11 July 2003 GST/HST Interpretation 44949 - Application of GST/HST to Currency Processing Services

DearXXXXX:

Thank you for your facsimile XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the services described in your request.

Our understanding of the facts is as follows:

•   XXXXX is a XXXXX provider of currency and treasury management services to businesses and financial institutions.

•   XXXXX is registered for GST/HST purposes.

•   XXXXX has proposed to provide currency management services to a XXXXX XXXXX bank (the Bank). The services would be provided to the Bank's branches across Canada.

•   XXXXX and the Bank are not related to each other.

•   The scope of the services includes all vault-related currency processing operations that are currently performed in-house by the Bank's employees. Generally, the services commence upon XXXXX receipt of the currency parcels at a bank vault. XXXXX[.]

•   Generally, XXXXX will be liable for loss and damages (or be responsible for exhibiting otherwise) from the time it receives the currency when it is delivered by the armored car through to the dispatch of currency by way of outgoing shipments and orders.

•   The XXXXX deposit-taking services to be provided by XXXXX are as follows:

(a) Receiving tellers will receive deposit bags from armored car company vehicles.

(b) Deposits will be distributed to workstation tellers who will open the bags, verify, count and balance the contents. The tellers will prepare appropriate paperwork, identify discrepancies and accept verified deposit amounts for credit to the customer account. Where possible, the teller identifies the reason for discrepancies in the deposit amount and makes adjustments to the appropriate accounts. XXXXX is liable for any differences or counterfeits uncovered at a point where the currency is not identifiable back to a customer.

(c) After verification, the teller forwards the currency to automated equipment for further processing (i.e., facing, strapping, banding). The high-speed equipment will perform the reconciling and sorting of bank notes by denomination, orientation and fitness. The currency is then assigned to the appropriate bank inventory.

(d) As part of the deposit verification process, XXXXX will provide reports electronically or otherwise to customers and bank departments according to the bank's instructions.

(e) XXXXX will also perform XXXXX inventory management and Automated Bank Machine cash stripping services following existing bank procedures.

•   The XXXXX services to be performed are as follows:

(a) XXXXX will also provide order processing whereby it will supply currency packages to customers, such as retailers. In addition, order processing includes the supply of currency packages to bank branches and ABMs.

(b) The output is packaged for delivery to the order processing customers or retention in bank inventory in fixed increments and the increments are packaged together in straps. In addition, XXXXX is liable for any differences claimed in an XXXXX strap-verified order by an order customer XXXXX.

XXXXX charges to the Bank can be identified as being either XXXXX services. The fees charged by XXXXX are calculated by way of process volume XXXXX.

Interpretation Requested

Confirm whether the XXXXX currency processing services are included in paragraphs (a) to (m) of the definition of financial service in section 123 of the ETA. If yes, confirm that the XXXXX currency processing services are not excluded from the definition of financial service by virtue of paragraphs (n) to (t) of the definition of financial service. In this regard, to the extent that there are mixed supplies of taxable and exempt services, advise as to which services are considered taxable and which are considered exempt. For services that are taxable, please indicate the factors that led to such conclusion.

In addition, if the services are mixed taxable and exempt supplies and the CCRA considers the supply of XXXXX processing services to be a single supply, please advise whether section 139 of the ETA would apply to deem all of the currency processing services to be exempt supplies, if the consideration payable for the financial services exceeds 50% of the total amount payable for the services supplied by XXXXX to the Bank.

Furthermore, if the XXXXX services are considered separately (i.e., the CCRA considers them to be separate supplies) and each contains mixed supplies of taxable and exempt services, please advise whether section 139 of the ETA would deem all of the XXXXX services to be exempt supplies of financial services if the consideration payable for the financial service portion exceeds 50% of the total amount payable for the XXXXX services and XXXXX services.

Interpretation Given

Based on the statement of facts we provide the following interpretation:

Each of the XXXXX currency processing services provided by XXXXX to the Bank are taxable supplies.

Explanation

In order to respond to your queries concerning whether there are mixed taxable and exempt supplies, it is necessary to determine whether the XXXXX currency processing services are considered to be single or multiple supplies prior to determining the tax status of their tax status. Policy paper P-077R - Single and Multiple Supplies discusses whether goods and/or services provided together constitute one supply or separate supplies. In this case there are two types of services being provided: XXXXX currency processing services and XXXXX currency processing services. Each of these services is described in detail in the statement of facts as various steps involved in the provision of each, i.e., the XXXXX service is described step-by-step from the receipt of the deposit bags to the verification of the deposits. Each step is an integral part of the whole service of providing the XXXXX currency processing service. The same applies to the XXXXX currency processing service. XXXXX fees are identified as a fee for either an XXXXX service indicating that the services are not provided together but are each a separate supply. Having concluded that there are two separate supplies, the tax status of each is then determined.

Paragraph (a) of the definition of "financial service" in subsection 123(1) of the ETA states "the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise". Paragraph (b) of the definition states "the operation or maintenance of a savings, chequing, deposit, loan, charge or other account". In this case XXXXX does not deal directly with the customers accounts. Its services are limited to verifying deposit amounts and correcting errors, reconciling and sorting money. It also packages money according to customer specifications. The services being provided appear to be reconciliation-type and cash preparation services. These types of services have been identified in various CCRA publications as taxable (see for example, GST/HST Memoranda Series Chapter 17.2, item A-05 - Cash/coin preparation).

Since both supplies being provided are taxable supplies provided for separate consideration, section 139 would not apply.

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) 952-9577.

Yours truly,

Marilena Guerra
Senior Rulings Officer
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate