PPP Group – Federal Court of Appeal confirms that automobile replacement “warranty” payments did not qualify for ITCs
The Court of Appeal has briefly affirmed a decision of Tardif J respecting a Quebec company (“PPP”) which, through car dealers, offered motor vehicle replacement “warranties.” In the event of the loss of the vehicle through accident or theft, the warranties covered the difference between the depreciated value of the vehicle (which was covered by the regular insurer) and the cost of a new replacement vehicle. The consumer who had purchased the PPP warranty was required to acquire the new replacement vehicle from the dealer, and the dealer was paid directly by PPP.
PPP was unsuccessful in its contention that it was entitled to input tax credits under ETA s. 175.1 for a pro rata portion (e.g., 5/105, ignoring QST) of the claims paid by it. First, s. 175.1 did not apply to "insurance policies,” which Tardif J considered to be a more apt description of this product than “warranty.” Second, s. 175.1 required that the warranty be “in respect of the quality, fitness or performance” of the product, which Tardif J unsurprisingly found was getting at things like manufacturing defects rather than loss of a vehicle from theft or catastrophic accident.
ITCs also were unavailable under more general principles (under ETA s. 169) since the person acquiring the property or services funded by the “warranty” payment was the consumer getting the replacement vehicle rather than PPP itself (although PPP valiantly argued that it was paying for a valuable claim processing service received from the dealer.)