary is providing a supply of a finance service under paragraph (l) of the definition of financial service of "arranging for" a financial service, it must first be determined whether an "arranging for" service is provided and whether it is the predominant element of 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, broker 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 the 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.
On December 14, 2009, the Minister of Finance announced proposed legislative amendments that provide clarification on the application of the GST/HST to the definition of financial service. These proposed changes were incorporated in Bill C-9, Jobs and Economic Growth Act.
It is proposed that the definition of financial service in subsection 123(1) be amended by adding additional exclusionary paragraphs.
Proposed new paragraph (r.3) would clarify that credit management services would be excluded from the definition of financial service.
Proposed paragraph (r.3) provides that a service (other than a prescribed service) of managing credit that is in respect of credit cards, charge cards, credit accounts, charge accounts, loan accounts or accounts in respect of any advance where the service is supplied by one person to another person that is granting, or potentially granting, credit in respect of those cards or accounts is excluded form the definition of financial service.
A service of managing credit includes:
(i) checking, evaluating or authorizing credit;
(ii) making decisions on behalf of the person in relation to a grant, or an application for a grant, of credit;
(iii) creating or maintaining records for the person in relation to a grant, or an application for a grant, of credit or in relation to the cards or accounts; or
(iv) monitoring another person's payment record or dealing with payments made, or to be made, by the other person.
Proposed new paragraph (r.4) would clarify that certain services that are preparatory to or provided in conjunction with a financial service are excluded from the definition of financial service.
Proposed paragraph (r.4) excludes from the definition of financial service, a service (other than a prescribed service) that is preparatory to the provision or 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, and that is
(i) a service of collecting, collating or providing information; or
(ii) a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service.
Currently, no services are proposed to be prescribed for the purposes of paragraphs (r.3) and (r.4).
Some of the activities that you supply in your business, as described in your XXXXX, assist the loan applicant and the lender in the provision of a financial service of lending money. However, the services you supply are limited to collecting information from the loan applicant for submission to the lender or the mortgage broker, document processing and customer assistance and, as such, are not included in paragraph (l) of the definition of financial service These services are predominantly those described in proposed paragraphs (r.3.) and (r.4) and, as such, would be excluded from the definition of financial service. As there is no other provision in the ETA to exempt these services that you supply in your business, these services would be taxable supplies.
The proposed amendments to add paragraphs (r.3) and (r.4) to the definition of financial service would be deemed to have come into force on December 17, 1990, except when certain conditions are met. Specifically, the proposed amendment would not apply where, under a written agreement:
• all of the consideration for the supply became due or was paid on or before December 14, 2009;
• the supplier did not, on or before December 14, 2009, charge, collect or remit any amount as or on account of tax under Part IX in respect of the supply; and
• the supplier did not, on or before December 14, 2009, charge, collect, or remit any amount as or on account of tax under Part IX in respect of any other supply that is made under the agreement and that includes the provision of a service referred to in paragraphs (q), (q.1) and (r.3) to (r.5) of the definition of financial service.
The above exception does not apply for purposes of Division IV. For purposes of Division IV, proposed paragraphs (r.3) and (r.4) would be effective as of December 17, 1990 in all cases.
The foregoing comments represent our general views with respect to the proposed amendments to the Excise Tax Act as they relate to the subject matter of your request. Any change to the wording of these proposed amendments or any future proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0328. 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,
Katherine Lairson
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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