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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.