23 September 1998 GST/HST Interpretation HQR0000138 - Application of the GST/HST to Services Supplied to

Dear Ms. XXXXX

I refer to the letter from XXXXX (copy attached) regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services supplied to XXXXX[.] This case was outstanding pending the completion of our policy with respect to subsections 183(3) and 183(10) of the Excise Tax Act (ETA). Although the policy is not yet available on the Revenue Canada database, the policy has been approved. My letter will explain the policy and provide comments with respect to the questions raised in the letter from the XXXXX[.] The Department's policy describes the various creditor remedies and the application of the GST/HST to those remedies. In order for a supply to fall within subsection 183(3) of the Act, all the following conditions must be met:

1) The court must have rendered a money type judgment with respect to an amount of money owing as opposed to a declaration of rights.

2) The judgment creditor (upon obtaining judgment, the creditor is referred to as the judgment creditor) must obtain from the court some legal process directed to one of the enumerated persons listed in the provision (i.e. a sheriff, bailiff or other officer of the court) directing that person to seize property of the judgment debtor to satisfy an outstanding judgment. The judgment creditor will seek to enforce the judgment by obtaining a writ of fieri facias (also referred to as a writ of seizure and sale) or a writ of execution.

3) The court or the sheriff, bailiff or other officer of the court makes the supply of the property.

4) Meaning of "officer of the court" is restricted to the class of persons or officers of the court who effect seizures and sales under the auspices of the court. This would exclude the judgment creditor.

Where all of the above conditions are met, the supply of the property would be considered to be a supply made otherwise than in the course of a commercial activity.

With respect to subsection 183(10), the private power of sale remedy, whether contained in a mortgage or under statute, falls within this subsection. In this case, the creditor exercises a right of sale under the agreement or pursuant to statute to satisfy the debt.

A judicial sale will also be considered to fall within subsection 183(10) on the basis that the court has the inherent jurisdiction to supervise such sales under the applicable rules of court which can be said to be a right exercised by a creditor under an Act of Parliament or the legislature.

A simple foreclosure order would not fall within subsection 183(3) as this type of action does not typically involve a court ordered seizure and sale. In addition, although a simple foreclosure order may involve a judgment with respect to an amount owing under the mortgage, such an action is not considered to be a money judgment which is a condition of subsection 183(3). Under simple foreclosure proceedings, the mortgagee keeps the property to satisfy the debt owing whereas subsection 183(3) requires a seizure and sale of property to satisfy a judgment.

A simple foreclosure action would not fall within subsection 183(10) as this type of action does not normally involve a supply of property to a third party which is necessary under subsection 183(10). A post foreclosure private sale would not fall within 183(10) either since it would be difficult to say that such a supply was made for the purpose of satisfying in whole or in part a debt or obligation owing by a person. As a result of statute law, upon obtaining an order of foreclosure, the debt may no longer be owing. In addition, under the original foreclosure action, the mortgagee took the property in satisfaction of the debt and it is difficult to see how a subsequent supply of the property by the creditor was a right exercised under an Act of Parliament or the legislature or any agreement. A simple foreclosure action would, however, fall within subsection 183(1).

With respect to the issues raised in the letter from XXXXX there is no provision to exempt the supply of the services provided to XXXXX[.] Therefore, when supplied by registrants, supplies of moving, storing, appraising and auctioning services are subject to the GST/HST at a rate of 15%. As the consideration for the supply is paid from the proceeds of the sale of the seized asset, XXXXX is not entitled to claim the provincial government rebate.

In the letter from XXXXX it is not clear whether there was a money type judgment. Assuming that there was and the rest of the conditions of 183(3) were met, the supply of the property would be considered to be made otherwise than in the course of a commercial activity. Therefore, the sale of the seized asset would not be subject to the GST/HST.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.

Yours truly,

Tim A. Krawchuk
Rulings Officer
Financial Institutions Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

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