GST/HST on Commission Employee Services

Rojas v Canada, 2016 TCC 177

At issue was whether a commissioned employee is assessable on the supply made on commissions earned where the supply in respect of which the commissions were earned is exempt (or zero rated).

The court decision supports an interpretation that the nature of the supply provided in respect to which commissions are earned have the same nature, with respect to GST/HST, as the supply in respect of which the commissions are earned so long as they are within the definition of that supply and are not a second separate supply.

FACTS

The taxpayer earned commissions as consideration for arranging mortgages for clients through third party lenders.  In addition to being a registered real-estate agent, she is separately licensed as a mortgage broker and registered under a mortgage brokerage firm.  The taxpayer argued that the services of arranging for mortgages were exempt financial services under paragraph 123(1)(l) of the Excise Tax Act.

The CRA argued that the services supplied by the taxpayer were administrative services that consisted of the collection of information, and therefore not the provision of financial services.

ANALYSIS

The Excise Tax Act, ss 165(1) and (2) impose HST on taxable supplies (supplies made in the course of commercial activities) made in Ontario. The taxpayer’s activities as realtor and mortgage broker constitute a business under s 123(1) of the ETA, and are subject to HST unless they are an exempt supply (Part VII of Schedule V of the ETA).  Financial services is an exempt supply and is define din paragraph 123(1)(l) of the ETA as agreeing to provide, or arranging for, a service that is a financial service.

It is a question of fact whether a supply is the “arranging for” a financial service. In this case, the court considered the following factors as determinative:

• Licensed as mortgage broker;
• identification of potential borrower;
• determination of whether the borrower qualified for a mortgage;
• Taking steps to obtain a lending commitment from third party lender; and
• obtaining the applicable forms from the borrower and providing them to the lender.

This was the facilitation of the entire lending process by “identifying both the borrower and lender and then bringing the parties together to complete the agreement to lend and borrow money” – clearly the arranging for the lending of money (para 19).

The court addressed the exception to “financial services” in 123(1)(r.4) which excludes preparatory services or in conjunction with services that is the “collecting, collating or provision of information ”  .  The Court held that the exemption applies ONLY if the service sin question is provide separately from the supply of the financial service.  Here the taxpayer only made one supply – that of arranging for the lending of money – and not a second supply that could be considered preparatory or in conjunction with the arranging for the lending of money (paras 23-24) – Global Cash Access (Canada) Inc. v. The Queen, 2013 FCA 269.

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