Files: 11590-5; 11783-2
123(1)
XXXXX
March 22, 1995
Dear XXXXX
We are writing in reply to XXXXX telefax dated February 21, 1995, enclosing a copy of the above company's request for a GST interpretation.
Our understanding of the situation is as follows:
• XXXXX agrees that both adjusting and appraisal services of an engineer or mathematician who is not a licensed adjuster do not qualify for exemption under paragraph 123(1)(j) of the definition of financial service.
• XXXXX is of the opinion that appraisal services by people other than insurers, and licensed adjusters qualify for exemption at paragraph 123(1)(j.1).
The rationale for XXXXX opinion is as follows:
• Exemption is extended to "The service of inspecting property with an appraisal of the damages caused to the property", without restriction to the nature of the person carrying out the service.
• The exempting provision in point 1 above does however have an end-use restriction, requiring the service to be for the purpose of "providing a person who supplies a service referred to in paragraph (j) in respect of the property".
• "The appraisal of damage" mentioned in paragraph (j.1) is an integral part of "the service of investigating and recommending" mentioned in paragraph (j). To investigate is to appraise, and to recommend is to give your appraisal. Therefore, paragraph (j.1) would be redundant if it only related to work carried out by insurers, and licensed adjusters.
• Paragraph (r) of subsection 123(1) does exclude professional services provided by an accountant, actuary, lawyer or notary in the course of a professional practice. However, no reference is made to engineers, and mathematicians who provide information in supporting an insurer's or licensed adjuster's settlement of an insurance claim. For example, a mining engineer may be called in to help provide technical information on the extent of damage to mine shafts and equipment, or to comment on the credibility of damage claims made by the mine owner.
Our comments
A review of the contract or report prepared by the mining engineer will give us an idea of the nature of the supply being made.
Generally, adjusting services will qualify as financial services under paragraph 123(1)(j) of the definition of financial service if the supply of these services is made by an insurer or by another person who is licensed under the laws of a province to provide such services.
Appraisal services are excluded from paragraph (j) of the definition of financial service. The services of a licensed insurance adjuster described under paragraph (j) are much broader than an appraiser's service. A licensed insurance adjuster negotiates and settles a claim on behalf of an insurance company. Independent licensed insurance adjusters and licensed insurance adjusters employed by insurance companies use appraisal services as an input to the service of adjusting.
Insurance appraisals are considered to be essential services used by insurance adjusters and insurers in the process of the settlement of insurance claims. The exemption of insurance appraisals is provided under paragraph 123(1)(j.1).
The definition "financial service" was amended in 1993 by the addition of paragraph (j.1) to include the services of damage appraisals provided to insurers or adjusters. This change is also effective January 1, 1991. However, damage appraisal services supplied after September 1992 will be treated as financial services only where the services include an inspection of the damaged property or, in the case of a loss of the property, the last known place where the property was situated before the loss.
Paragraph (p) of the definition "financial service" was amended by adding a reference to new paragraph (j.1) of the definition, effective January 1, 1991 to ensure that damage appraisal services included in the latter paragraph are not excluded under paragraph (p).
We agree that paragraph 123(1)(r) does not exclude the services provided by engineers and mathematicians . However, to qualify as financial services, any appraisal services provided by engineers and mathematicians must first meet the conditions set out under paragraph 123(1)(j.1).
The engineers and the mathematicians who provide information in supporting an insurer's or licensed adjuster's settlement of an insurance claim perform an advisory service. The service of providing advice other than a service included in paragraphs (j) and (j.1) is specifically excluded under paragraph (p) from the definition of financial service. As a result, the services of the engineers or the mathematicians could either be taxable or exempt, depending on the nature of the services provided.
Based on the facts provided by XXXXX the supply of technical information on the extent of damage to mine shafts and equipment or the comments on the credibility of damage claims made by a mining engineer, cannot be treated as financial services as these services do not relate to the estimate of the value of the physical damage to property. As a result, the supplies made by the mining engineer in the given example should be taxable.
However, the services of providing technical information on the extent of damage to mine shafts and equipment, or comments on the credibility of damage claims, by the mining engineer may qualify as financial services under paragraph 123(1)(j.1) if these services consist of an appraisal of the value of the damage caused to the property, or in the case of a loss of the property, the value of the property, where the mining engineer inspects the property, or in the case of a loss of the property, the last-known place where the property was situated before the loss. The services must also be provided to a person (i.e. an insurer or adjuster) who supplies a service exempted under paragraph (j). If these three conditions are met, the services provided by the mining engineer would be exempt.
Should you have any further questions, please do not hesitate to contact Roy Osudar at (613) 952-9220 or Ginette Bouchard-Forgues at (613) 957-8221.
J. Sitka
A/Director
Financial Institutions and Corporate Reorganizations
GST Rulings and Interpretations
Telephone: (613) 954-8585
Fax: (613) 990-1233
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