CRA finds that making the ETA nil consideration election can have punitive results respecting GST/HST on related employee benefits
Although ETA s. 173(1) often imputes a taxable supply by an employer based on the amount of taxable benefits conferred by it under ITA s. 6(1)(a), s. 173(1)(d)(i) provides that this rule does not apply where the employer was denied an input tax credit under s. 170 on its acquisition of the property or service that, in turn, was provided to the employee. S. 170(1)(b) generally denies the ITC where such property was acquired for the exclusive personal consumption of an employee so as to engage s. 6(1)(a).
CRA found that this s. 173(1)(d)(i) exclusion did not apply where the property in question (an automobile) was acquired by a closely-related corporation and then leased to the employer with the benefit of the s. 156 nil-consideration election, with the automobile being provided for the exclusive personal benefit of an employee. CRA reasoned that as there was no GST/HST payable by the employer on its lease payments, it should not be said that it was being denied ITCs under the s. 170 rule. CRA implicitly accepted that the automobile was being acquired by the employer exclusively for commercial use notwithstanding the personal use of the automobile by its employee.
The above result appears to be anomalous. If the s. 156 election had not been made, the employer would have claimed ITCs on the lease payments made by it to its affiliate, so that the net additional amount required to be remitted by it under s. 173 might be small or minimal. As a result of making the election, it must still compute the same imputed GST/HST s. 173 benefit amount, but without getting a somewhat offsetting ITC.
Neal Armstrong. Summary of 21 December 2017 Interpretation 164739 under ETA s. 173(1)(d)(i).