26 August 1997 GST/HST Interpretation HQR0000632 - Agency Relationship

Dear XXXXX

Thank you for your letter of April 5, 1997, concerning the application of the Goods and Services Tax (GST) to your operations. You have indicated in your letter that XXXXX , acting as agent, conducts title searches and several other services for law firms and or banks.

GST is not charged to your clients on disbursements for any expenses you incurred which are not taxable. You are, however, charging tax on the service fees and other out-of-pocket expenses.

You faxed additional information on July 7, 1997 to describe the services you provide which include:

1. Full Searches (find lands copy abstract page, notes on documents, copy information important to a lawyer and client, copy plans required, write up comment page, etc.);

2. Subsearches (at the request of a lawyer you copy abstract, copy transfer and encumbrances Execution Certificate, etc.); and

3. Closings (exchange documentation as requested by lawyer, exchange money and keys, register documents, etc.).

You also stated that the services you are providing are similar to those you would provide if you were an employee of a law firm.

Interpretation Requested

You have asked the following questions in respect of the above described situation:

1. Is XXXXX acting as agent for the individuals that request the above described services?

2. Is it correct procedure to not charge GST to our clients for non-taxable costs incurred at the Registry Office?

3. Is it appropriate to charge GST on disbursements to the law firm or bank if a title searcher chooses to do so?

Interpretation Given

The Department's position is that a reference to a person acting as agent included in the Excise Tax Act ("the Act") would be interpreted as referring to a person acting as "agent at law" (that is, authorized to affect the legal position of the principal, etc.). Therefore, it is a question of fact and law whether an agency relationship exists.

On June 23, 1995, the Department issued Policy Paper P-182 entitled, "Determining the Meaning of the Terms 'Agent' and 'Agency' as used in Relevant Sections of the Excise Tax Act and Identifying those Factors that may be used to Determine the Likelihood of Agency". The policy paper refers to these factors as the Essential Qualities of Agency and the Indicators of Agency.

Please remember, while a supplier may be considered to be an agent for a particular transaction or part of a transaction, that supplier is not necessarily considered an agent for all transactions with that principal. Also, each relationship with each client needs to be examined independently in terms of assessing whether an agency relationship exists in each particular case.

If XXXXX acts as an agent of the client, no GST would be charged to the client with regard to the cost of the title search (access to books), since the transaction would be treated as if the client itself obtained the exempt supply. (access to books)

Expenses incurred by a supplier, where there is no agency relationship between the supplier and the client, that are reimbursed by the client, form part of the consideration for the services supplied to the client. For example, while the cost of a title search from the Registry Office itself my be exempt from GST when obtained by XXXXX , the subsequent resupply of it to the client is taxable at 7% GST or 15% HST.

Based on your submitted information, we are unable to ascertain whether or not there exists an agency relationship between you and your clients in respect of a specific disbursement. For example, you may be incurring certain expenses described in item 3 above (Closings) on behalf of your client.

However, it appears that the disbursements incurred in performing the services described in items 1 (Full Searches) and 2 (Subsearches) are taxable at the standard rate of 7% GST or 15% HST as part of the consideration.

Policy paper P-182 has been provided to help you determine the likelihood of an agency relationship existing. Draft policy paper P-209 on Lawyers' Disbursements has also been included which may be related to this situation.

Subsection 221(1) of the ETA provides that every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply. Since you are making a taxable supply, you are required to collect the GST payable in respect of this supply.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

Please contact me at (613) 952-8532 if you have any questions or require further information.

Yours truly,

Leslie White
Border Issues Unit
General Operations and Border Issues Division
GST Rulings and Interpretations

Legal References:

Authority: Subsection 177(1)

Reference: Policy Paper P-182 and P-209