GST/HST on Broker Commissions? Update 1

GST-mortgage-brokers CRA issued this “Notice” in February that discusses modifications to the definition of “Financial Services.”

The Canadian Association of Accredited Mortgage Professionals (CAAMP) says this notice raises “important and serious questions on the definition of GST/HST exempt financial services (mortgage brokers presently fall into that category, as do insurance brokers and financial advisors).

CAAMP has engaged its auditors, KPMG, to seek clarification, and has also been in contact with officials in Ottawa. The concern is that broker compensation could potentially be subject to GST/HST.  CAAMP says it will oppose that interpretation “in the strongest possible way.”

If GST/HST were ever to apply to mortgage brokers, there are various possible implications:

  • Lenders would potentially have to pay GST/HST on the placement fees they pay brokers
  • Lenders would probably not want to absorb this cost so brokers could end up making less per deal
  • Lower compensation would reduce broker ranks to some degree, meaning less choice for consumers
  • Lower compensation could reduce brokers’ incentive to discount interest rates, meaning higher costs for consumers
  • Customers would need to pay GST/HST on broker fees that they pay for commercial, subprime or private financing
  • The new tax would create an administrative nightmare for brokers and brokerage firms alike
  • It could create an unlevel playing field for brokers and lenders’ own sales reps—as the latter would likely not be subject to GST/HST.

Homeowners presently rely on mortgage brokers for about 1/3 of all mortgage originations. Removing the GST/HST exemption from brokers would ultimately have adverse effects on consumers, and for no good reason other than generating a marginal amount of federal/provincial revenue.

We hear that a final determination on this issue could come by May or June.

  1. HI Rob. Perhaps I am missing something here but I do not see where this would be a bad thing. If paid HST/GST then a broker could claim anything back they paid tax on for business purposes. Again maybe I am looking at the small picture and missing the negative effects.

  2. Hi Banker99,
    If the interpretation held, it would be negative because (as we understand it) GST/HST might have to be paid on deals that a lender closes with a broker.
    That could potentially increase the cost of closing a mortgage with a broker versus a bank rep for example.
    This would make brokers less attractive as a channel unless someone absorbed this cost (and not many people are excited about absorbing additional costs in a low-margin business).
    Cheers,
    Rob
    P.S. We just found out about this today so the implications are very sketchy at this point. The information above is based on our best understanding at this time. The odds of GST/HST applying to brokers might very well be low. We just don’t have enough information at this point until we get more guidance from CAAMP.

  3. HI Rob.
    Thanks Rob I was looking at this from the brokers point of view and not the lenders however this may open up a big can of worms with the lender at the end of the day since now they payout HST/GST. The may now be able to claim GST on things. Anyway it would take a team of accounts to determine the pros and cons.

  4. Hi Mike. If this were the case then I go back to my original point that I think overall it would be a good thing. If you collect HST/GST then you can claim the HST/GST you payout.

  5. Based on “Example 3” i.e. the car dealership financing department example in the notice from the CRA, it sounds a lot like what we do as Mortgage Brokers. If that definition fits, then I suspect our services would fall under this proposal.
    Like someone else mentioned, at least we’d be able to get it back. We’re in the worst category possible right now – we have to pay it but we can’t get it back.

  6. Hi Kevin.
    If somesone collects HST then what they collect must go back to Govt minus what they have paid. For example assume you collect $100 in HST for finers fees. That $100 must be given back to My Harper however assume you bought a computer for your business and paid $100 HST. You can claim that $100 you owe against the $100 you paid for the computer and not pay anything back to the Govt. So really you are up $100 as you were going to buy the computer anyway. It does have it advantages.

  7. If just our broker fees are subject to the HST it is reasonable since it is a service we provide that we are charging for. The HST we collect on broker fees alone could easily be offset by the HST we pay on our expenses.
    However, if our finder’s fees from the lenders are subject to the HST, as the article points out, it could result in lowering our overall commission bps so the lender can offset their increased cost. It would be extremely unfair since the lender sales reps would not be subject to HST.
    Also, for most of us, we don’t have enough expenses to offset the entire HST payable on our total finder’s fees….therefore, we’d still have to pay a portion of the HST we’ve collected to the gov’t.

  8. I don’t know what you guys are writing off but my GST deductions are maybe $500 a year. That doesn’t offset much.

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