20 June 2000 GST/HST Interpretation 25671 - GST Application on Annual Registration Fees

Dear XXXXX:

Thank you for your letter of January 5, 2000 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to annual renewal fees payable in respect of the registration of salespersons under the XXXXX.

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

Since the XXXXX is not a party to the transaction where a salesperson reimburses a XXXXX firm for the firm's payment of the annual registration fee to the XXXXX we are unable to issue a ruling on this matter. We can, however, provide the following interpretation.

Statement of Facts

Our understanding of the situation is as follows:

Under subsection XXXXX, the XXXXX grants registration as a salesperson (including renewal of registration) to the salesperson. The salesperson must act on behalf of a sponsoring dealer.

Under section XXXXX, an application for registration or renewal must be accompanied by such fee as is prescribed by regulation. The initial application for registration is made by the submission of a completed XXXXX.

XXXXX

The XXXXX does not have the administrative systems in place to deal with thousands of renewal cheques from individual salespersons. XXXXX[.] Therefore, it is for the XXXXX own administrative convenience that the XXXXX wants to receive only one cheque from a registered dealer.

The XXXXX previously received an interpretation from Revenue Canada XXXXX that fees received by the XXXXX in respect of the registration of salespersons are exempt from GST, based on paragraph 20(c) of Part VI of Schedule V of the Excise Tax Act (ETA), which exempts from the payment of GST "a supply of a license, permit, quota or similar right" by a XXXXX established by a government.

Your view is that:

•   It seems anomalous to impose GST on an individual as a result of the individual reimbursing the firm's payment of the registration fee rather than paying the fee to a government XXXXX directly. The supplying of a "licence" by the XXXXX to the salesperson should be unaffected by the mechanism by which payment is made to the XXXXX. In either case payment is being made for the "service" provided by the government XXXXX, not the salesperson's employer.

Interpretation Requested

GST should not be payable by the salespersons when reimbursing the firm's payment of the registration fee to the XXXXX.

Interpretation Given

Based on the information provided, our interpretation is as follows:

As indicated to you previously, the supply by the XXXXX to the salespersons of the annual registration is an exempt supply pursuant to paragraph 20(c) of Part VI of Schedule V of the ETA. The reimbursement by the salesperson to the firm for it's payment of the registration fee to the XXXXX is not consideration for a supply and GST is not payable on that amount. Since only the XXXXX has the statutory authority to register a salesperson, the firm is unable to make a supply or a re-supply of registration.

However, the payment by the firm of the annual registration fee to the XXXXX for the salespersons, is a supply of a service of paying this fee for the salespersons. If the consideration for that service is nil and the firm and salespersons are dealing at arm's length, there will be no GST payable on this supply. On the other hand, if the firm is registered or is required to be registered for purposes of the ETA and charges an amount as consideration (e.g. $25.00) for the service of paying the registration fee for the salespersons, GST will apply on said consideration (e.g. $25.00 x 7% = $1.75, in provinces not subject to the harmonized sales tax and $25.00 x 15% = $3.75 in provinces subject to the harmonized sales tax), regardless if it is paid by the salespersons through a lump sum or by reducing the salespersons' first commissions of the year until the charge is fully paid (e.g. first 5 commissions are reduced by $5.00).

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 section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 941-2046.

Yours truly,

Nathalie Joly
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate