8 January 2007 GST/HST Ruling 81231 - Application of the GST/HST to XXXXX

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 fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the commission paid to XXXXX by the XXXXX as vendor of real property, which commission is split between XXXXX, one of its salespersons, namely XXXXX, and a co-operative broker involved in the real estate transaction.

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

Statement of Facts

We understand the facts as follows:

1. XXXXX entered into a Multiple Listing Agreement (MLA) with the XXXXX, to market and sell the XXXXX real property.

2. Together with the MLA, a supplementary agreement (SA), Schedule A to the MLA, was also entered into between XXXXX and the XXXXX.

3. Paragraph 3 of the SA provides, in part, that contrary to the pre-printed MLA, the seller and/or the Province XXXXX are exempt from paying the GST on commissions payable pursuant to a Reciprocal Taxation Arrangement between the Federal Government and the Province XXXXX, whereby the Seller, a Crown Corporation of the province XXXXX, is part of the Province XXXXX and as such is not subject to GST.

4. Within the MLA, XXXXX - Commission - provides that in consideration of XXXXX marketing of the property, the XXXXX agrees to pay XXXXX, as the listing broker, a commission of XXXXX% on the sale or lease of the property.

5. XXXXX the MLA - Agency - provides, in part, that the XXXXX authorizes XXXXX to co-operate with any other registered real estate broker (co-operating broker) and to offer to pay the co-operating broker a commission of XXXXX% out of the commission the XXXXX pays XXXXX. The XXXXX understands that the co-operating broker is representing the interests of the buyer in the transaction.

6. XXXXX the SA provides that a co-operating broker shall not include anyone within XXXXX firm or affiliated offices.

7. Also, XXXXX must pay a commission to an independent real estate agent, XXXXX who negotiated the sale of the XXXXX real property. It is our understanding that XXXXX is registered for GST/HST purposes.

Ruling Requested

You would like to know whether XXXXX is required to pay GST on the share of the commission paid to a co-operating broker and to XXXXX, one of XXXXX salespersons, in relation to a sale of real property belonging to XXXXX?

Ruling Given

Based on the facts set out above, we rule that XXXXX is required to pay GST on the taxable supplies of services made to it by the co-operating broker and by XXXXX and that XXXXX may claim ITCs in respect to the acquisition of those services. Also, XXXXX is required to pay tax on the supplies made by XXXXX to XXXXX, under the terms of the brokerage agreement.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

The commission paid by XXXXX to XXXXX is not subject to tax pursuant to the Reciprocal Taxation Agreement between the Government of Canada and the Province XXXXX, under which the XXXXX is an XXXXX entity that is not required to pay any GST/HST on its purchase of goods or services.

However, with respect to the commissions paid by XXXXX to the co-operating broker and to XXXXX, they are supplying their services to XXXXX and not to XXXXX. XXXXX is the recipient of these services, which are taxable supplies. As the recipient of taxable supplies, XXXXX is required to pay tax to the co-operating broker and to XXXXX, as there is no provision under the ETA that would relieve XXXXX from paying tax.

Since XXXXX is paying tax in the course of its commercial activities, it can claim input tax credits (ITC), so long as all of the conditions included in subsection 169(1) of the ETA are met. XXXXX can also claim ITCs for the tax paid on XXXXX taxable supply of services made under the terms of the brokerage agreement.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8223.

Yours truly,

Daniel Chamaillard
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/01/08 — RITS 81915 — Non-Resident Registration