GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
XXXXX
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XXXXX
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Case: HQR0001210
File: 11585-17
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September 28, 1998
I refer to your letter (with attachments) of June 3, 1998, regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a sale of a lease and leased equipment. Your submission contains the relevant documents that were the topic of our telephone conversation on March 11, 1998. I understand that you have already advised audit that the sale of the lease and leased equipment is a taxable supply.
Statement of Facts
Our understanding of the facts is as follows:
XXXXX a GST-registrant, enters into written agreements with another GST-registered company, XXXXX under which XXXXX agrees to sell, transfer and convey to XXXXX certain lease agreements, all payments due under the lease agreements and the ownership rights in the equipment being leased under the agreements.
The Agreement indicates that XXXXX agrees to sell, assign, and convey to XXXXX (referred to in the Agreement as the "assignee") the lease agreement entered into between XXXXX and the lessee of certain equipment, all payments due under the lease agreement and all right, title, interest of XXXXX in and to the equipment in question.
XXXXX indicates to the assignee that it owns the equipment free and clear of all liens, charges and encumbrances and it has the right to sell, assign, transfer and convey to the assignee clear title to the equipment described under the lease agreement.
XXXXX also agrees to indemnify, hold safe and harmless from and against and covenant to defend the assignee against any and all claims, costs, expenses, damages and all liabilities arising from or pertaining to the use, possession or operation of the equipment.
The Agreement indicates that the assignee may reassign its right, title and interest in the equipment to any subsequent assignee. Also, under the Agreement, XXXXX agrees that it has no authority, without the assignee's prior written consent, to accept payments or other collection, repossess or consent to the return of the equipment or modify the terms of the lease agreement.
XXXXX writes a cheque to XXXXX to pay for the equipment that is being leased under the assigned lease agreement. XXXXX also pays XXXXX a "broker fee" for each lease assigned and an annual "administration fee" in respect of XXXXX payment collection services. XXXXX is charging and collecting GST from XXXXX in respect of the broker and administration fees.
In all cases, the lessee is not aware of the assignment of the lease to XXXXX[.]
Issue
What is the nature of the supply being made by XXXXX to XXXXX [t]hat is, is it in respect of an exempt financial service or is it in respect of a taxable supply of the assignment of the lease and lease equipment? (An opinion has already been provided to audit concerning this particular question - XXXXX is making taxable supplies in respect of the assignment of the leases and sale of the leased equipment to XXXXX[.] As a result, XXXXX is considered to be making taxable supplies by way of lease of the equipment and is, therefore, engaged in a commercial activity in Canada).
As the supply is in the nature of a taxable supply made by XXXXX to XXXXX is this supply considered a single supply or are multiple supplies being made in the form of the assignment, sale of the leased equipment and broker services? As indicated above, this singlemultiple supply issue is important in this case as many of the leases supplied by XXXXX to XXXXX will involve equipment that is zero-rated farm machinery (even though the particular lease agreement that has been provided involves equipment that is not zero-rated).
Response
Based on the above facts, we consider XXXXX assignment to XXXXX to be a taxable supply of the lease and underlying property. Your other questions are discussed in the analysis section below.
Analysis
It is our view that where a lease and underlying property is supplied, it is considered to be a single supply. Therefore, where property that is included in the Agriculture and Fishing Property (GST) Regulations, is the underlying property in question, the supply of the lease and underlying property is a taxable supply subject to the GST at a rate of 0%.
With respect to the "brokerage fee", this fee is charged as xx of the original purchase price of the equipment. XXXXX, in addition to selling the equipment as part of the lease assignment, charges this fee to the assignor XXXXX[.] Generally, a broker brings together, in an active manner, two parties in order effect a transaction. If XXXXX provided the service of bringing together XXXXX and the lessee (with XXXXX being the purchaser of the equipment and the lessor) then clearly there is a taxable supply of a broker service. XXXXX [i]nvolvement would be limited to bringing the parties together.
Additionally, the possibility exists that the "brokerage fee" is for the service of supplying XXXXX with the lease and the equipment. If that is the case, the "brokerage fee" would be a taxable supply subject to the GST at a rate of 7%. If, however, the "brokerage fee" merely represents additional consideration for the supply of the lease and the equipment, then the "brokerage fee" would have the same tax status as the equipment being supplied. Based on the documents submitted with the case, it is not clear whether XXXXX is purchasing a "broker service" and a lease and equipment. It would be necessary to review the agreement between XXXXX in order to determine the nature of the supply(ies) to XXXXX[.] If you are able to obtain all documents with respect to these transactions, I would be pleased to review them and provide a reply.
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,
Tim A. Krawchuk
Rulings Officer
Financial Institutions Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
| Legislative References: |
123(1), 134 |
| NCS Subject Code(s): |
R-17 |
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