27 June 2000 GST/HST Interpretation 25776 - Method of Payment of Fees to Securities Commissions

Dear XXXXX:

Thank you for your letter of December 20, 1999 (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 by provincial securities commissions.

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

Background

XXXXX is the XXXXX organization for the XXXXX fund industry in Canada. XXXXX represents amongst others, XXXXX fund dealers engaged in the distribution of XXXXX funds and other financial products across Canada.

Provincial Securities Commissions require individual salespersons and their employers to be registered with them and to pay annual fees. For example, under XXXXX, no person or company may trade in a security unless the person or company is registered as a dealer, or is registered as a salesperson or as a partner or as an officer of a registered dealer and is acting on behalf of the dealer.

If a renewal fee in respect of a salesperson is not paid, the salesperson's registration may be suspended or terminated. In such a case the firm must notify the Commission that the salesperson's employment has terminated or the salesperson has been designated as non-trading. The firm remains registered so long as it employs at least one individual registered to trade in securities.

Recently, provincial securities commissions have required registered XXXXX firms to send one single cheque covering the license fees for all individual sales persons. XXXXX firms who send in cheques from each employee registering have had these cheques returned uncashed with demand that they replace them with a single cheque for the total amount of registration fees. Essentially the XXXXX firm completes on behalf of the salesperson all the paperwork required by the XXXXX, remits one cheque in total for all the registration fees and subsequently collects these fees from the individual salespersons.

Interpretation Requested

The reimbursement by the salespersons of the registration fees paid by the XXXXX firm on their behalf to the XXXXX is not subject to GST.

The XXXXX firms pay the registration fee on behalf of and as agent for their individual salespersons. The license or registration is only issued to the individual salespersons and the XXXXX firms are merely reimbursed for the payments made. It should be sufficient for the dealers to issue a single cheque to the provincial securities commissions and attach to the cheque a list of the individuals covered by the cheque. If the cheque stub and list are maintained in the records of the XXXXX firm, it should be possible for the XXXXX firm to seek reimbursement from their staff by whatever means, whether by separate cheque from the staff member, or by deduction or offset against commissions due without giving rise to a GST liability.

Interpretation Given

Based on the information provided, the reimbursement by the salespersons of the XXXXX registration fees to the XXXXX firm 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 XXXXX firm cannot make a supply or a re-supply of registration.

However, the XXXXX firm is supplying to the salespersons the service of completing and submitting the necessary documentation, along with the registration fees to the XXXXX. This is a taxable supply since it does not fall within the definition of a financial service per s. 123(1) nor is listed as any of the other supplies in addition to financial services which are exempt of GST in Schedule V of the ETA.

Where the XXXXX firm is registered or is required to be registered for purposes of the ETA and charges an amount, over and above the XXXXX registration fee, as consideration for the making of the supply, that amount is subject to the GST. For example, if $20.00 is charged as consideration by the XXXXX firm to the salesperson for processing the application, the GST payable is ($20.00 x 7%) $1.40, in provinces not subject to the harmonized sales tax and ($20.00 x 7%) + ($20.00 x 8%) $3.00 in provinces subject to the harmonized sales tax. This fee is subject to GST regardless of the manner in which it might be collected. Where no charge for the service is made, there is no tax remittable.

As to books and records, the XXXXX firms should maintain such documentary evidence as is necessary to prove that they have completed the transactions in respect of the XXXXX registration process described in your letter[.]

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 613-952-8811.

Yours truly,

John Nowak
Financial Institutions Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate