23 December 1999 GST/HST Interpretation 8352/HQR0001958 - Appraisal Services

Dear XXXXX

We are writing in response to your letter of September 8, 1999 (with attachments) addressed to XXXXX XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided by independent vehicle damage appraisers. Your letter was referred to our office for direct response to you.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

Background

XXXXX vehicle damage appraisal business providing vehicle damage appraisals, vehicle condition reports and mechanical warranty inspections to insurance companies, adjusting and appraisal companies, corporations, leasing companies and government entities.

XXXXX appraisers are independent contractors whose service product is sent directly to XXXXX client, and billed by XXXXX[.]

•   The independent sub-contractor is paid a percentage of the billing - no GST.

You have asked us to confirm that:

1. (a) XXXXX is exempt of GST for vehicle damage appraisals provided to insurance companies, adjusting companies, appraisal companies and banks.

(b) XXXXX is required to collect and remit GST for all other services and to all other business entities except as noted above in paragraph (a).

2. Independent contractors are GST exempt for services provided to XXXXX[.] In respect of services other than vehicle damage appraisals, and services to business entities other than those noted in paragraph 1(a) provided by independent contractors, XXXXX is required to collect and remit GST.

Based on the limited information provided, it is not possible to provide you with a ruling. However, based on the information provided, it appears that all the services provided to XXXXX by independent contractors, as outlined in 2, are taxable supplies and where an independent contractor is a registrant, the contractor should be charging tax.

To assist you in determining the tax status of a particular supply of an appraisal service, we are providing the following general interpretation which sets out our position with respect to the application of the GST/HST to appraisal services.

Interpretation

A supply of a service in Canada is generally subject to tax at a rate of 7% under subsection 165(1) of the Excise Tax Act (the "Act") unless the supply is a zero-rated supply under Schedule VI (i.e., taxable at a rate of 0%) or an exempt supply under Schedule V. A supply of a financial service is generally exempt under section 1 of Part VII of Schedule V to the Act unless it is included in Part IX of Schedule VI. The term "financial service" is defined in subsection 123(1) of the Act and generally includes a broad range of transactions pertaining to financial instruments and money.

In order to determine whether the services provided by XXXXX or the independent contractors meet the definition of a "financial service", it is necessary to consider initially whether the services are included under paragraphs (a) to (m) of that definition. Note that paragraphs (n) to (t) of the definition specifically exclude certain services from the definition. For instance, paragraph (r) excludes professional services provided by an accountant, actuary, lawyer or notary in the course of a professional practice. Similarly, paragraph (p) excludes the service of providing advice unless the service is a "financial service" because of paragraph (j) or (j.1) of that definition.

Under paragraph (j), an insurance adjustment service (i.e., the service of investigating and recommending the compensation related to a claim under an insurance policy) will normally qualify as a financial service where the supply of the service is made by an insurer, marine adjuster or provincially licensed adjuster, or where the supply of the service is made to an insurer or a group of insurers by a person who is permitted by provincial laws to provide adjustment services without holding a licence for that purpose. Note that an adjustment service relating to a claim under a life or accident and sickness policy is specifically excluded from the definition of "financial service" under subsection 123(1) of the Act. Therefore, that type of an adjustment service would be a taxable supply.

The service of providing an appraisal is a financial service under paragraph (j.1) where the following conditions are met:

•   the service is provided to an insurer or a person who supplies a service which is referred to in paragraph (j) (e.g., a provincially licensed adjuster who provides a service of investigating and recommending the compensation in satisfying an insurance claim);

•   the service is not provided by an accountant, actuary, lawyer or notary in the course of a professional practice; and

•   where the service is in respect of damaged property, the supplier of the service inspects the property and provides an appraisal of the damage caused to the property; or

•   where the service is in respect of lost property, the supplier of the service inspects the last-known place where the property was situated and provides an appraisal of the value of the property.

Where the above conditions are met, then the appraisal service would generally be exempt for GST/HST purposes.

The following examples illustrate how the conditions in paragraphs (j) and (j.1) must be considered to determine the tax status of a particular supply of a service of providing an appraisal.

Example 1

Insurer Co. enters into a contract with Adjuster Co. Under the terms of the contract, Adjust Co. will investigate and recommend to Insurer Co. the compensation in respect of a claim resulting from a fire at the XXXXX business office of an insured. Adjust Co. is licensed by the province of XXXXX to provide this service. Adjust Co. enters into a contract with B Co., an appraisal firm. Under that contract, B Co. agrees to provide an appraisal of the damage caused to the property.

In order to provide the appraisal, B Co.

•   inspects the damaged property; and

•   prepares estimates of the damage caused to the building, equipment and inventory.

In this example, Adjust Co. provides a service referred to in paragraph (j) of the definition of "financial service" to Insurer Co. Therefore, the supply of the appraisal service by B Co. to Adjust Co. would not be subject to tax as it is an exempt supply of a financial service.

Example 2

B Co., an appraisal firm, enters into a contract with Insurer Co. Under the contract, B Co. agrees to provide Insurer Co. an appraisal of the damage caused to an insured's vehicle as a result of a car accident. Instead of having its employees do the appraisal for Insurer Co., B Co. contracts with an independent insurance appraiser.

In order to provide an appraisal of the damage caused to the vehicle, the independent insurance appraiser

•   inspects the damaged vehicle which is located in XXXXX and

•   prepares an estimate of the damage caused to the vehicle.

In this example, the supply of the appraisal service by B Co. to Insurer Co. would be an exempt financial service as it meets the conditions in paragraph (j.1) (i.e., B Co. is providing the appraisal service to an insurer). However, the supply of the appraisal service by the independent insurance appraiser to B Co. would be taxable as it is not a service provided to an insurer or a person who supplies a service referred to in paragraph (j) (i.e., B Co. provides a service referred to in paragraph (j.1)).

Example 3

B Co., an appraisal firm, enters into a contract with the federal government (Government). Under the contract, B Co. agrees to provide Government an appraisal of the damage caused to a vehicle where an employee of Government was involved in an accident. The appraisal will assist Government in determining whether it should have the vehicle repaired or sold as scrap.

In order to provide an appraisal of the damage caused to the vehicle, B Co.

•   inspects the damaged vehicle which is located in XXXXX and

•   prepares an estimate of the damage caused to the vehicle.

In this example, the supply of the appraisal service by B Co. would be taxable as it is not a service provided to an insurer or a person who supplies a service referred to in paragraph (j).

For your reference , we have enclosed a copy of section 1.5 Definitions of Chapter 1 of the GST/HST Memoranda Series. The definition of "financial service" and other terms such as "financial instrument", "insurance policy" and "insurer" which are used in the definition of "financial service" are provided respectively on pages 19, 31 and 32 of this document.

On April 1, 1997, the Harmonized Sales Tax (HST) replaced the Goods and Services Tax (GST) and the Provincial Sales Tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. If you supply goods that are delivered or made available in a participating province, services to be performed in a participating province or intangible personal property that may be used in a participating province to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in the enclosed section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Once you have examined the appraisal services that you provide and receive for GST/HST purposes, you should contact the XXXXX for assistance with respect to any adjustments that may be required on previously filed GST/HST returns.

Yours truly,

J. Allard
Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

Encl.

b.c.: XXXXX