30 September 1998 GST/HST Ruling HQR0000338 - Application of the GST/HST to Monetary Advances Made as a Financial Service

                                                                        September 30, 1998

Dear Mr. XXXXX

Thank you for your letter in which you inquired about the application of Goods and Services Tax ("GST") to monetary advances made by XXXXX[.] Our comments are set out below.

Statement of Facts

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Ruling Requested

1. The supply of the advance by XXXXX is an exempt supply of a financial service for GST purposes.

2. The reimbursement of the advance by XXXXX is an exempt supply of a financial service for GST purposes.

Ruling Given

Based on the facts set out above, we rule that:

1. The payment of the advance by XXXXX is a supply of a financial service pursuant to paragraph (g) of the definition of "financial service" in subsection 123(1) and, therefore, is an exempt supply pursuant to section 1 of Part VII of Schedule V to the Excise Tax Act.

2. The reimbursement of all or part of that advance by XXXXX is a financial service pursuant to paragraph (f) of the definition of "financial service" in subsection 123(1) and, therefore, is an exempt supply pursuant to section 1 of Part VII of Schedule V to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

The payment by XXXXX cannot be characterized as a loan as there was no obligation on the part of XXXXX to repay the same amount of money. XXXXX is a Crown corporation whose mandate is to develop XXXXX by providing various means of financial assistance. For this reason, the agreement between XXXXX and XXXXX does not contain the usual features of an ordinary commercial loan agreement; instead, the advance is subject to a conditional obligation to repay. Although the payment of the advance by XXXXX is not a loan, the fact that all or part of the advance is repayable, though only on a conditional basis, means that the advance is in the nature of a loan. For this reason, the payment of the advance by XXXXX fall within the ambit of the phrase "the making of any advance" in paragraph (g) of the definition "financial service" in subsection 123(1).

Please note that generally, a supply of a financial service provided to a non-resident person is zero-rated pursuant to Part IX of Schedule VI to the Act.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-9589.

Yours truly,

B. Mulinda
Government Sectors Unit
Public Service Bodies & Governments Division
GST/HST Rulings and Interpretations Directorate