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: 132613
May 2, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of the GST/HST to insurance [...] services
Thank you for your letters of [mm/dd/yyyy], and [mm/dd/yyyy] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to insurance [...] services provided by [...] [the Company]. 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 the facts to be as follows based on your letters, the various attachments to those letters (described below), and our telephone conversations:
1. [...] [The Company] is registered for the GST/HST.
2. [...] and [...] (hereinafter the [Corporations]) are both insurance corporations located in [Province X]. [...].
3. [The Corporations] market their group credit insurance program ("Program") to [the Company] customers in Canada ("[...] Customers") on an exclusive basis under the name [...] ("Plan"). The Program provides credit insurance coverage to protect the [...] Customer's [...] credit card ("[...]Card") account balances in the event of certain incidents including life and dismemberment, critical illness, disability, involuntary unemployment, leave of absence, and property protection. The Program is undertaken by [...]. The [Corporations] do not contribute resources or personnel under the Program.
4. Effective [mm/dd/yyyy], the [Corporations] entered into a [...] Agreement with [the Company] ("Agreement") to license [the Company] and [...] ("Trade Marks and Trade Names") for use in Canada and to have [the Company] provide services in connection with the Program.
5. Article [...] of the Agreement, states that [...]
6. The Insurance [...] Services are performed by the employees of [the Company] located at the [...]. No call centres are utilized. Typically, the sequence of events is as follows:
• [The Company] salesperson [...] closes a sale [...].
• [The Company] salesperson then asks the [...] Customer how they would like to pay [...]. One of the options will be to pay using a [...] Card which usually involves some type of deferred payment plan.
• If the [...] Customer chooses to pay for the purchase using a [...] Card, [the Company] salesperson will then ask if the [...] Customer is interested in purchasing an Insurance Product that will cover the [...] Customer's payment. [The Company] salesperson promotes the Insurance Product by providing the [...] Customer with a description of the benefits of purchasing credit insurance protection under the Plan and how the Plan works
• If a [...] Customer is interested in purchasing the Insurance Product, an assessment of eligibility is performed. If the [...] Customer meets the credit criteria for the [...] Card then the [...] Customer is almost always considered eligible for the Insurance Product, as the qualifications are very similar.
• If the [...] Customer is eligible for the Insurance Product, [the Company] salesperson assists the [...] Customer in completing the credit insurance application form and forwards that information to the [Corporations].
• At all times during the sales process and afterwards, [the Company] salesperson is available to assist the [...] Customer with any questions it has in respect of the Insurance Product.
7. To apply for the Insurance Product under the Plan, the [...] Customer must be a [...] Card holder who is at least [...] years of age, and agrees to pay the monthly premiums. The [...] Customer may apply for the Insurance Product in one of two formats:
• By opting directly on the [...] Card application form. This option states that the Insurance Products are underwritten by (i.e., the[Corporations]), and provides details on the rates, coverage and cancellation terms; or
• By opting to complete a separate application form. This option is available to holders of the [...] Card who did not opt for the Insurance Product when making the initial application but now choose to do so at the time of purchase.
8. The insurance coverage under the Plan begins on the date that the [Corporations] receive from the [...] Customer the signed application form. [The Company] [...] confirm that the said coverage begins immediately upon signing the request for enrolment.
9. Within [...] days of enrolment, the [Corporations] will mail to the [...] Customer the [...] ("Certificate") providing the full details of the Insurance Product's coverage, any exclusions or limitations, and confirmation that the [...] Customer is insured subject to the terms of the group policy between the [Corporations] and the creditors to whom the debt is owed [...] while the required premiums are paid.
10. Article [...] of the Agreement explains in part that: [...]
11. In order to perform the Insurance [...] Services in [...] [Province X], [the Company] is required [...] to obtain a license [...]
12. We understand that not all provinces require licenses in order for [the Company] to perform Insurance [...] Services in their respective province.
Ruling Requested
You would like to know whether the quarterly fee charged by [the Company] to the [Corporations] under the Agreement is consideration for the supply of a financial service.
Ruling Given
Based on the facts set out above, we rule that the portion of the fee that relates to consideration for the supply of Insurance [...] Services is a supply of a financial service, and that the remaining portion of the fee that relates to consideration for the supply of property in connection with the granting of rights to the [Corporations] by [the Company] is not a supply of a financial service unless section 138 or 139 apply to deem that property to form part of the financial service.
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, [the Company] grants a license of its Trade Marks and Trade Names as well as an Insurance [...] Service to the [Corporations]. Whether [the Company] 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.
When reviewing the facts set out above, the granting of the license for the Trade Marks and Trade Names by [the Company] to the [Corporations] and the Insurance [...] Services are distinct and independent supplies that are each described in the Agreement. [The Company] is therefore providing under the Agreement a supply of Insurance [...] Services and a separate supply of property to the [Corporations] for which a single consideration is charged.
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.
A financial service includes, for example, under paragraph (d), the issue, granting and transfer of ownership or repayment of a financial instrument. A "financial instrument" is defined in subsection 123(1) and includes an "insurance policy" which, in turn, is defined under that provision and includes, among other things, a policy or contract of insurance (other than a warranty in respect of the quality, fitness or performance of tangible property, where the warranty is supplied to a person who acquires the property otherwise than for resale) that is issued by an insurer. Other examples of a financial service are in paragraph (f.1), the payment or receipt of an amount in full or partial satisfaction of a claim arising under an insurance policy; and in paragraph (l), the "arranging for" a service that is financial service.
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).
Based on this information, the supply of the Insurance [...] Services provided by [the Company] is a supply of a service of "arranging for" a financial service under paragraph (l) of the definition of financial service. However, the separate supply of property (i.e., the granting of rights) is not a supply of a financial service, and depending on the fair market value of the property being supplied, section 138 or 139 may apply to deem that property to form part of a supply of financial services.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9262. 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,
Paul Lafond
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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