23 May 2000 GST/HST Ruling 30762 - GST Ruling with Respect to the Purchase of Accounts Receivable Between Corporate Taxpayers

Dear XXXXX

Thank you for your letter of March 22, 2000 with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

XXXXX XXXXX[.] In addition to running a XXXXX. has invested in a number of business ventures. The investment in these businesses has put increased demands on cash flow.

XXXXX[.] The immediate collection of accounts receivable balances, less the discount will provide XXXXX with much needed cash flow to conduct business operations.

XXXXX would be responsible for all collection and legal activities associated with the accounts receivable purchased from XXXXX will have the option of refusing to acquire specific accounts receivable balances offered for sale by XXXXX to avoid assuming unnecessary risks.

There is no payment of fees for this factoring arrangement contemplated between the two corporations. Any remuneration that XXXXX will receive will come in the form of the difference between the accounts receivable balances collected and the amount paid to XXXXX for them.

All administrative collection costs such as staff, office supplies, legal, etc. with respect to the accounts receivable balances will be borne by XXXXX[.]

Ruling Given

Based on the facts set out above, we rule that GST is not payable on the purchase and sale of accounts receivable as the sale of accounts receivable is a financial service and, accordingly, an exempt supply.

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 our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

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

Yours truly,

E.H. Gauthier
Director General
Excise and GST/HST Rulings Directorate
Policy and Legislation Branch