Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 103697
May 23, 2008
Subject:
GST/HST RULING
Cash settlement for constructive total loss of vehicle
Dear XXXXX:
Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) in respect of a cash settlement you received for the constructive total loss of your truck.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
1. The insured, XXXXX, owned a vehicle (i.e. the truck) that was used in the course of its commercial activity. The insured is a GST/HST registrant.
2. The vehicle was involved in a rollover incident and required repairs.
3. The vehicle was repaired; however, there remained conflict between the insured and the repair shop as to the quality of the repairs.
4. XXXXX, the insurer has stated that the "truck is technically not a write off." However, due to the conflict, the insurer as a gesture of goodwill has agreed to pay the insured for the vehicle as an "after the fact constructive total loss", irrespective of earlier repairs made to the vehicle under claim. The insured must sign title of the vehicle over to the insurer.
Ruling Requested
You would like to know whether GST applies to the transfer of a vehicle acquired by an insurer after repairs to the vehicle that were paid, less the GST and deductible amount, by the insurer, or if the transfer of the vehicle would be considered to be in the course of settling an insurance claim.
Ruling Given
Based on the facts set out above, we rule that the transfer of the vehicle would be considered to be in the course of settling an insurance claim.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Where property of a person is transferred to an insurer in the course of settling an insurance claim, the transfer of the property from the person to the insurer is deemed to be by way of sale and the consideration is deemed to be nil. In this case, the transfer of the vehicle from XXXXX to the insurance company is a (taxable) supply by way of sale, but for no consideration.
Furthermore, the receipt of an amount in full or partial satisfaction of a claim arising under an insurance policy is an exempt supply of a financial service. In this case, the cash settlement you received is exempt from GST.
Additional comments
For XXXXX to claim the GST charged for the repairs to the truck before it was written off as in fact 4 above, the repairs must be acquired by XXXXX. In other words, the repair invoices may be paid directly by the insurer but they should be in the name of the insured, XXXXX.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8811. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Wm Parker
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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