GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
Case: HQR0001259
File: 11595-2
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Att: XXXXX
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September 28, 1998
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Dear XXXXX
Thank you for your memorandum of July 21, 1998 including the July 16, 1998 memorandum from XXXXX to XXXXX TIS Team Leader, and attached documents, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain transactions undertaken by XXXXX. We also received the memorandum dated August 12, 1998 from XXXXX[.]
Our understanding of the facts is as follows:
• Under the terms and requirements of XXXXX when a XXXXX member institution has failed, XXXXX is required to provide deposit insurance to insured depositors, within the limits imposed by XXXXX (generally, to a maximum of XXXXX per insured depositor).
• In settlement of this insurance claim, one of the methods provided to XXXXX under the XXXXX is to make the insured deposit amounts held with the failed institution (the XXXXX") available to insured depositors by means of placing the insurance settlement amount in another member institution, who then sets up new demand deposits in the amounts and names of the insured depositors, as identified by XXXXX[.]
• This method of settlement is accomplished by XXXXX providing the transferee member institution with a computer tape of depositor insurance information, and a cheque in the amount of the XXXXX[.]
• The transferee member institution then actions the information and settlement amount provided by XXXXX to create the new deposit accounts of, and makes them available to, the insured depositors.
• This procedure satisfies XXXXX obligations to provide deposit insurance under the XXXXX[.]
• The first step in this process involves the tendering by XXXXX of the XXXXX to selected XXXXX member institutions. A letter is sent to these selected institutions inviting them to make a formal offer for the placement of the XXXXX XXXXX according to a number of parameters as enumerated in the letter.
• As quoted in the letter, the successful bidder is required to pay a fee to XXXXX "to reflect the benefit to the institution of acquiring these new deposit accounts".
• The successful bidder has, in all cases, agreed to pay, and has paid the fee to XXXXX for the right to receive the XXXXX[.]
Interpretation Requested
As detailed in the July 16, 1998 memorandum, the primary issue is the status for GST/HST purposes of deposit transfer fees charged by XXXXX-member institution for the right to placement of an XXXXX in satisfaction of XXXXX obligations under the XXXXX upon the failure of another member institution.
Interpretation Given
Based on the information provided, the fee paid by a XXXXX member institution is a fee paid in consideration for the arranging for a financial service and is consequently exempt for GST/HST purposes.
Paragraph 123(1)(f) defines "financial service" to include the payment or receipt of money in respect of a financial instrument. Subsection 123(1) defines "financial instrument" as including a debt security and a "debt security" is defined in the same subsection to include a deposit of money. A deposit account is a deposit of money. The transfer of an account from one institution to another is considered to be a financial service under paragraph 123(1)(f). Under the authority of XXXXX is effecting the transfer of deposit accounts (the XXXXX from a failed financial institution to another financial institution. XXXXX is arranging for the transfer of deposit accounts. This is a financial service under paragraph 123(1)(l) of the definition of financial service.
We do not agree that the transferee institution is purchasing a right to receive the XXXXX as outlined in XXXXX memorandum, but rather the transferee institution is making an offer to purchase the XXXXX[.]
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9577.
Yours truly,
Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch
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