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XXXXX
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P. Tang
XXXXX File: 11590-5
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XXXXX
This is in reply to your memorandum and a recent telephone conversation with Phil Tang of my staff concerning XXXXX. You request our opinion regarding the application of GST to the payment of an amount made by XXXXX to XXXXX pursuant to a XXXXX (futures) contract XXXXX[.] Based on the information described in your memo and the standard XXXXX Agreement attached with your memo, our understanding of the situation is as follows:
On XXXXX entered into anXXXXX Agreement with XXXXX[.] Under this agreement:
(a) XXXXX guarantees XXXXX a fixed price (the "Guaranteed Price") per unit of XXXXX that XXXXX sells.
(b) XXXXX sells XXXXX to their customers at the current market price, and charges and remits the GST on the transactions based on the consideration received (i.e. the market price).
(c) If the selling price is more than the Guaranteed Price, then XXXXX remits the difference between the two prices to XXXXX. However, if the selling price is less than the Guaranteed Price, XXXXX will be required to remit the difference between the two prices to XXXXX[.]
(d) In the past, the selling price has been less than the Guaranteed Price. Therefore, XXXXX has been receiving an amount from XXXXX that represents the difference between the selling price and the Guaranteed Price. XXXXX has not been charging or remitting GST on this amount.
You request our view as to whether the amount of money that XXXXX receives from XXXXX representing the difference between the XXXXX selling price and the Guaranteed Price is consideration for a taxable supply or consideration for an exempt supply.
Our Comments:
We have made a careful review of the GST status of the payment made by XXXXX in the situation described in your case.
We note that when XXXXX is required to make a payment to XXXXX under the XXXXX Agreement, XXXXX is not making the payment as consideration for the supply of any specific property or services by XXXXX[.] Also, the payment of money by XXXXX is itself a financial service by virtue of the financial service definition under the Excise Tax Act.
The supply of a financial service is exempt from GST.
Accordingly, it is our view that the amount received by XXXXX from XXXXX in the situation described in your memo will not be subject to tax.
We trust our comments will be of assistance. Should you wish to discuss this issue further, please do not hesitate to contact Phil Tang at (613) 954-1433 or Duncan Jones at (613) 952-9210[.]
J. Sitka
A/Director
Financial Institutions and Real Property Division
GST Rulings and Interpretations
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