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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 126191
Business Number: [...]
December 23, 2010
Dear [Client]:
Subject:
GST/HST RULING
Application of the GST/HST to services provided for a finders fee
Rhank you for your fax of July 9, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided by [...] ([the Company]). We apologize for the delay in responding to your enquiry.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, 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 the [...] provided, information contained in your fax and our telephone conversation of October 14, 2010. The following additional documentation was also submitted: [...].
1. [The Company] is registered for GST/HST purposes.
2. A ruling was issued to [the Company] [...].
3. [The Company] entered into an [...] (the Agreement) on [mm/dd/yyyy], with [...] (the Funder), a business located in [...] [Province X].
4. Based on section [...] of the Agreement, [the Company] agrees to solicit new prospective commercial clients (Clients) for the Funder and to provide the Funder completed document packages for the Funder's evaluation and possible acceptance, in accordance with the Funder's instructions to [the Company] and the terms and provisions of this Agreement.
5. Based on section [...] of the Agreement, in consideration for the services performed by [the Company], the Funder agrees to pay [the Company] a finders fee equal to [...] percent [...] arising from Clients referred to the Funder by [the Company] under this Agreement.
6. Also in section [...] of the Agreement, the obligation of the Funder to pay a finders fee with respect to any particular Client is subject to the following conditions: [...].
• All finders fees as determined above are and shall be inclusive of any and all taxes eligible thereon including, without limitation, any GST.
7. Based on section [...] of the Agreement, [the Company] is acting as an independent contractor and not as an employee or agent of the Funder.
Ruling Requested
You would like to know whether the supply of services provided by [the Company] to the Funder under the Agreement is subject to GST/HST.
Ruling Given
Based on the facts set out above, we rule that the supply of services provided by [the Company] to the Funder under the Agreement of soliciting new prospective commercial clients and providing completed document packages for the Funder's evaluation and possible acceptance is a taxable supply subject to 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
Under the ETA, supplies are taxable unless they are specifically exempt.
A supply of financial services is exempt under Part VII of Schedule V unless it is specifically zero-rated under Part XI of Schedule VI (which generally requires that the supply be made by a financial institution to a non-resident and that certain other conditions are met). 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).
Paragraph (g) of the definition of financial service in subsection 123(1) provides that the making of any advance, the granting of any credit or the lending of money are financial services.
Paragraph (d) of that same definition provides, among other things, that the issue, granting and transfer of ownership or repayment of a financial instrument are financial services. A "financial instrument" is defined in subsection 123(1) and includes a "debt security" which in turn is defined under that provision to include a right to be paid money (e.g. accounts receivables).
When the Funder agrees, for example, to lend money to the Client or to purchase the Client's accounts receivables the Funder is generally making an exempt supply of a financial service to the Client.
Based on sections [...] of the Agreement, [the Company] is providing services to the Funder of soliciting Clients on behalf of the Funder and providing completed document packages to the Funder for evaluation and possible acceptance. 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 is 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 services noted above that are provided by [the Company] to the Funder under the Agreement are considered the provision of a single taxable 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).
Based on the information provided, while some of [the Company's] activities, such as assisting with the completion of an application, and providing the Funder completed document packages assist the Funder in providing a financial service of lending money to a Client, [the Company's] activities when considered as a whole are predominantly customer assistance and document preparation. As a result, the supply of the services provided by [the Company] to a Funder is not considered to be included in paragraph (l) of the definition of financial service.
Even if it could be argued that the supply by [the Company] is included in paragraph (l) of the definition of financial service in subsection 123(1), it is excluded from that definition by paragraph (r.4) of that same definition.
Paragraph (r.4) clarifies 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).
Coming into force
Paragraph (r.4) in the definition of financial service is deemed to have come into force on December 17, 1990, except where certain conditions are met.
Specifically, the amendments 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 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 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 Company] entered into the Agreement on [mm/dd/yyyy]. Therefore, paragraph (r.4) clarifies that the supply made by [the Company] to the Funder is not a financial service. As no other exempting provisions apply, the supply will be subject to GST/HST.
Please note that where [the Company] provides a supply to a funder that is the same as in the Agreement and consideration for the supply became due or was paid after December 14, 2009, the supply will also be subject to GST/HST.
Tax rate applicable to the supply of a service
As we have determined that the supply provided by [the Company] to the Funder under the Agreement is a single taxable supply we are providing further clarification on whether GST or HST would apply on [the Company's] 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 (i.e. the recipient) is located rather than on the location of the service provider (i.e. 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. 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 Ontario, only the GST applies 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 Ontario 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
Tax status of a supply of a service to a non-resident funder
You mentioned in a phone conversation that in some circumstances [the Company] may enter into an agreement with a funder that is a non-resident of Canada with the same provisions as the Agreement. Since we have determined that the supply of services made by [the Company] to the Funder under the Agreement is a taxable supply, we provide the following additional information with respect to such a supply provided to a non-resident funder.
Section 5 of Part V of Schedule VI zero-rates (i.e. taxed at the rate of 0%) a supply made to a non-resident person of a service of acting as an agent or representative of that person or of arranging for, procuring or soliciting orders for supplies by or to the person to the extent that the service is in respect of a supply that is
(a) a zero-rated export to the non-resident under Part V of Schedule VI, or
(b) a supply made outside Canada by or to the non-resident person.
Subsection 142(2) deems supplies to be made outside Canada in certain circumstances. For example, a supply of a loan by a non-resident funder to a client that is performed wholly (100%) outside Canada is considered to be made outside Canada.
A supply of a service may also be deemed to be made outside Canada under the provisions of subsection 143(1) provided the supplier is a non-resident and the conditions outlined in that subsection are met. For example, a supply of a service made in Canada by a non-resident that is not registered for GST/HST purposes and that is not making a supply in the course of a business carried on in Canada is deemed to be made outside Canada. For additional information on these provisions please refer to GST/HST Memorandum 3.3, Place of Supply.
Where the supply of the services made by a funder to a client is determined to be made outside Canada[,] the supply by [the Company] to the funder of the services as provided in an agreement that is the same as the Agreement would be zero-rated under Section 5 of Part V of Schedule VI.
For additional information on zero-rated supplies please refer to GST/HST Memorandum 4.5.3, Exports - Services and Intellectual Property.
As it is the responsibility of the supplier (i.e. [the Company]) to ensure that the appropriate amount of GST/HST is collected and remitted, please refer to GST/HST Memorandum 4.5.1, Exports - Determining Residence Status for information on what is considered satisfactory evidence of non-resident status.
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
Email this Content