Telephone #: (613) 954-8585
Fax #: (613) 990-1233
XXXXX File #: 11680-1(glr)
XXXXX s. 133, 136, 142, 165, 261
XXXXX July 2, 1996
I refer to XXXXX E-mail message of June 18, 1996, addressed to Ms. Carol Ann Villeneuve of my staff, concerning the application of the Goods and Services Tax (GST) to the lease and subsequent purchase of a XXXXX van.
The following information was provided by XXXXX
• XXXXX, XXXXX, a resident of XXXXX at that time, entered into an agreement to lease a XXXXX van from XXXXX[.]
• The monthly lease payments as specified in the agreement were XXXXX plus XXXXX GST.
• XXXXX, XXXXX moved to XXXXX and took the van with him.
• XXXXX continued to pay the GST on the lease payments, even after he relocated to XXXXX[.]
• XXXXX, XXXXX exercised the purchase option contained in the lease and purchased the van from XXXXX[.] The amount of the buyout was XXXXX plus XXXXX GST less XXXXX refundable security deposit of XXXXX has asked the following questions:
1. Was XXXXX and XXXXX correct in charging (the) GST for the full term of the contract?
2. Was XXXXX and XXXXX correct in charging (the) GST on the buyout?
3. Is XXXXX or XXXXX responsible to reimburse (the) GST on the payments and or the buyout?
Before answering the above questions, it must first be determined if the lease signed by XXXXX is a contract for a single supply or multiple supplies.
The lease agreement contains two elements, the lease and the buyout option. XXXXX was aware of both elements of the agreement when he signed the lease. The provision of the lease element is not contingent upon the provision of the buyout option. Even if the agreement did not contain a buyout option, the provision of the lease element satisfied XXXXX needs, i.e., to lease the van. As a result, the lease agreement entered into by XXXXX is considered to be an agreement for two supplies, the lease element and the buyout option.
I will now answer the questions in the order raised.
1. Under the provisions of subsection 136(1) of the Excise Tax Act (Act), a supply by way of lease of the use or right to use tangible personal property (TPP) is deemed to be a supply of the TPP. Paragraph 133(a) of the Act provides that the entering into an agreement to supply TPP is treated as a supply of the TPP, made at the time the agreement is entered into.
In order to determine the place of supply of TPP otherwise than by way of sale, it is necessary to refer to paragraphs 142(1)(b) and paragraphs 142(2)(b) of the Act. Reference should also be made to Policy Statement P-193. You will note that for purposes of paragraphs 142(1)(b) and paragraphs 142(2)(b), the Department considers that the place where "possession or use of the TPP is given or made available" refers to the place where:
(i) the recipient of the supply of the TPP obtains physical possession of the property at the time the supply is made, or,
(ii) in situations where physical possession of the TPP is not obtained at the time the supply is made, the recipient may obtain or have access to the property.
The place where possession or use of the TPP is given or made available can be determined based on the location of the property at the time the supply is made (i.e., at the time the agreement is entered into).
Although XXXXX moved to XXXXX in 1994 and took the van with him, at the time XXXXX entered into the contract XXXXX the van was located in Canada (and XXXXX obtained physical possession of the van in Canada). Therefore, the supply of the van was deemed to be made in Canada under the provisions of paragraph 142(1)(b) of the Act. Under the provisions of subsection 165(1) of the Act, XXXXX was required to pay the tax equal to 7% of the consideration of the supply for all lease payments.
2. Paragraphs 142(1)(a) and 142(2)(a) deal with the place of supply of TPP by way of sale. Policy Statement P-078 states that the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods, as follows:
(a) "Delivered" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by actual delivery.
(b) "Made available" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by constructive delivery [i.e., actual physical possession of the TPP is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law (such as where a person sells TPP to another person and agrees to hold the tangible personal property as bailee for the buyer)].
In any given case, the place where the TPP is delivered or made available may be determined by reference to the place where the TPP is considered to have been delivered under the law of the sale of goods applicable in that case.
XXXXX states, in part:
"(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract express or implied between the parties.
(2) Apart from any contract express or implied, the place of delivery is the seller's place of business if he has one and, if not, his residence.
(3) Notwithstanding subsection (2), if the contract is for the sale of specific goods that to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery."
The buyout option is for specific goods (i.e., XXXXX van). If, at the time the buyout option was exercised in XXXXX (the date of the agreement for the sale of the van), both parties knew that the van was in XXXXX the place of delivery under XXXXX would be in XXXXX This being the case, the supply of the van would be deemed to be made outside Canada under the provisions of subsection 142(2)(a) of the Act and not subject to the GST under Division II.
3. Section 232 of the Act provides for a refund to a customer XXXXX or an adjustment by a supplier XXXXX of an amount collected from another person as or on account of tax under Division II in excess of the tax that was collectible. If the supplier chooses not to refund or credit the amount collected as or on account of tax XXXXX to XXXXX, section 261 of the Act provides that XXXXX may apply for a rebate of the amount paid in error.
If you have any questions or require further information, please contact Mr. Garry Ryhorchuk at (613) 952-6743 or Mr. Randy Nanner at (613) 952-8810.
H.L. Jones
Director
General Operations and Border Issues Division
GST Rulings and Interpretations
Policy and Legislation Branch
| c.c.: |
R. Nanner GOBI #: 1775(REG)
G. Ryhorchuk |
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