23 June 2000 GST/HST Ruling 8278/HQR0001884 - Application of the GST/HST to Financial Services

Dear Sir:

Thank you for your letters of July 9, 1999, October 12, 1999 and December 17, 1999 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts

Our understanding of the facts of your request is as follows:

1. XXXXX is XXXXX corporation resident in Canada, and a GST registrant.

2. XXXXX is a corporation incorporated in XXXXX with branches in Canada XXXXX is licensed to transact XXXXX in Canada through its branches. XXXXX is a GST registrant. XXXXX[.]

3. XXXXX has entered into a service agreement (the "Agreement") with XXXXX. The effective date of the Agreement is XXXXX[.]

4. The Agreement states that it arises out of the following circumstances:

XXXXX desires to purchase various services from XXXXX which are necessary and useful to XXXXX in conducting its Canadian XXXXX business.

XXXXX is willing to render those services to XXXXX which are requested by XXXXX.

5. XXXXX of the Agreement provides that the kinds of "services" to be rendered by XXXXX and purchased by XXXXX include but are not limited to those identified in the Schedule of Services (the "Services").

The following services are identified in the Schedule of Services:

•   XXXXX

•   marketing

•   XXXXX

•   accounting

•   financial analysis

•   auditing

•   information processing

•   personnel, and

•   investment

The Agreement does not provide any details on the services listed in the Schedule.

6. In your letters, you further explain these "services" as follows:

•   XXXXX

•   Marketing: This means that XXXXX must actively solicit customers to XXXXX XXXXX (from XXXXX.)

•   XXXXX.

•   Accounting: This means that XXXXX must collect and account for XXXXX from the customers.

•   Financial Analysis: This means that XXXXX must calculate the amount of the XXXXX to be paid by the customer, XXXXX[.]

•   Auditing: This means that XXXXX must ensure that its intermediary service is in compliance with the agreement. This entails monitoring the activities of XXXXX sales force to ensure that they are following the guidelines established by XXXXX[.]

•   Information Process: This means that XXXXX must administer the completion by the customer of the application form and handle customer queries. This includes verifying that the application has been property completed and that all relevant information has been provided by the customer.

•   Personnel: This means that XXXXX must provide the necessary people to actively solicit customers.

7. XXXXX of the Agreement provides for the compensation for the Services. XXXXX will reimburse XXXXX for XXXXX reasonable and necessary expenses incurred by XXXXX on behalf of XXXXX and/or for that portion of XXXXX budgeted expenses and overhead which is allocable to XXXXX pertaining to the Services.

8. XXXXX shall furnish to XXXXX a quarterly statement (in a form satisfactory to XXXXX) showing both XXXXX funds handled by XXXXX during the quarter and the compensation due XXXXX for the Services rendered to XXXXX during the quarter.

Ruling Requested

1. The Services provided by XXXXX to XXXXX are an exempt supply of a financial service for GST/HST purposes.

2. XXXXX is not entitled to claim input tax credits for GST/HST paid on expenses incurred in providing the Services to XXXXX[.]

Ruling Given

Based on the facts set out above, we rule that 1. The supply of the Services made by XXXXX to XXXXX is not an exempt supply of financial services for GST/HST purposes.

2. XXXXX is eligible to claim input tax credits for GST/HST paid on expenses incurred in providing the Services to XXXXX in accordance with the provisions of the Excise Tax Act (the "Act").

The foregoing rulings are subject to the general limitations and qualifications outlined in section 1.4 of chapter 1 of the GST/HST Memorandum Series. We are bound by these rulings 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 our interpretative policy; and that you have fully described all necessary facts and transactions for which your requested a ruling.

Explanation:

Based on the terms of the Agreement, XXXXX agrees to provide the various "services" to XXXXX which are necessary in conducting its Canadian XXXXX business. The services identified in the Schedule of Services are not individual services which are provided separately to XXXXX; they are interdependent and integral components of a single supply of a management type service.

Also, as previously indicated, XXXXX was engaged to perform a variety of activities which are necessary and useful to XXXXX in conducting the overall operation of XXXXX business in Canada. XXXXX was not engaged as an intermediary to work as a "go-between" in bringing the customers to XXXXX for the purposes of XXXXX. Accordingly, XXXXX service will not qualify as a financial service under paragraph (l) of the financial service definition of the Excise Tax Act.

Should you have any further question on the above ruling, please do not hesitate to contact me at (613) 954-1433.

Yours truly,

Phil Tang
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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