19 March 2004 GST/HST Ruling 46776 - Financial Instruments

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.

Dear XXXXX:

Further to your letters XXXXX, we are writing to revoke, XXXXX the application rulings sent to the XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain payments made by members of the XXXXX.

XXXXX we ruled that:

"Pursuant to subsection 123(1) of the ETA, the loan of $XXXXX is a financial instrument and the supply of the $XXXXX loan from the XXXXX shareholders of The Club to The Club is a financial service. Pursuant to section 1 of Part VII of Schedule V to the ETA the supply of the loan of $XXXXX from the XXXXX shareholder of The Club to The Club is an exempt supply, i.e. the supply of the loan is not subject to GST/HST"

XXXXX we ruled that:

"Pursuant to subsection 123(1) of the ETA, the loan of $XXXXX is a financial instrument and the supply of the $XXXXX loan from the individual active shareholder to XXXXX is a financial service.

Pursuant to section 1 of Part VII of Schedule V to the ETA the supply of the loan of $XXXXX from the individual active shareholders to XXXXX is an exempt supply. Therefore the supply from the individual active shareholder to XXXXX is not subject to tax pursuant to section 165 of the ETA."

The interpretation letter sent XXXXX, the rulings granted XXXXX were granted on the basis that the Club would repay the $XXXXX borrowed from the members. Our revised understanding of the facts has resulted in the revocation of the rulings granted XXXXX.

Statement of Facts

Our revised understanding of the facts, is as follows:

1. The XXXXX (Club) is a not for profit club that is registered for GST purposes.

2. XXXXX the president of the Club wrote to members of the Club describing a proposed XXXXX renovation project to improve amenities available to members.

3. XXXXX the treasurer of the Club wrote to the members proposing that XXXXX shareholder members (Members) finance the renovation project. It was proposed that, XXXXX.

4. According to the XXXXX letter, XXXXX.

5. The Club held an information session XXXXX to discuss the renovation project and the method of financing the project. The following comment was made in response to a question on the repayment of the loan, XXXXX.

6. A XXXXX sent to us by XXXXX of the Club, XXXXX, governs the terms of re-payment by the Club. The $XXXXX is repayable on demand on the occurrence of a XXXXX.

7. XXXXX:

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8. XXXXX
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9. XXXXX

Our revised understanding of the facts indicates that the payment by Members to the Club was not a loan. Therefore, in accordance with GST/HST Memorandum 1.4 the rulings sent to the Club XXXXX are revoked XXXXXXXXX.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.

Yours truly,

Manjula Vethanayagam
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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