9 January 2002 GST/HST Interpretation 37015 - Asset Securitization -

This interpretation is based on the information provided per the XXXXX between the parties involved, dated XXXXX.

Mortgages are XXXXX.

The issue is whether the servicing fee is subject to tax XXXXX[.] Under section 139 if there is a single consideration for the supply of a financial service and another service the consideration for which would be less than 50% of the value of the financial service, then the entire supply is deemed to be a supply of a financial service.

Under section 138, [i]ncidental supplies, where two services are provided for a single consideration and one supply is incidental i.e. the servicing of sold mortgages, to the other supply then the incidental supply is deemed to form a part of the main supply. The servicing would be a part of the sale of the mortgages, a financial service, and would be exempt from tax.

XXXXX

For purposes of paragraph (t) of the definition of financial services, the Financial Services (GST/HST) Regulations, the administrative services performed XXXXX are precluded from the definition of financial services. XXXXX cannot be considered to be "at risk" within the meaning of section 4 of the Financial Services (GST/HST) Regulations in respect of the sold mortgages. Further, there is no evidence that XXXXX is closely related to a person at risk, i.e. the purchaser XXXXX.

XXXXX

Review and Analysis

XXXXX

However, to fall within the ambit of section 139 or 138 of the Act, the sale XXXXX and the accompanying servicing function must be for a single consideration in order to qualify for the same tax status i.e. exempt. XXXXX In conclusion, there is a separate consideration for the servicing XXXXX precluding the application of sections 138 or 139. Further the Financial Services (GST/HST) Regulations, for purposes of paragraph (t) of the definition of financial services, exclude these administrative services provided by the seller from the definition of financial services.