Barr v. R. – TCC: Payments to brokers to arrange for the sale of a business not exempt from GST/HST as “financial services”

Barr v. R. – TCC:  Payments to brokers to arrange for the sale of a business not exempt from GST/HST  as “financial services”

Barr v. The Queen (May 3, 2018 – 2018 TCC 86, Pizzitelli J.).

Précis:   The taxpayer was the sole shareholder of Garibaldi Springs Water Company Ltd (“Garibaldi”) and retained the services of two brokers (0922763 B.C. Ltd and P.V. Gordon Holdings Ltd) to arrange a sale of the business.  He paid $281,584 in HST on the brokers’ commissions when the sale was completed (as a share sale) and in this appeal sought to recover that amount on the basis that their fees were exempt “financial services” in connection with the transfer of the shares of Garibaldi.  The Crown took the position that the brokers were engaged to sell the business in general, not specifically to sell the shares.  The Tax Court found that the services of the brokers were not confined to arranging for the transfer of the shares and therefore did not amount to the provision of exempt “financial services”.  The appeal was dismissed with costs.

Decision:   In substance the Tax Court found that that brokers had a wide-ranging mandate that only incidentally resulted in a transfer of the Garibaldi shares:

[20]  In these circumstances, the brokers’ degree of involvement can at best be described as providing the services of finding a potential buyer for the business to refer to the Appellant who would negotiate the structure, terms, and ultimate price of the sale of the business and enter into a binding agreement. The brokers did none of that and had no authority to. There was no evidence of any formal listing of the appellant’s business in any site or public forum, no assistance by the brokers in valuing either the business or the shares specifically, no evidence of any attempt to put together any financial or operating information in conjunction with the Appellant other than the basic brochure described above and no evidence of any advertising of the business or shares for sale anywhere. As the Appellant described it, the brokers were basically putting out the word that the business was for sale amongst their contacts.  Clearly, they had no authority to enter into any contracts on behalf of the Appellant or bind him in any way nor to hire and instruct counsel and see a transaction through to the end. Moreover, there was no evidence tendered as to what the normal practice of such an intermediary would be in this industry as I note the brokers were not registered business or securities brokers in any event. This does not in my view rise to the level of arranging to transfer ownership of the shares even in the event a share transaction ultimately materialized and so cannot be said to qualify as a supply of a financial service under the Act. There must be far more involvement than simply placing a potential buyer at the seller’s doorstep and creating some basic brochure and attending promotional events to promote the sale of the appellant’s business and acting as a liaison with such interested parties prior to any agreement being struck.

[21]  Having found that the services of the brokers do not constitute an arranging for the transfer of ownership of the appellant’s shares it is not necessary for me to consider whether their services fall within the ambit of paragraph (r.4) of the definition of financial services in subsection 123(1) of the Act; but if I had been required to, I would have found that at best, the services provided by such brokers were merely preparatory to the provision or potential provision of a qualifying financial service thereunder. The brokers had prepared a brochure with basic information on the Appellant’s infrastructure and licences and conducted some research to identify China as the most likely marker to be interested in water supplies. So, it is clear their services comprised “market research” and “the collection, collation and provision of information” contemplated by paragraph (r.4.). Moreover, the brokers attended promotional events to promote the sale of the Appellant’s business so clearly performed promotional and similar activities.” The latter was in fact their main and dominant activity.

As a result the appeal was dismissed with costs.

Comment:  This decision is clearly in line with earlier cases which have narrowly interpreted the “financial services” exemption, particularly in the case of the transfer of shares.