20 June 2002 GST/HST Interpretation 37564 - Electronic Payment of Parking Tickets

Dear XXXXX:

Thank you for your letter of October 1, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the internet payment of parking tickets as proposed by your client.

Statement of Facts

•   Bankco, a listed financial institution, enters in a written agreement with a municipality to facilitate the paying of a parking ticket fine issued to an individual by the municipality. The payment is made by the individual through the internet.

•   Pursuant to this written agreement, BankCo charges the municipality a monthly subscription fee of XXXXX.

•   The subscription fee covers the following services: developing a website portal; hosting and operating the website portal on a 7 day a week/24 hour basis; maintaining, supporting and providing enhancements to the portal; providing all required security and firewalls; linking the portal's operating software to necessary accounting and credit card approval systems; providing electronic links to any parking ticket application software(s) running at the municipality; translating payment data to the appropriate format for delivery to the municipality, and delivering payment remittance data to the municipality.

•   BankCo also charges a convenience fee of XXXXX (per parking ticket paid) directly to individuals who use the website portal to pay any outstanding parking ticket fines. Individuals pay their parking ticket fines by credit card.

•   The individual payor receives printed confirmation that their parking ticket fine has been paid, with the date, amount of payment and the XXXXX convenience fee indicated on the receipt.

Information from conversation April 11, 2002:

•   The convenience fee is for the payment of parking ticket fines.

Interpretation Requested

You would like CCRA to confirm that:

1. The flat, monthly subscription fee charged by BankCo to the municipality is subject to GST.

2. The convenience fee of XXXXX charged by BankCo to an individual to accept and process payment of a parking ticket fine is an exempt financial service that is not subject to GST.

3. The convenience fee of XXXXX charged to an individual to accept and process payment of a parking ticket fine remains an exempt financial service even if provided by a service provider that is not a listed financial institution.

Interpretation Given

Based on the information provided:

1. The flat, monthly subscription fee charged by BankCo to the municipality is subject to GST.

2. The convenience fee of XXXXX charged by BankCo to an individual to accept and process payment of a parking ticket fine is an exempt financial service that is not subject to GST.

3. The convenience fee of XXXXX charged to an individual to accept and process payment of a parking ticket fine remains an exempt financial service, even if provided by a service provider that is not a listed financial institution, where the service provider is providing a "financial service" set out at para. 123(1)(a) of the Excise Tax Act (ETA), and that service consists of "solely the making of the payment." (Financial Services (GST/HST) Regulations, [SOR/91-26] as amended, at para. 4(2)(c).)

Explanation:

1. The services provided for this fee are services taxable at 7%.

2. See item A-12 of Memo 17.2, Products and Services of a Deposit-Taking Financial Institution.

3. The fee should normally be exempt. It is important to note, however, that the status of this fee is dependent upon the services provided by the supplier. The ETA definition of "supply" set out at sub. 123(1) makes clear that the characterization of the supply is dependent upon the service being provided by the "supplier" as opposed to the services received by the "recipient." Since this is a proposed transaction, you do not have agreements or further information relating to other parties potentially involved; it is thus not entirely clear whether the person charging the fee is in fact the supplier who is providing a "financial service" pursuant to 123(1)(a) of the "financial service" definition. The following comments should assist you in making this determination as the facts and agreements become available.

Paragraph 123(1)(a) of "financial service" definition:

As discussed, all taxable supplies of IT services to the municipality are covered under the flat monthly fee paid by the municipality to BankCo. The supply made to the payor of the parking ticket is that of debiting his or her credit card account and depositing the payment into the account of the municipality (payment of parking ticket by credit card via the Internet). From the information provided it appears that para. 123(1)(a) — "the ... transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise," — of the "financial service" definition applies where your client in fact transfers the money from the ticket payor to the municipality. Assuming that this paragraph applies, reference must still be made to paragraphs (n)-(t) of the definition to determine whether the service is then excluded or remains exempt.

Paragraph 123(1)(n) of "financial service" definition:

Where the fee is paid as consideration for a service other than one set out at 123(1)(a)-(m), it will be excluded at para. 123(1)(n). As discussed above, the facts indicate that the fee is charged as consideration for a financial service. If this is so, para. 123(1)(n) does not apply to exclude the service.

Paragraph 123(1)(t) of "financial service" definition:

Paragraph 123(1)(t) of the definition of "financial service" refers to section 4 of the Financial Services Regulations. Where the service provided by your client to the payor of the parking ticket is "solely the making of the payment," the service is not excluded from the definition of "financial service" and remains exempt.

The statement of facts provided indicates that your client effects the transfer of money from the payor's credit card account to the municipality and provides printed confirmation that the payment has been made, with the date, amount paid and convenience fee indicated on the transaction receipt. The service of providing written confirmation of payment is incidental to the primary supply of the financial service and would not act to exclude the service from this definition. Where additional services (other than simply the provision of a receipt) are provided for this fee, reference to subsection 4(3) will be required to determine the tax status of the fee.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9262.

Yours truly,

Sheena France
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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