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: 108590
Business Number: [...]
June 15, 2011
Dear [Client]:
Subject:
GST/HST RULING
[...] Co-branded card program
Thank you for your letter of [mm/dd/yyyy] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by [...] ([Corporation A]) to [...] (the Bank). We apologize for the delay in responding.
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 based on your letter the following information:
1. [Corporation A] is a Canadian corporation [...]. Its principal offices are located at [...] [City 1, Participating Province X].
2. [Corporation A] is registered for GST/HST purposes under business number [...].
3. [Corporation A] entered into [...] Agreement with the Bank (the Agreement) for which you have provided us a copy.
4. Based on [...] the Agreement, [Corporation A] and the Bank desire to develop and introduce [Corporation A] Credit Card to be issued by the Bank. [...]. [Corporation A] and the Bank desire to implement and administer [Corporation A] Credit Card as provided in the Agreement. [Corporation A] and the Bank intend to use [Corporation A's] knowledge of [...] to offer credit card and other financial services as set forth in the Agreement. [Corporation A] will be actively involved in the origination of the credit cards and other financial services as provided in the Agreement.
5. The Agreement provides the following definitions among several others:
"Account" will mean any [...] account established by the Bank in accordance with the Agreement in favour of a Cardholder [...].
"[...] Bounties" will mean the amounts payable by the Bank in connection with the opening and activation of an Account and [...].
"Prospect" will mean an individual who may be solicited for or may seek to acquire a [Corporation A] Credit Card.
"Solicitation Materials" will mean the advertisements, brochures, applications, marketing materials, [...] signage, training materials, telemarketing scripts, and any other written, electronic, or visual materials relating to acquiring new [Corporation A] Credit Cardholders or encouraging use of the Cards by Cardholders, including without limitation [...].
6. Based on Section [...] of the Agreement, the Bank and [Corporation A] (the Parties) will work together to develop, originate, market, implement and maintain the financial products and services as provided under the Agreement (the Program). The Program will be targeted to solicit Prospects who qualify for an Account as determined by the Bank. The Bank will assume responsibility and liability for administration of the Accounts. [...]. [Corporation A] will determine at its sole discretion the Card Association and has selected [...].
7. Based on Section [...] of the Agreement, [...]
8. Article [...] of the Agreement lists the activities to be performed by the Parties related to the marketing of the Program. Based on section [...], a marketing plan is to be developed jointly by the Parties. The Bank will fund up to $[...] for the first year and $[...] for each new account [...] or up to $[...] depending on how many new accounts are activated.
9. Based on section [...] of the Agreement, [Corporation A] is responsible to promote the Program through [...] and in a manner and frequency determined by [...]. Section [...] a [...] mailing list of Prospects will be used to promote the Program.
10. Based on section [...] of the Agreement, the Bank will prepare the Solicitation Material and [Corporation A] will have the right to review and approve all Solicitation Material prior to distribution. As well as assist the Bank in preparing the material where appropriate.
11. Based on section [...] of the Agreement, [Corporation A] will grant to the Bank a non-exclusive, non-assignable, [...] license to use in Canada, the name, trademark, service mark and logos of [Corporation A] [...] in Canada including [...].
12. Based on section [...] of the Agreement, the Bank is responsible for all expenses associated with market research for the Program except for market research that [Corporation A] conducts in its sole discretion [...].
13. The Bank's responsibilities with respect to new and existing accounts are outlined in section [...] of the Agreement. Specifically, the Bank is solely responsible for credit policy including Account origination and management, credit criteria, credit approval, [...] including the establishment of interest rates and fees, administration, billing, collections, credit terms, overlimits, authorizations, cancellation or suspension of [Corporation A] credit card privileges.
14. Additional responsibilities of the Bank are found under sections [...] of the Agreement. Under section [...], the Bank will provide [...], customer service, application processing, credit authorizations, statement production and mailing, collections, fraud prevention, recovery operations and such other activities that are customarily provided in respect of credit card programs administered by the Bank. Under section [...], the Bank may change cardholder terms as determined necessary by the Bank provided the Bank gives [Corporation A] reasonable advance notice.
15. Specific duties of [Corporation A] are found in Article [...] of the Agreement. In particular, section [...] states that [Corporation A] will endorse, promote and market the Program in accordance with the Agreement. [...]
16. Based on section [...] of the Agreement, the Bank will be responsible for all costs related to the creation, opening, operation and cancellation of Accounts. [Corporation A] will be responsible for costs associated with training [Corporation A] employees, [...], distributing applications to [...], assist [...] with the applications, compensating [Corporation A] employees, collecting completed applications from [...], electronic entry of applications and transmission to the Bank (if available).
17. Under section [...] of the Agreement, in consideration for the services to be rendered by [Corporation A] under the Agreement, including those related to the origination of Accounts, the Bank will pay [Corporation A] as set forth in Schedule [...], such amounts to be inclusive of all applicable taxes.
18. As per Schedule [...], [Corporation A] will receive compensation from the Bank for Account origination services in the form of [...] Bounty for each activated card account and ongoing compensation based on the purchases made by the Cardholders.
19. Also under Schedule [...], [Corporation A] will receive [...]. The Bank will also have the right to market (cross-sell) other financial services to the Cardholders and [Corporation A] will receive as compensation [...].
20. In addition to the compensation outlined in Schedule [...], to the Agreement, under section [...] the Bank will fund up to $[...] for [Corporation A's] reasonable and necessary third party expenses related to technology development in [...].
21. Based on section [...] of the Agreement, the Bank agrees not to use the licenses, [...] and mailing lists granted by [Corporation A] for any use other than in connection with the marketing of the Program in a manner specifically stated in the Agreement.
22. Based on [...] of the Agreement, [Corporation A] agrees not to distribute any portion of the Cardholder List to any third party unless such third party is providing services in support of the Program (in which case the distribution of such information will be limited).
Ruling Requested
You would like to know whether the services performed by [Corporation A] to the Bank are a single supply or multiple supplies and whether that supply (or supplies) is an exempt supply (or exempt supplies) of a financial service.
If it is determined that [Corporation A] is providing multiple supplies you would like to know whether [...] paid to [Corporation A] are consideration for supplies of financial services.
Ruling Given
Based on the facts set out above, we rule that the services performed by [Corporation A] to the Bank are for the provision of 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
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.
Based on the Agreement, [Corporation A] provides a number of services to the Bank. Whether [Corporation A] 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, including the following principles.
1. Every supply should be regarded as distinct and independent.
2. A supply that is a single supply from an economic point of view should not be artificially split.
3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
Based on the Agreement, all elements of the supply are inextricably linked and the Bank cannot acquire any of the services separately. It is clear that under the Agreement [Corporation A] provides a single supply to the Bank.
All supplies of financial services are exempt under Part VII of Schedule V unless they are 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. An activity performed by a person that is the "arranging for" a financial service is included in paragraph (l) of the definition of financial service in subsection 123(1).
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 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.
The following exclusionary paragraphs, among others, were added to the definition of financial service in subsection 123(1) through Bill C-9, the Jobs and Economic Growth Act, which received Royal Assent on July 12, 2010.
Paragraph (r.3) provides that a service (other than a prescribed service) of managing credit 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 from the definition of "financial service".
A service of managing credit includes:
• checking, evaluating or authorizing credit;
• making decisions on behalf of the person relating to a grant, or an application for a grant, of credit;
• creating or maintaining records for the person relating to a grant, or an application for a grant, of credit or in relation to the cards or accounts; or
• monitoring another person's payment record or dealing with payments made, or to be made by the other person.
Also, paragraph (r.4) clarifies that certain services that are preparatory to or provided in conjunction with a financial service are excluded from that definition. 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 or proposed to be prescribed for the purposes of paragraphs (r.3) and (r.4).
In general, services in the nature of management, administration, marketing or promotional activities are intended to be taxable as they are not themselves financial services. Based on the information provided, [Corporation A's] activities when considered as a whole are predominantly promoting and marketing the Program. Moreover, the services performed by [Corporation A] do not meet the factors that are used to determine whether a supply is arranging for a financial service under paragraph (l), such as the degree of direct involvement with [...] or the time expended by [Corporation A] in the provision of a financial service referred to in any of paragraphs (a) to (i). Also [Corporation A] is not in the business of providing supplies of financial services or considered a financial intermediary as described under subparagraph 149(1((a)(iii).
Even if the supply includes services included in paragraph (l) of the definition of financial service in subsection 123(1), it is excluded from the definition of financial service by paragraphs (r.3) and (r.4) of the definition.
Please note that paragraphs (r.3) and (r.4) are deemed to have come into force on December 17, 1990, except where it is in respect of a service rendered under an agreement, evidenced in writing, for a supply if all of the consideration for the supply became due or was paid on or before December 14, 2009, and the supplier did not, on or before that day, charge, collect or remit any amount as or on account of GST/HST in respect of the supply or any other supply that is made under the agreement that includes a credit management service or a preparatory service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-1433. 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,
Gabrielle Nadeau
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content