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: 123398
February 25, 2011
Dear [Client]:
Subject:
GST/HST RULING
Commission on sale of shares of [...] [the Corporation]
Thank you for your fax of March 30, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the commission charged on the sale of shares. 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 from your fax and the documents you have provided that:
1. [...] (the Realtor) is registered for GST/HST purposes under registration number [...] and operates a real estate agency. Its head office is located in [City 1, Province X].
2. The Realtor entered into an [...] (the Listing Agreement) with [...] (referred to hereinafter as the Vendors) of [...] [Province X] on [mm/dd/yyyy], to list and offer their property described in Schedule [...] [ZZ] of the Listing Agreement for sale or exchange at the price and the terms set out in Schedule [...] [Z] of the Listing Agreement. Under the Listing Agreement, the Vendors agreed to pay a commission of [...]% on the purchase price plus GST and PST upon completion of the sale of the property. The Listing Agreement indicates that it is an exclusive listing contract and the Realtor is appointed sole agent to sell or exchange the said property. The expiry date of the Listing Agreement was [mm/dd/yyyy]. However, an identical agreement was entered into by the Realtor and the Vendors upon expiry of the Listing Agreement. This second agreement was due to expire on [mm/dd/yyyy].
3. Schedule [ZZ] of the Listing Agreement lists the legal description and the number of acres of all of the land held by the Vendors' corporation, [...] (the Corporation).
4. Schedule [Z] of the Listing Agreement states "Share Sale." It also provides a total listing price of $[...] and a breakdown of the property and the value of the property that relates to the total listing price.
5. On [mm/dd/yyyy], [...] (the Purchaser) of [City 2, Province Y] and the Vendors entered into a Contract of Purchase and Sale (the Sale Contract) for the purchase and sale of all issued shares of the Corporation for $[...] wholly owned by the Vendors. Clause [...] of the Sale Contract lists the conditions under which the Sale Contract is subject to. Those conditions include that the Vendors and the Purchaser are to formulate a share purchase agreement to purchase the shares of the Corporation on or before [mm/dd/yyyy], that the share purchase agreement is subject to approval by accounting and legal representatives of the Vendors and the Purchaser, and that the Sale Contract is subject to additional terms and conditions as set out in Schedule [Z] to the Sale Contract.
6. The following is a description of the service provided by the Realtor to the Vendors that you provided with the Listing Agreement:
The Realtor assisted the Vendors in the valuation of the entire farming corporation which included the land, equipment, buildings, some of the inventory and goodwill. The Realtor also helped in obtaining an independent valuation of some of the assets as well as put together a package of relevant financial and operating information.
The Realtor contacted qualified purchasers who could purchase a farming corporation.
Over the listing period, the Realtor brought [...] potential purchasers; with each of them, the Realtor prepared a progression of share purchase offers. The Realtor assisted the Vendors, and the potential buyers. This included helping the Vendors collating the requisite information and determining the validity of the requests.
Though the Purchaser did not require financing, with other potential buyers the Realtor assisted in finding appropriate counsel regarding financing.
Once a general agreement for the share purchase had been reached with the ultimate Purchaser, the Realtor provided the initial template for the Share Purchase Agreement and subsequently acted as an intermediary in the negotiations between the parties.
Ruling Requested
You would like to know whether the service provided by the Realtor to the Vendors as described above is an exempt supply of a financial service.
Ruling Given
Based on the facts set out above, we rule that the service provided by the Realtor to the Vendors 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 Realtor is not a financial intermediary as described in subparagraph 149(1)(a)(iii). The intent of the Realtor is to assist in selling the farming corporation for the Vendors. While some of the activities, such as preparing the sale documentation for the sale of shares, assist the farming corporation in providing a financial service of selling the shares of the corporation to a purchaser, the Realtor's involvement in the supply of a financial service (the sale of shares) is limited. Furthermore, the activities undertaken by the Realtor in relation to the supply of a financial service are predominantly those described in paragraph (r.4) of the definition of financial service under subsection 123(1).
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 prescribed or proposed to be prescribed for the purposes of paragraph (r.4).
The activities performed by the Realtor to the Vendors, such as assisting in calculating the value of the farming corporation, helping to obtain an independent valuation of some of the assets as well as putting together a package of relevant financial and operating information, and contacting potential purchasers, are not activities described in paragraph (l) of the definition of financial service but rather are predominantly included in paragraph (r.4) and, as such, would be excluded from the definition. As there is no other provision in the ETA to exempt the service supplied by the Realtor to the Vendors, the service is a taxable supply.
Please note that example 16 in TIB B-105, Changes to the Definition of Financial Service illustrates a situation similar to the facts described in your letter.
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
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