10 July 1998 GST/HST Interpretation HQR0001126 - Application of the GST/HST to ABM Custodial Services

Dear XXXXX

Thank you for your letter of March 20, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations.

Based on your letter and subsequent telephone discussions with you, our understanding of your business and its operations is as follows:

XXXXX owns automated banking machines (ABM). XXXXX enters into a placement agreement with various merchants to install an ABM in the merchant's retail establishment. XXXXX is responsible for all costs associated with installing and servicing the ABM including providing customer service with respect to its use. The merchants make space available for the ABM, allow XXXXX servicing agents access to ABM, provide custodial service, order a phone line dedicated to the ABM, and provide electrical power to the ABM. The merchant is compensated by XXXXX on a per transaction basis as outlined in the placement agreement.

Once the ABM is placed in the retail establishment, a customer can place his/her bank card (issued by their own financial institution) in the ABM and withdraw money. A customer is only able to withdraw cash from XXXXX ABMs. No other financial transactions can be made through a XXXXX ABM. XXXXX receives $ XXXXX for every transaction. This fee consists of a $ XXXXX surcharge fee (paid to XXXXX by the customer) plus a $ XXXXX XXXXX fee (paid to XXXXX by the customer's financial institution). The customer is notified on-screen of the surcharge fee and is given the choice of proceeding with the withdrawal or canceling the transaction.

Interpretation Requested

You have requested an interpretation regarding the tax status of the services provided by XXXXX[.]

Interpretation Given

Based on the information provided, XXXXX is providing a supply of an exempt financial service pursuant to section 1 of Part VIII of Schedule V to the Excise Tax Act (ETA).

Analysis

The GST/HST is payable on all taxable supplies, made in Canada, by a registrant. The ETA defines taxable supply as a supply made in the course of a commercial activity, which by definition excludes an exempt supply.

Exempt supplies are not subject to the GST/HST. Suppliers of any exempt service are not considered to be engaged in a commercial activity for purposes of the GST/HST. As a result, they are not required to either register for, collect or remit the GST/HST, nor are they entitled to claim input tax credits. Consequently, any person providing an exempt service is not entitled to any credit or refund of the GST/HST paid on its purchases or expenses.

Subsection 123(1) of the ETA defines "financial service", in part, as

(a) the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise,

(b) the operation or maintenance of a savings, chequing, deposit, loan, charge or other account.

Section 1 of Part VIII of Part IX of Schedule VI to the ETA exempts the supply of a financial service that is not zero-rated in Part IX of Schedule VI to the ETA.

XXXXX is providing the cardholder with access to his/her bank account or charge account and allows the cardholder to withdraw cash from their account. ABM withdrawals are exempt financial services as stated in the Department's Technical Information Bulletin TIB-060 as follows:

E-011 ABM/Credit Card Interchange

Description: processes withdrawals/credit card payments drawn on the accounts of clients of other financial institutions; cheque encashment substitute.

E-058 ABM Card

Description: processes a deposit, withdrawal, bill payment or transfer at an automated banking machine (ABM).

Therefore, the services provided by XXXXX are exempt financial services.

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, 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 me at (613) 952-9577 or Duncan Jones at (613) 952-9210.

Yours truly,

Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch