15 October 2004 GST/HST Interpretation 41211 - Drop-Shipment Rules: Storage Fees

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of banks and non-financial institutions involved in Canada's automated banking industry. We apologize for the delay in responding; however, we were unable to respond prior to finalizing our review of this issue.

As you may be aware, the automated banking machine industry in Canada is made up of a number of different participants, including banks (financial institutions under the ETA) and non-banks. The XXXXX network governs some of these participants and the workings of the industry.

The application of the GST/HST to supplies depends upon the application of the Excise Tax Act (ETA) to the transaction. The Department of Finance Canada writes the legislation and the CRA has the obligation of administering the tax. Under the ETA, all supplies are taxable unless they are specifically exempt. Supplies of "financial services" as defined at subsection 123(1) of the ETA are exempt of the GST/HST. This definition does not depend upon the identity of the participant (viz. bank vs. non-bank), but it does depend upon the service being provided. Further, where a person is providing a service included in any of paragraphs (a) to (m) of that definition, reference is made to the GST/HST Financial Services Regulations, which require that the supplier be a "person at risk" or an "agent, salesperson or broker of a person at risk" in relation to the underlying instrument (money) in order for the service to be considered a "financial service".

It is our understanding that your letter refers to the GST/HST treatment of the "interchange fee." This is a term used by the CRA to refer to the fee paid by a card issuing financial institution (FI) when its cardholder uses an ATM that does not belong to that institution; however, many agreements between suppliers still refer to "interchange fees" to be paid for services other than "the dispensing of cash." These services are not financial services and are taxable under section 165 of the ETA. Further, where a card issuer pays a true "interchange fee" (currently, only FIs issue debit cards) to a person who is not responsible for providing the cash for use in the machine, the supply is taxable.

The fee is paid to the acquirer of the transaction who may be another FI or any other organization that is XXXXX. This fee is not paid by the cardholder. Any charges from the cardholder's FI to the cardholder for services such as withdrawing money from an ATM not owned by the FI, pursuant to a cardholder agreement, are fees for the financial service of withdrawing money from the customer's account, is an exempt supply for which no GST/HST is charged.

Unfortunately, the legislation does not support taking a position that the service being provided is always an exempt financial service or always a taxable service. In either case, the fees charged to consumers for the use of the machines remain not subject to tax.

I am enclosing for your reference a copy of the GST/HST Info Sheet: ABM Services, which explains the application of the GST/HST to transactions using ATMs. I hope that it is of assistance to you in your operations. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Sheena France, Officer, at 613-952-9262.

Yours truly,

Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/10/18 — RITS 46388 — ITC Entitlement Related to Reimbursed Amounts by a Non-resident