Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 175421
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of GST/HST to vehicle lease payments that include amounts attributable to insurance premiums […]
Thank you for your letter concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to vehicle lease payments that include amounts attributable to insurance premiums […]. We apologize for the delay in our reply.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that […]([…][ABC]). [ABC] would like an interpretation regarding the application of the GST/HST in the situation described below.
A motor vehicle dealer in […][Province X], registered for GST/HST, leases a passenger vehicle to a customer, not registered for GST/HST, under a lease agreement. You have not provided a copy of a lease agreement. You indicated that the lease agreement provides that by signing the lease agreement, the lessee agrees to lease the vehicle on the terms set out in the agreement. The lease agreement requires that a monthly lease payment be made over the term of the lease and that the monthly lease payment is determined by applying an annual percentage rate (APR) to the capitalized lease cost of the vehicle factoring in the residual value. The capitalized lease cost of the vehicle includes the base price of the vehicle, installed equipment and may include the pre-delivery inspection fee and freight.
At the time of entering into the lease agreement, the customer may choose to purchase life and/or disability creditor insurance from a licensed insurer in return for the payment of a premium. The creditor insurance is issued under a group insurance policy in which the group policyholder is the dealer and the insured is the customer who is approved by the insurer and whose name is stated in the insurance certificate.
If the customer chooses to purchase the creditor insurance, the dealer, as authorized by the insurer under the agreement with the insurer, completes an insurance certificate in the name of the customer indicating the insurance selected by the customer and the amount of the insurance premium. The customer signs the certificate. The dealer forwards the entire insurance premium for the term of the lease and the certificate to the insurer but does not collect the insurance premium from the customer at that time. […]. Instead, the dealer includes equivalent amounts in the capitalized lease cost of the vehicle on which the APR and monthly lease payments are calculated under the lease agreement. As the amounts equivalent to the premium […] are included in the capitalized cost of the vehicle, the dealer includes the entire lease payment as lease revenue and in its depreciation of the lease.
You have not provided any documentation showing a calculation of a monthly lease payment for a particular transaction.
INTERPRETATIONS REQUESTED
1. You would like confirmation that the portion of the monthly lease payment attributable to the insurance premium […] (including the interest thereon) is exempt for GST/HST purposes.
2. If they are exempt, you would like to know whether certain documentation and/or wording would be sufficient to establish that the portion of the monthly lease payments in respect of the creditor insurance is not consideration for a taxable supply.
INTERPRETATION GIVEN
It is a question of fact whether a portion of a monthly lease payment attributable to an insurance premium […] (including APR thereon) is exempt or taxable for GST/HST purposes. You have not provided a lease agreement between the dealer and customer or other document indicating how the monthly lease payments are calculated when a customer chooses the creditor insurance. You provided several blank documents: a dealer agreement with an insurer; a group insurance master policy, and a creditor insurance certificate, none of which relate to a particular arrangement. Therefore, our comments below are based on the limited facts you provided as indicated above.
A supply of creditor insurance by an insurer to a customer of a dealer is an exempt supply of a financial service under section 1 of Part VII of Schedule V to the ETA. The insurer is not required to charge or collect GST/HST on the insurance premium payable for the supply of the insurance. Therefore, when the dealer forwards a premium to the insurer, there is no GST/HST on the premium.
A dealer’s supply of a vehicle by way of lease to a customer under a lease agreement is a taxable supply.
Where a dealer and a customer enter into a lease agreement to finance the vehicle as described in the above facts, the entire monthly lease payment is consideration for the dealer’s taxable supply of the vehicle by way of lease under the lease agreement. The dealer is required to charge GST/HST to the customer on the entire monthly lease payment.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (780) 495-6518. 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,
Heather Gibbard
Insurance and ITC Allocation Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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