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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 143085
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING -
[Corp A] - Requirement to recapture input tax credits on loaner vehicles supplied during a repair service
Thank you for your letter of March 13, 2012, concerning the recapture of input tax credits (RITCs) requirement and loaner vehicles supplied during a repair service.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. 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.
STATEMENT OF FACTS
Based on the information provided, our understanding of the facts is as follows:
1. […]([…][Corp A]) is a corporation incorporated under the Canada Business Corporations Act with its head office in […][City 1, Province A]. [Corp A] sells and leases vehicles through its [Corp A] retailers (hereafter referred as “Dealerships”). Vehicles are purchased by the Dealerships, and resold or leased to customers.
2. [Corp A] is registered for GST/HST purposes under Business Number […], and is considered a large business pursuant to section 236.01, and section 27 of the New Harmonized Value-Added Tax System Regulations, No.2 (the Regulations).
3. A Dealership may sell optional service contracts or extended warranty plans (hereafter referred as “Service Contracts”) on behalf of [Corp A].
4. [Corp A] reimburses the Dealerships for basic warranty repair services, and repairs performed under Service Contracts. These repair services are provided to customers by the Dealership on [Corp A]’s behalf and not as agent of [Corp A].
5. When repair services performed under basic warranty coverage require a customer to leave its vehicle overnight, a Dealership may provide the customer, at its own discretion, with a vehicle (hereafter referred to as “loaner vehicle”) from its fleet of new vehicles. If none are available, the Dealership may provide a loaner vehicle from a car rental company at its own discretion and cost.
6. [Corp A] is not obligated to reimburse the Dealerships for loaner vehicles under the basic warranty coverage; however, under [Corp A]’s […]([…][Program X]), [Corp A] agrees, under certain circumstances, to reimburse a Dealership that provides a loaner vehicle to its customer, either from its fleet or from a car rental company, $[…]/day up to a maximum of [#] days, and up to $[…]/day for certain vehicles needing repair, […].
7. The basic warranty coverage ([…]) states, in part, the following: […][direct quote about what is not covered under the warranty]
8. [Program X] provides the following:
a. Dealerships will be reimbursed for providing alternate transportation for their basic warranty customers whose vehicles cannot be driven and must be kept at the Dealership overnight. [Program X] allows every Dealership to provide a loaner vehicle for at least [#] days without authorization from the Dealer Service Manager (DSM). Dealerships can provide vehicles quickly and at their own discretion, to ensure their customers’ immediate satisfaction.
b. [Program X] does not apply to vehicles that can be driven safely; customer-pay repairs; same-day repairs; shop comeback repairs; […] parts repairs (where the vehicle basic warranty will not cover the repair); maintenance service; sublet repairs; and repairs where a customer’s Service Contract will cover the cost of a loaner vehicle.
c. […]. If a Dealership cannot provide a vehicle from its fleet, it may obtain a vehicle from a commercial daily rental agency.
d. The Dealership can provide a loaner vehicle for up to [#] days at $[…] per day without authorization by the DSM. An authorization is required for claims that exceed the day or dollar limits. (A day is a 24-hour period.)
e. [Program X] is not part of any warranty. It’s a separate program designed to enable the Dealership to provide immediate alternate transportation for its warranty customers that are genuinely inconvenienced. Loaner vehicles are provided at the Dealership’s discretion.
9. When repairs are performed under a Service Contract, where the vehicle was inoperable, and the customer is required to leave the vehicle at the Dealership overnight, the customer is entitled to an amount for the rental of substitute transportation, up to $[…]/day for a maximum of [#] days (hereafter referred to as the “daily maximum allowance”) as per the Service Contract.
10. A Service Contract between [Corp A] and a customer that owns a vehicle that is under the […] basic warranty coverage, states, in part […] the following: […][direct quote about what is covered under the warranty]
11. For repairs made under a Service Contract, a Dealership may make arrangements directly with a car rental company, and [Corp A] reimburses the Dealership up to the maximum daily allowance. Alternatively, the Dealership may provide the customer with a vehicle from its own fleet, in which case [Corp A] reimburses the Dealership an amount equal to the maximum daily allowance.
12. Where a Dealership provides a customer with a loaner vehicle from a car rental company, whether under [Program X] or a Service Contract, the customer enters into the car rental agreement with the car rental company and the rental costs are billed to the Dealership in accordance with the agreement between the Dealership and the car rental company. The Dealership is not acting as agent of [Corp A] in facilitating the rental of the loaner vehicle.
13. For basic warranty repairs and Service Contract repairs performed by a Dealership on [Corp A]’s behalf, the Dealership submits weekly electronic claim statements which itemize the charges for parts, labour, special services and loaner vehicles provided under [Program X] or a Service Contract.
14. [Corp A] sends […][an acknowledgement] to the Dealership for each claim submitted.
15. Example of a claim for a repair service under a Service Contract:
a. A Dealership submits a claim […] to [Corp A] for repairs performed on […][Model ABC] covered by a Service Contract;
b. The total claim in the amount of $[…], including HST, includes itemized charges for parts, labour and a loaner vehicle charge of $[…];
c. The loaner vehicle in this case was rented from [a] […]([…][car rental company]), and the rental charges were invoiced directly to the Dealership in the amount of $[…] ($[…] plus HST); and
d. The Dealership paid the invoice from [a] [car rental company], and included the loaner vehicle charge of $[…] in its weekly electronic claim statement sent to [Corp A].
16. Example of a claim for a repair service under the basic warranty coverage:
a. A Dealership submits a claim ([…]) to [Corp A] for repairs performed on […][Model DEF] covered by the basic warranty;
b. The total claim in the amount of $[…], including HST, includes itemized charges for parts, labour and a loaner vehicle charge of $[…] that was claimed under [Program X];
c. The loaner vehicle in this case was rented from [a] [car rental company], and the rental charges were invoiced directly to the Dealership in the amount of $[…] ($[…] plus HST); and
d. The Dealership paid the invoice from [a] [car rental company], and included the loaner vehicle charge of $[…] in its weekly electronic claim statement sent to [Corp A].
RULING REQUESTED
You would like to know whether [Corp A] is required to recapture the input tax credits with respect to the provincial part of the HST paid to the Dealerships for loaner vehicle charges included in the weekly electronic claim statements for repair services performed on vehicles either under the basic warranty coverage or Service Contract.
RULING GIVEN
Based on the facts set out above, we rule that [Corp A] is not subject to the RITC requirement in respect of the provincial part of the HST paid or payable on the consideration payable to Dealerships for repairs services, which includes the Dealerships’ charges for loaner vehicles, provided under the basic warranty coverage or Service Contracts whether a loaner vehicle is provided to a customer from a car rental company or a Dealership’s fleet.
In accordance with the qualifications set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity, and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
Based on our analysis of the information provided, for each vehicle repaired by a Dealership as described in this ruling, [Corp A] is acquiring a single supply of a repair service that is subject to the GST/HST. The charge in respect of a loaner vehicle under either the basic warranty coverage or Service Contract is part of the consideration for the supply of the repair service.
[Corp A] is required to pay GST/HST on the total consideration payable to the Dealerships for the repair services and [Corp A] may claim input tax credits (ITCs) in respect of this GST/HST to the extent that the repair services are acquired, consumed or used in the course of its commercial activities and the conditions for claiming the ITCs are met.
In accordance with subsection 28(1) of the Regulations, the repair services acquired by [Corp A] are not specified property and services for purposes of section 236.01 and, as such, the ITCs claimed in respect the repair services are not subject to the recapture requirement.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-9699. 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,
Linda Féquière
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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