Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
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[Addressee]
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 100956
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March 20, 2013
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Dear [Client]:
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Subject:
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GST/HST INTERPRETATION
Broker fees and other fees
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Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to broker fees and other fees relating to commodity trades. We apologize for the delay in responding to your enquiry.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 15% in Nova Scotia, and 12% in British Columbia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia will be replaced by the 5% GST and a provincial sales tax. It is also proposed that, effective April 1, 2013, the provincial sales tax and the 5% GST currently in effect in Prince Edward Island will be replaced by a 14% HST.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
In addition to your letter, you provided a copy of the following documents: […] [Documents pertaining to USCO, CANCO & Brokers]
We understand that USCO and CANCO are both registrants. USCO trades in […] products in Canada and in the United States and CANCO trades in […] in Canada.
In some cases, the contracts provide for the physical delivery of the commodity at a future date at locations which may be either in Canada or the United States. The trades are made in the "over the counter" […] markets, including […]. The Brokers provide prices, […] and other relevant terms and conditions for purchases or sales of […] products or derivatives and the Brokers find counterparties to these transactions.
Some of these Brokers are Canadian companies and provide […] for transacting […] trades in Canada and the United States. Other Brokers are located in the United States and provide access to […] where trades are conducted. Different options are available […] to view market postings, counter an existing proposal or propose to sell or buy a commodity.
To transact the trades, USCO and CANCO have entered into contracts with the Brokers. The Brokers charge various fees such as monthly […] fees, transaction fees and broker fees for performing trades. […]
The Brokers are inconsistent when charging the GST/HST on these fees.
Interpretation Requested
You would like to know:
1. If the fees described above fall within the meaning of "financial service" under paragraph 123(1) of the ETA?
2. If the tax status changes if the supplier is a United States or Canadian entity or a GST/HST registrant, or does it depend on where the transaction occurs?
Interpretation Given
Under the ETA, all supplies are taxable unless they are specifically exempt.
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. This distinction is important in cases where a combination of services and or property is supplied by a person under an agreement, some of which would be taxable and some of which would be exempt if supplied separately. In this type of situation it is a question of fact whether the person is making a single supply or multiple supplies.
GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides additional information on determining whether a single supply or multiple supplies are being provided. If it is determined that multiple supplies are being provided by a person the possible application of sections 138 and 139 should be considered.
If it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature of the supply. If the predominant element of the single supply is determined to be a financial service, then the supply as a whole will be considered a financial service. This determination will generally be based on written agreements, between the person providing the service and the person's client, detailing the actions, responsibilities and obligations of the person in connection with the supply.
A supply of a financial service is exempt under Part VII of Schedule V unless specifically zero-rated under Part IX of Schedule VI (which generally requires that the supply be made by a financial institution to a non-resident and that certain other conditions are met). A service is a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition.
A financial service includes, for example, under paragraph (d), the issue, granting and transfer of ownership or repayment of a financial instrument. A "financial instrument" is defined in subsection 123(1) and includes among other things, an option or a contract for the future supply of a commodity, where the option or contract is traded on a recognized commodity exchange.
In determining whether an intermediary is providing a supply of a financial service under paragraph (l), of "arranging for" a service referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t), it must first be determined whether an "arranging for" service is provided and if so whether that financial service is the predominant element of the supply.
The term "arranging for" is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii), such as agents, brokers and dealers in financial instruments or money.
In determining if an intermediary's service is included in paragraph (l), all the facts surrounding the transaction, including the following factors, must be considered:
• the degree of direct involvement and effort of the person in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the time expended by the intermediary in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the degree of reliance of either or both the supplier and the recipient on the intermediary in the course of providing a financial service referred to in any of paragraphs (a) to (i);
• the intention of the intermediary to effect a supply of a financial service referred to in any of paragraphs (a) to (i); and
• the normal activities of an intermediary in a given industry (including whether the intermediary is engaged in a business of providing financial services).
Where an intermediary performs a number of services including services described in any of paragraphs (n) to (t) as part of an agreement to arrange for a supply of a financial service, the single supply of the bundled services may be a supply of a financial service of arranging for, depending on the facts surrounding the transaction, the above listed factors, and the predominant element of the supply.
Paragraph (q.1) to the definition of "financial service" clarifies that asset management services are excluded from that definition.
An asset management service includes a full range of investment portfolio management and administration activities rendered by one person in respect of the assets or liabilities of another person, such as:
• managing or administering the assets or liabilities with or without discretionary authority granted by the other person to manage those assets or liabilities.
• providing research, analysis, advice or reports in respect of those assets or liabilities;
• determining which assets or liabilities are to be acquired or disposed of; and
• acting to realize performance targets or other objectives in respect of the assets or liabilities.
An asset management service does not include a prescribed service for the purpose of that definition. Currently, no services are prescribed or proposed to be prescribed for the purpose of paragraph (q.1).
A new definition of a management or administrative service clarifies that it includes an asset management service.
In addition, paragraph (r.4) excludes from the definition of financial service, a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l) of the definition of "financial service", or that is provided in conjunction with a service referred to in any of those paragraphs, that is:
• a service of collecting, collating or providing information, or
• a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or similar service.
Currently, no services are prescribed or proposed to be prescribed for the purposes of paragraph (r.4).
It does not appear that the Brokers who make trades in the over the counter […] markets are trading on a recognized exchange. Furthermore, in some instances, where the agreements provide for the delivery of an actual physical commodity, the supply is not a financial instrument for GST/HST purposes. Therefore, the Brokers providing the services in respect of these contracts to USCO and CANCO would not be considered to be "arranging for" financial services and consequently, the supplies provided by the Brokers would not be financial services.
You also enquired whether the tax status changes if the supplier is a United States or Canadian entity or a GST/HST registrant, or whether it depends on where the transaction occurs.
Generally, GST/HST registrants have to collect GST/HST on all taxable (other than zero-rated) supplies of goods and services in Canada that they provide to their customers. However, a person who is a small supplier and not a registrant is not required to collect tax on certain supplies it makes.
For GST/HST purposes, a registrant includes a person who is registered for GST/HST and a person who is required to be registered for GST/HST purposes.
Subsection 240(1) provides, in part, that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST purposes, except where the person is a small supplier. A person who is not required to be registered for GST/HST purposes may apply to be registered if the person is engaged in a commercial activity or is a listed financial institution resident in Canada. A "listed financial institution" includes a person whose principal business is as a trader or dealer in, or as a broker or salesperson of, financial instruments or money.
In general, a person (other than a public service body) is a small supplier throughout a particular calendar quarter and the following month if its consideration (revenues) for taxable supplies (including that of associates), other than supplies by way of sale of capital property or zero-rated financial services, in the preceding four calendar quarters did not exceed $30,000. Revenue from exempt supplies should not be included in calculating this small supplier threshold.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-1433. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Gabrielle Nadeau
Listed Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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