XXXXX
GST/HST Rulings and Interpretations
Directorate XXXXX
Place Vanier, Tower C, 10th Floor XXXXX
25 McArthur Road XXXXX
Vanier, Ontario XXXXX
K1A 0L5 XXXXX
Case: HQR0000416
File 11585-16, 11590-4, 11590-5
T.R. Côté July 11, 1997
Dear XXXXX
Thank you for your letter dated November 13, 1996 with attachments, to H.L. Jones, Director, General Operations and Border Issues and subsequent telephone conversation with this office on June 23, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales commissions and trailer fees paid to a dealer who sells units in a mutual fund to a non-resident investor. We apologize for the delay in responding to your letter.
Background
1. Your client, who is unnamed, is a Corporation that is resident in Canada and deals in selling mutual funds to the public, including Canadian citizens who are no longer residents of Canada.
2. Your client almost exclusively uses Canadian resident self-employed individuals as their sales representatives who travel abroad.
3. It does not sell exclusively to former Canadian residents, however, it may sell to non-residents who have never been Canadian residents and will also sell to Canadian residents both in and outside of Canada.
4. In your letter you have made the following assumptions:
a) You have reviewed the relationship of your client dealer to the mutual fund and believe that the dealer is not legally an agent of the mutual fund based on the fact that the dealer cannot bind the mutual fund contractually and the mutual fund is free to accept or reject any application that is sent to it.
b) You have looked at the relationship of the dealer client to its independent sales representatives and believe that the independent sales representatives are agents of the dealer. This is based on the fact that once an application is signed by the investor and the sales representative submits the application plus the investor's funds, even though ultimate acceptance rests with the mutual fund trustee (or its agent - you note that in the case of XXXXX funds, the trustee has appointed XXXXX as its agent), the dealer has no ability to alter or reject the contract. You believe, therefore, that the actions of the sales representative in providing the solicitation and consulting services are the actions of the dealer.
c) You recognize that whether or not the mutual fund customer is really a non-resident of Canada (as compared to a Canadian resident who happens to be temporarily abroad) is critical for GST purposes. Therefore, for these purposes you are assuming that whenever the term "non- resident" is used in your letter, the customer is "truly a non-resident" of Canada.
d) Even though the underlying investments of a mutual fund may be non-resident (such as in the case of XXXXX fund), you assume that the mutual fund itself is a Canadian resident trust.
Interpretation Requested
This interpretation request is to confirm that the initial sales commission and trailer fees paid to a dealer who sells units in a mutual fund to non-resident investors are consideration for a supply of a zero-rated financial service under the provisions of section 1 of Part IX of Schedule VI to the Excise Tax Act (the "Act").
Interpretation Given
Initial Sales Commission
Based on the information provided the initial sales commission paid to a dealer who sells units in a mutual fund is part of a supply of a financial service under paragraph (l) of the financial services definition in subsection 123(1) of the Act and is a zero-rated supply of a financial service as outlined in section 1 of Part IX of Schedule VI to the Act wherever the investor is a non-resident.
Trailer Fees
Based on the information provided the trailer fees paid to a dealer who sells units in a mutual fund is part of a supply of a financial service under paragraph (l) of the financial services definition in subsection 123(1) of the Act and is a zero-rated supply of a financial service as outlined in section 1 of Part IX of Schedule VI to the Act wherever the investor is a non-resident.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
For your convenience, please find enclosed a copy of section 1.4 of Chapter 1 of the GST Memoranda Series.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact the undersigned at (613) 952-3413 or Duncan Jones at (613) 952-9210.
Yours truly,
T.R. Côté
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch
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