22 October 2003 GST/HST Interpretation 43946 - Tax Status for "Finance Plan Fee"

Dear XXXXX:

Thank you for your letter XXXXX (with attachments) and continuing communications XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of your client.

At our request, you provided the XXXXX Agreement XXXXX XXXXX. As we have discussed, the XXXXX refers to XXXXX XXXXX to be followed and the provision of required disclosures that XXXXX (the "FI") provides to the Merchant for distribution to credit card applicants; neither of these documents has been provided and your client has advised you that it has provided all documentation in its possession. In addition, your client does not have access to a sample copy of a cardholder agreement setting out the FI's terms and conditions for use of the XXXXX (the "Merchant") branded credit card as provided to the Merchant's customer.

As discussed, we are unable to provide a ruling on the issues set out in your ruling request without access to all of the relevant agreements. Further, the information provided in support of the ruling request is contradictory in that your letter XXXXX XXXXX, indicates that the finance company invoices the company for the finance fees owing on a monthly basis, whereas the sample transaction provided indicates that the finance company pays the Merchant the amount of goods, services and tax indicated on the voucher, not including the finance fee/interest amount.

For the above-noted reasons, we are providing an interpretation, based upon the facts as we understand them in reliance on XXXXX of the XXXXX provided. The facts relied upon are as follows:

1. The Merchant has contracted with a financial institution ("FI") to provide financing terms for its customers through the issuance of Merchant-branded credit cards;

2. There are various financing terms offered depending upon a particular cardholder and/or promotion;

3. The FI sets rates with respect to the various financing terms and, where a cardholder chooses a "deferred payment plan", the Merchant includes the amount of any "finance plan fee" as a separate charge on the invoice. The credit card voucher issued as a result of the approved transaction indicates the code number of the particular deferred payment plan purchased by the cardholder.

4. The FI pays to the Merchant the total amount shown in the Sales Data submitted by the Merchant less the amount of any credit reflected in the sales data (as indicated by the code number on the voucher) and the Discount Fee (as defined pursuant to XXXXX of the XXXXX) and any amount to be charged to the Merchant or owed by the Merchant to the FI under the XXXXX XXXXX and attached Schedules.

5. The Merchant may accept cardholder payments at its retail outlet(s); however, all cardholder payments are the sole property of the FI.

Interpretation Requested

Your client would like to know: 1. if the amount charged as consideration for the "finance plan fee" is consideration for a taxable supply; and 2. would the tax status of the supply change if the Merchant were to charge a "finance plan fee" in an amount different than that set out by the FI.

Interpretation Given

It appears that this amount may fall within the application of paragraph 123(1)(i) of the "financial service" definition, which reads as follows:

(i) any service provided pursuant to the terms and conditions of any agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued,

Essentially, if this fee is being charged pursuant to the cardholder agreement as part of the terms and conditions of being a cardholder, and the deferred payment service is being provided to the cardholder by the FI as part of the credit card service, the fee is consideration for an exempt supply and the amount is not subject to GST/HST.

Without further information and documentation on the transactions, we are unable to provide specific guidance with respect to whether the tax status of the supply would change if the Merchant were to charge a different amount than that set out by the FI.

In the event that our understanding of the facts is incorrect, please contact us since, under some circumstances, the "finance plan fee" may be a fee for a taxable supply.

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 613-952-9262.

Yours truly,

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