27 February 2003 GST/HST Ruling 41136 - APPLICATION OF GST Service of "Arranging for" the Issuance of Credit Card Accounts and the Operation and Maintenance of Those Accounts

Dear XXXXX:

Thank you for your letter XXXXX (with attachments XXXXX addressed to our XXXXX XXXXX and the XXXXX 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, is as follows:

1. The XXXXX was incorporated in XXXXX and received its Order to Commence and Carry on Business in XXXXX[.]

2. On XXXXX the XXXXX was continued as a bank under the name XXXXX and received its Order to Commence and Carry on Business.

3. The XXXXX is an indirectly wholly owned subsidiary of XXXXX[.]

4. The XXXXX is authorized to operate as a bank in Canada XXXXX[.]

5. On XXXXX, the XXXXX launched a new XXXXX.

6. On XXXXX, the XXXXX entered into an agreement with XXXXX XXXXX XXXXX[.]

7. The XXXXX has entered into another agreement with XXXXX an electronic commerce and payment service, to deliver the technical platform that delivers the product to market.

8. XXXXX Agreement sets out the services required to issue, support and maintain the accounts opened under the XXXXX program. XXXXX Agreement lists these services as follows:

a. XXXXX

b. XXXXX

c. XXXXX

d. XXXXX

e. XXXXX

f. XXXXX

g. XXXXX

h. XXXXX

i. XXXXX

j. XXXXX

k. XXXXX

9. The services provided by XXXXX include the provision of support to the XXXXX XXXXX Agreement.

10. The special covenants to be satisfied by the XXXXX are set out in XXXXX XXXXX Agreement. According to XXXXX Agreement the XXXXX is required to promote the use of the XXXXX Agreement indicates that the XXXXX will provide access to the XXXXX system required to provide other XXXXX services.

11. The XXXXX owns the risks associated with the cards. According to XXXXX Agreement, XXXXX[.]

12. According to XXXXX Agreement, XXXXX[.]

13. The payments received by XXXXX for services rendered to the XXXXX are described in XXXXX Agreement, and the fee for each service is set out in XXXXX XXXXX Agreement XXXXX set out below, sets limits on the service fee paid by the XXXXX:

"XXXXX Transactions

The XXXXX entered into a XXXXX Agreement with XXXXX to provide various services required to issue the XXXXX and maintain the credit card accounts opened on behalf of the XXXXX[.]

Ruling Requested

The services provided by XXXXX to the XXXXX are exempt financial services as that term is defined pursuant to subsection 123(1) of the Excise Tax Act (the "ETA") since the nature of the services are:

1. "arranging for" the issuance of a credit card account, and

2. the maintenance and operation of those accounts.

Ruling Given

Based on the facts set out above, we rule that

The services provided by XXXXX under the XXXXX Agreement may be characterized as two exempt supplies of financial services pursuant to section 1 of Part VII of Schedule V to the ETA. The financial services provided by XXXXX may be described as follows:

1. XXXXX "arranges for" the issuance of credit cards as referred to in paragraph (l) of the definition of "financial service" in subsection 123(1) of the ETA.

2. XXXXX also provides the services required to maintain and operate the credit card accounts opened on behalf of the XXXXX in accordance with paragraph (b) of the definition of "financial service" in subsection 123(1) of the ETA.

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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) 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 me at (613) 957-8222.

Yours truly,

Manjula Vethanayagam
Rulings Officer
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate