Mortgage Broker

CMB MAGAZINE cmba-achc.ca fall 2016 | 37 GSTbulletin services is not exempt. e broker disagreed with the CRA, arguing that her commission was paid to her for arranging the granting of mortgages. Her services, she argued, are part of – not separate from – the supply of financial services. She claimed that because the supply of financial services is exempt from tax, her supply of services is accordingly exempt from taxation. Decision: no GST e Court agreed with the broker. It applied fairly straightforward law to the fairly typical facts. 2 e Court said it was difficult to think of a clearer situation in which a person is arranging the lending of money. GST is chargeable on taxable supplies. 3 Taxable supplies are supplies made in the course of commercial activity. 4 e broker's activity as a real estate agent and with respect to mortgages constituted a business. 5 e services the broker provided in the course of the business were supplied in the course of commercial activity. e provided services attract GST unless the services are an exempt supply. 6 Supplying a financial service that is not zero-rated is an exempt supply. 7 Financial service includes arranging the lending of money, provided the services are not preparatory to, or provided in conjunction with, the arranging of the lending of money. 8 e Court said the preparatory/conjunction provision applies only if that supply is provided separately from the arranging of the lending of money. Whether there has been only one supply or separate supplies is determined by looking at the facts of each case. e Court said that in this case there had been only a single supply: the supply of arranging for the lending of money. e broker had facilitated the entire lending process by identifying the borrower and the lender, and then bringing them together to complete the agreement to lend and borrow money. is was a clear case of arranging for the lending of money; the broker's services were not preparatory or provided only in conjunction with the arranging of money. e Court was led to this conclusion because the broker: n was licensed as a mortgage broker; n identified a potential borrower; n determined whether the borrower qualified for a mortgage; n took steps to obtain a lending commitment from a third-party lender; and n obtained the applicable forms from the borrower and provided them to the lender. 9 Accordingly, the broker's commission did not attract GST. Takeaways Most brokering situations involve single supplies: the arranging of lending money. Accordingly, brokering commissions generally should not attract GST. Do be cautioned, however, that small changes in circumstances can sometimes lead to very different legal outcomes. In structuring your affairs, you should not rely solely on this article. You should seek appropriate legal, financial and other professional advice. What now? e Rojas case does not address all possible brokering arrangements. e industry should ask what steps should be taken next. Asking for an advance tax ruling or advance interpretation from the tax authorities could serve to put a magnifying glass on something that might otherwise not attract attention. On the other hand, having more information in advance could allow for better structuring of affairs to fit within an advance ruling or interpretation. Of course, an advance ruling or interpretation does not bind tax authorities or the courts regarding later specific instances. Twenty/twenty foresight would be delightful. 1 "GST" in this article includes GST and HST. 2 The Rojas decision is consistent with GST/HST Technical Information Bulletin B-105 "Changes to the Definition of Financial Service" issued in February, 2011. The Bulletin can be found at http://www.cra-arc.gc.ca/E/pub/gm/b-105/ README.html. 3 ETA, sections 165(1) and (2) 4 ETA, sections 165(1) and (2) 5 ETA, section 123(1) 6 ETA, section 123(1) 7 ETA, Part VII of Schedule V. Note that If a supply is zero-rated, it is not an exempt supply but it attracts tax at the rate of 0%. 8 ETA, definition of "financial service" in section 123(1), with reference to parts (g) and (r.4) of the definition. 9 Bulletin B-105 gives more details as to the facts to be considered. It says that all the facts surrounding the transaction, including the following factors, must be considered: n the degree of direct involvement and effort of the person in the provision of a financial service; n the time expended by the intermediary in the provision of a financial service referred to in any of the paragraphs; n the degree of reliance of either or both the supplier and the recipient on the intermediary in the course of providing a financial service; n the intention of the intermediary to effect a supply of a financial service; and n the normal activities of an intermediary in the given industry (including whether the intermediary is engaged in a business of providing financial services). Where the broker provides a number of services, some of which attract tax and others that do not, the predominant element of the supply will determine the outcome. IF GST IS APPLICABLE TO A BROKER'S COMMISSIONS, THE BROKER WOULD BE REQUIRED TO COLLECT AND REMIT THE GST

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