26 July 2007 GST/HST Ruling 63048 - Tax status of courses

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:

Thank you for your letters concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale and servicing of mortgages by a XXXXX (the "Seller") to your client, XXXXX (the "Investor"). We apologize for the delay in responding to your request.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

The following facts are taken from your letter XXXXX and the draft Agreement XXXXX between the Investor XXXXX and the Seller. The Investor was incorporated under the laws of XXXXX. The Investor does not carry on business in Canada, is not resident in Canada and has no permanent establishment in Canada for purposes of the ETA. The Investor is a resident of XXXXX and is not registered for GST/HST purposes. The Seller is a XXXXX, a resident of Canada and is registered for GST/HST purposes.

XXXXX.

Fully funded Mortgage Loans are mortgages that have already been funded. These mortgages appear on an XXXXX Schedule given to the Investor. XXXXX the Agreement requires the Seller to provide the Investor with an XXXXX Schedule of fully funded Mortgage Loans setting out the details of the mortgages that it proposes to sell to the Investor. It reads:

XXXXX

The Investor is required to provide an Acquisition notice pursuant to XXXXX of the Agreement, in respect of full funded Mortgage Loans. This section reads as follows:

XXXXX

XXXXX the Agreement requires the Investor to deposit the purchase price of any fully funded Mortgage Loan that it acquires from the Seller. The Investor must also reimburse the Seller for any mortgage insurance premiums and titles insurance premiums paid by the Seller with respect to any such Mortgage Loan.

A Committed Mortgage is defined to mean a Mortgage that appears on the XXXXX Committed Mortgages Report. This report sets out Committed Mortgages made by the Seller and which the Seller allocates to the Investor. These mortgages are new mortgages where the Seller has issued a Commitment Letter but have not yet been funded. A Commitment Letter is a letter issued to a borrower by the Seller in respect of a Mortgage Loan.

XXXXX requires the Seller to provide a XXXXX Committed Mortgages Report to the Investor and the Investor is deemed to have agreed to purchase these mortgages as set out in the report provided the mortgages meet the specified criteria.

XXXXX the Agreement deal with Committed Mortgages acquired by the Investor prior to their being funded. The Investor is required to deposit funds estimated by the Seller in the Funding XXXXX Report, into a trust account set up by the Seller. The funds must be sufficient to make all advances and meet all other payments required in connection with the Committed Mortgages. The Seller is authorized to withdraw funds from the Trust Account to fund the Acquired Loans.

With respect to both types of mortgages, XXXXX the Agreement provides:

XXXXX

The Seller is required to perform or, in the case of existing Mortgage Loans, is expected to have already performed, certain specified duties in processing each Mortgage Loan. The duties include acquiring, assembling and processing information and reports; arranging for solicitors or notaries; and obtaining insurance. The Seller is required to generally perform such other acts as a prudent Seller performs in processing Mortgage Loans in accordance with normal prudent industry standards.

The servicing component of the Agreement is set out in XXXXX and requires the Seller to perform such of the following duties as are applicable to such Mortgage Loans, including:

Deliver to the Investor a Daily Mortgages Funded Report in a specified form;

Keep a separate loan account for each Mortgage Loan;

XXXXX;

Give necessary notice in respect of amounts due or overdue;

XXXXX;

XXXXX;

Settle with the mortgagor and the expropriating authority the amount and disposition of any compensation payable upon expropriation of any minor part of or interest in the Mortgaged Premises;

XXXXX;

Maintain proper records and accounts showing all receipts, payments and disbursement in respect of the Mortgage Loan and the Mortgage;

Notify the Investor of any alteration or modification in the terms of the Mortgage or Mortgage Loan under certain conditions. The Investor has the right to require the Seller to purchase back a Mortgage Loan as a result of an unsatisfactory change, within seven days and by giving written notice;

Take necessary or expedient action, from time to time, to enforce performance of the obligations of the mortgagor under the Mortgage or in respect of the Mortgage Loan and to realize upon the Mortgage and other security, at the cost and expense of the Investor, subject to XXXXX;

XXXXX;

XXXXX; and

XXXXX.

XXXXX states that all Mortgages shall be registered in the name of the Seller and all related security documents and policies shall be drawn in the name of the Seller. The Investor and such other persons as may be designated by the Investor from time to time shall be named in all Mortgage Loan insurance policies, title insurance policies and fire insurance policies. Notwithstanding the foregoing, the Seller shall execute registrable assignments of the Mortgages and all related security documents and deliver those to the Custodian as part of a bulk assignment from time to time and not less frequently than once every calendar month. Notwithstanding such registration and for so long as the Seller continues to administer a Mortgage Loan the Seller shall be named on all insurance policies relating thereto along with the Investor and the Custodian.

With respect to consideration, XXXXX provides that the Investor agrees to purchase the Mortgages on a fully-serviced basis. The purchase price for the Mortgages and the related origination, underwriting, processing and servicing of the Mortgages shall be calculated and payable as follows:

XXXXX
XXXXX

Ruling Requested

Is the acquisition of Mortgage Loans and servicing by the Investor from the Seller under the Agreement a single supply of a financial service?

If the servicing is a separate supply from the supply of Mortgage Loans, is the servicing incidental to the supply of Mortgage Loans under the Agreement, pursuant to section 138 of the ETA?

Finally, if the servicing is a separate supply, is the servicing part of the supply of Mortgage Loans pursuant to section 139 of the ETA?

Ruling Given

Based on the facts set out above, we rule that the fees described in XXXXX the Agreement, payable by the Investor to the Seller, are consideration for a supply of a 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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9577.

Yours truly,

Kirk Moore
Financial Institutions Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

2007/08/03 — RITS 64981 — Redemption of Points at Retailer