27 February 2006 GST/HST Ruling 64777 - Tax status of memberships

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 appraisal services on automobiles, for insurance purposes.

All legislative references are to the Excise Tax Act (ETA) and the regulations made pursuant thereto, unless otherwise specified.

From your letter and our telephone conversation, we understand that your client is a for profit corporation that provides appraisals of the value of automobiles (usually antiques or older refurbished vehicles). The appraisal is used for financing purposes or to determine the proper amount of coverage needed under an insurance policy. The appraisal service provided is not in respect of damage to property or in respect of lost property.

Interpretation Requested

You would like to know if the service provided by your client is a financial service under paragraph (j) or (j.1) of the financial service definition under subsection 123(1) of the ETA because the service is related to an insurance policy. You would also like to know if your client should charge GST when providing appraisal services related to the value of automobiles?

Interpretation Given

Based on the information provided, we are providing a general interpretation on the applicable provisions of the ETA related to your request. The relevant provisions of the ETA are quoted in the Appendix to this letter.

Generally appraisal services provided in Canada are taxable supplies except where the appraisal services meet the conditions underlined under paragraph (j.1) of the definition of "financial service".

The service of providing an appraisal will be considered a financial service under paragraph (j.1) of the definition of "financial service" in subsection 123(1), providing the following conditions are met:

•   The service is provided to an insurer or a person who supplies a service that is referred to in paragraph (j) (e.g., a provincially licensed adjuster who provides a service of investigating and recommending the compensation in satisfying an insurance claim);

•   The service is not provided by an accountant, actuary, lawyer or notary in the course of a professional practice; and

•   Where the service is in respect of damaged property, the supplier of the service inspects the property and provides an appraisal of the damage caused to the property; or

•   Where the service is in respect of lost property, the supplier of the service inspects the last-known place where the property was situated and provides an appraisal of the value of the property.

Based on the information provided, your client's service does not meet the conditions outlined in paragraph (j.1) of the definition of "financial service".

The service of investigating and recommending the compensation in satisfaction of a claim under an insurance policy where certain conditions are met will be considered a financial service under paragraph (j) of the definition of "financial service" in subsection 123(1). However, the appraisal services provided by your client is not a service of investigating and recommending the compensation in satisfaction of a claim, therefore paragraph (j) does not apply.

Based on the information provided, the appraisal services provided by your client are taxable supplies. Your client should charge GST on its services unless your client is a small supplier and is not registered for the GST. The enclosed GST/HST Memorandum 2.2, Small Suppliers, provides detailed information which will assist you in determining whether your client is a small supplier.

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, Goods and Services Tax Rulings, 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 957-8222.

Yours truly,

Line Leclerc
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

APPENDIX - Relevant provisions of the ETA

123. (1) In section 121, this Part and Schedules V to X,

...

"commercial activity" of a person means

(a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person ...

...

"financial service" means

...

(j) the service of investigating and recommending the compensation in satisfaction of a claim where

(i) the claim is made under a marine insurance policy, or

(ii) the claim is made under an insurance policy that is not in the nature of accident and sickness or life insurance and

(A) the service is supplied by an insurer or by a person who is licensed under the laws of a province to provide such a service, or

(B) the service is supplied to an insurer or a group of insurers by a person who would be required to be so licensed but for the fact that the person is relieved from that requirement under the laws of a province,

(j.1) the service of providing an insurer or a person who supplies a service referred to in paragraph (j) with an appraisal of the damage caused to property, or in the case of a loss of property, the value of the property, where the supplier of the appraisal inspects the property, or in the case of a loss of the property, the last-known place where the property was situated before the loss,

...

but does not include

...

(p) the service of providing advice, other than a service included in this definition because of paragraph (j) or (j.1),

...

(r) a professional service provided by an accountant, actuary, lawyer or notary in the course of a professional practice,

...

"taxable supply" means a supply that is made in the course of a commercial activity;

...

165. (1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply.

221. (1) Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.

SCHEDULE V

(Subsection 123(1))

EXEMPT SUPPLIES

...

PART VII

FINANCIAL SERVICES

1. A supply of a financial service that is not included in Part IX of Schedule VI.

2006/02/14 — RITS 64941 — Input Tax Credits and Restriction for Meals and Entertainment