Section 134 - Assignment of a security interest

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-122

DATE OF ISSUE

February 2, 1994

SUBJECT

Section 134 - Assignment of a security interest

LEGISLATIVE REFERENCES(S)

Definition of "financial service" paragraph 123(d) of the Excise Tax Act

NATIONAL CODING SYSTEM FILE NUMBER

11585

EFFECTIVE DATE

January 1, 1991

TEXT

Property or an interest in property is often used to secure a debt or obligation. The debt or obligation can be assigned to a third party. The assignment of the debt instrument includes the transfer of the security. This policy statement will discuss whether or not the transfer of property or property interest along with the assignment of the debt instrument is considered a taxable supply.

Issue and Decision

A debt or obligation is frequently transferred by a lender to a third party, for example, to obtain cash. While the transfer of the debt instrument is not taxable, the property or property interest used to secure the debt may be taxable. The debt instrument is a financial instrument for the purposes of the Excise Tax Act. Its transfer is a financial service and is exempted from GST.

However, legal ownership of the property used to secure the debt may also be transferred along with the debt instrument. This transfer of the property is not considered to be a supply of a financial service and is taxable unless deemed not to be taxable by section 134. Section 134 deems the transfer of property or a property interest for the purpose of securing a debt not to be a supply in certain circumstances.

It is the Department's position that section 134 applies such that the transfer of an ownership interest in property as part of an assignment of a debt to a third party, where the ownership interest was originally granted as security for the debt assigned, is not a supply for GST purposes.

SAMPLE RULING

STATEMENT OF FACTS

1. Purchasers buy cars from a registered automobile dealer.
2. The purchases are financed with loans from Finance Company, which is a resident Canadian corporation.
3. Finance Company, as a condition for granting the loans, requires that the purchasers grant a chattel mortgage in the vehicles as security.
4. Finance Company routinely assigns the loan agreements to a third party and transfers the chattel mortgages as security.
5. You have advised that, to the best of your knowledge, none of the issues herein is being considered by a Revenue Canada Excise/GST office in connection with a GST return already filed and none of the issues is under objection or appeal.

RULING REQUESTED

The provisions of section 134 of the Excise Tax Act apply to the transfer of the security interests in the vehicles to the third party such that no tax is collectible as there is deemed to be no supply of the property or interest.

RULING GIVEN

Provided that the statement of facts and transactions is correct and constitutes a complete disclosure of all the relevant facts and transactions, and that those transactions are carried out in the manner described, the Department confirms your ruling as requested.

This ruling is subject to the general limitations and qualifications set forth in GST Memorandum 100-3, dated November 29, 1991, issued by the Department of National Revenue, Excise/GST. Also, this ruling is based the Excise Tax Act and regulations thereunder in their present form and does not take into account the effects of any proposed or future amendments thereto.