29 July 2004 GST/HST Interpretation 43263 - Subsection 240(1) of the Excise Tax Act

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your facsimile concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to input tax credit (ITC) restrictions on purchases and leases of passenger vehicles. We apologize for the delay in responding to your letter.

As stated in your letter, section 201 of the Excise Tax Act (the ETA) limits the ITC that may be claimed on the purchase of a passenger vehicle to the lesser of

(a) the tax that was payable by the registrant in respect of the acquisition, importation or bringing in, as the case may be, of the vehicle; and

(b) the amount determined by the formula

(A x B) - C

where

A is the tax that would be payable by the registrant in respect of the vehicle if the registrant acquired the vehicle at the particular time,

(ii) ... for consideration equal to the amount deemed under paragraph 13(7)(g) or (h) of the Income Tax Act (the ITA) to be, for the purposes of section 13 of that Act, the capital cost to a taxpayer of a passenger vehicle to which that paragraph applies.

Your position is that the maximum amount for element "A" in the above formula is equal to $30,000 plus the GST/HST and PST thereon. Consequently, the maximum ITC that may be claimed by a registrant XXXXX is 7% of $34,500 ($30,000 plus GST of $2,100 and PST of $XXXXX) or $XXXXX and not 7% of $30,000 or $2,100.

You also stated that, with respect to leased passenger vehicles, section 235 of the ETA requires a registrant to recapture the portion of the GST/HST paid on lease payments in excess of the maximum lease costs that are deductible under section 67.3 of the ITA in determining a taxpayer's income. The registrant is required to add this amount to net tax in the reporting period that begins immediately after the taxation year of the registrant.

Your position is that the maximum lease cost that may be deducted from a taxpayer's income is equal to $XXXXX ($800 plus GST of $56 and PST (in the province XXXXX) of $XXXXX). As a result, the maximum ITC that may be claimed by a registrant in respect of lease costs for passenger vehicles is 7% of $XXXXX or $XXXXX and not 7% of $800 or $56.

Interpretations Requested

1. You ask the CRA to confirm your interpretation that the maximum ITC that may be claimed on the purchase of a passenger vehicle in the province XXXXX is $XXXXX.

2. You ask the CRA to confirm your interpretation that the maximum ITC that may be claimed on the monthly lease cost of a passenger vehicle in the province XXXXX is $XXXXX.

Interpretations Given

Interpretation 1

The CRA confirms your interpretation of the legislation. A registrant who acquired a passenger vehicle in the province XXXXX may claim a maximum ITC of $XXXXX as provided for under the legislation as it is written.

Interpretation 2

The CRA confirms your interpretation of the legislation. A registrant who is the recipient of a supply of a leased passenger vehicle in the province XXXXX may claim a maximum ITC of $XXXXX for the GST paid or payable on the monthly lease cost as provided for under the legislation as it is written.

I wish to point out that in Press Release 89-083 issued by the Department of Finance on August 14, 1989, prior to the amendments to the Excise Tax Act relating to GST receiving Royal Assent, the Department of Finance proposed that the threshold amount of a passenger vehicle for capital cost purposes would be applied to purchase costs exclusive of all federal and provincial sales taxes. We have brought this issue to the attention of the Department of Finance which is currently reviewing this issue and expects to make an announcement in the very near future.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/08/06 — RITS 46409 — Point-of-Sale Rebate for Certain Comic Books