https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/350287/index.do
Applewood Holdings Inc. v. The Queen (November 15, 2018 – 2018 TCC 231, Pizzitelli J.).
Précis: The taxpayer operated a car dealership and in connection with that business sold “credit insurance” to its customers. In 2010 and 2011 the taxpayer treated such insurance products as exempt services and did not collect or remit GST/HST. CRA assessed GST/HST on the transactions ($33,802.14). The sole issue before the Court was whether such services were exempt. The Court concluded that they were and allowed the appeal with costs to the taxpayer.
Decision: The Crown argued that the predominant elements of the contract between the taxpayer and the insurer (“Walkaway”) was the provision of services to Walkaway and that was the source of its fees, not the provision of insurance products to its customers:
[27] In analysing whether the services amount to the provision of “financial services” as the next step in the determination dictated by the appellate Court in Global Cash and Great-West Life above, the Respondent contends that it is the obligations of the Appellant to Walkaway under the Dealership Agreement that are the relevant services for which the Appellant earned its compensation and hence must be considered in determining the predominant elements of the supply of services that must be evaluated in deciding whether such services fall within the definition of “financial services”.
The Court rejected this construction of the evidence:
[32] It is therefore quite clear that the “purchaser” whose perspective one must objectively look through is the consumer of the end supply that is the subject matter of the transaction. In our case, that is the car buyer who buys the insurance product and he would clearly and objectively know he was buying insurance, not the expertise or training, or commercial efficacy or profitability of the Dealer or its staff as the predominant elements of the transaction, notwithstanding that such services, if provided, may have an ancillary role to play in his decision making process; if he was even aware of their existence. There is simply no merit to the Respondent’s argument that the services or duties under the Dealer Agreement that may be said to be owed to Walkaway from the Appellant constitute the predominant element of the services to be provided under the Dealer Agreement, neither when analysing the terms of such agreement nor when conducting a functional analyses of the Appellant’s acts in performing its Insurance Product retailer duties.
[33] Moreover, the compensation arrangement in the Dealer Agreement supports the predominant element of the Appellant’s services as being the sale of the Insurance Products, as, notwithstanding the Schedule A reference to an “Administration Fee”, it is clear that it is calculated solely on sales of Insurance Products and there is no link or discussion in the Dealer Agreement to such fee being related to compensating the Appellant for any other services or level thereof as might be the case if Walkaway was retaining a professional consultancy or like service nor to reimbursing the Appellant for any type of level of expenses. The bottom line is that the Appellant’s compensation is based and only arises on a sale of the Insurance Products. Nothing in the Agreement gives a cent of compensation for providing a customer base, skilled employees or knowledge or anything else nor was there any evidence the Appellant, a car dealership, was in the business of providing the services of employees or staff, or that it provided or sold any customer list to Walkaway. Walkaway simply had no contact with the Appellant’s customers other than at the claims stage under any insurance policy sold, nor did it have the right to instruct, control or supervise any staff or employees of the Appellant. It may be possible in certain arrangements or contracts, that the main purpose of a contract is for such services, but that is not the case in this matter.
[34] Accordingly, I find that the predominant element of the Appellant’s service was the arranging for the sale of insurance which falls within the definition of a “financial service”, notwithstanding that some of the ancillary services provided by the Appellant could be considered promotional or administrative; particularly after the sale of Insurance Products was completed, thus the compensation received by the Appellant is exempt from GST/HST. The Appeal is allowed with costs to the Appellant.
Thus the appeal was allowed with costs to the taxpayer.