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.
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TO:
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XXXXX
XXXXX
XXXXX
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FROM:
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Anne Kratz
General Operations
Excise and GST/HST Rulings Directorate
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DATE:CASE NUMBER:
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June 8, 200558732
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Subject:
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Taxable benefits
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This is in response to your XXXXX regarding sections 170 and 173 of the Excise Tax Act (the ETA).
ISSUES
1. Does subparagraph 173(1)(d)(iii) of the ETA apply to leased passenger vehicles or aircraft?
2. Would subparagraph 173(1)(d)(i) of the ETA apply where an ITC for tax paid on a leased vehicle (that does not meet the definition of passenger vehicle) was denied by reason of subsection 170(2) of the ETA?
3. Why does subparagraph 173(1)(d)(ii) of the ETA refer to leased property if subparagraphs 173(1)(d)(i), (iii) and (iv) exclude leased property?
4. Does paragraph 170(1)(b) apply to property acquired by way of lease?
OUR COMMENTS
ISSUE 1:
We agree that subparagraph 173(1)(d)(iii) of the ETA applies only to passenger vehicles and aircraft owned by the registrant and does not apply to leased passenger vehicles or aircraft.
ISSUE 2:
Where subsection 170(2) of the ETA has been applied to deny an ITC on a leased vehicle that is not a passenger vehicle, subparagraph 173(1)(d)(i) would apply such that the registrant would not be required to remit tax on the taxable benefit.
ISSUE 3:
Subparagraph 173(1)(d)(i) of the ETA refers to section 170. Subsection 170(2), which was used to deny the ITC, refers to property or a service acquired, imported or brought into a participating province by the registrant. Subsection 170(2) can include leases and purchases of property.
Subparagraph 173(1)(d)(ii) of the ETA refers to the election available under subsection 173(2) of the ETA. The election, in turn, refers to (a) leased passenger vehicles and aircraft of a registrant other than a financial institution and (b) to leases or purchases of passenger vehicles and aircraft of a financial institution.
Subparagraph 173(1)(d)(iii) refers to passenger vehicles and aircraft that are capital property of a registrant who is an individual or partnership where the property is not used by the registrant exclusively in commercial activities of the registrant.
Subparagraph 173(1)(d)(iv) refers to passenger vehicles or aircraft of a registrant who is not an individual, partnership or financial institution where the property is not used by the registrant primarily in commercial activities of the registrant.
The situations contemplated in subparagraphs 173(1)(d)(i), (iii) and (iv) are all situations where no ITC is available to the registrant on the acquisition of the property. In the situation contemplated in subparagraph 173(1)(d)(ii), a partial ITC may be available on acquisition of the property. However, the election under subsection 173(2) of the ETA may be made so that the registrant is not required to remit tax on the taxable benefit. This would be beneficial where the GST to be remitted on the taxable benefit exceeds the amount of any available ITC on the leased property. The following example is based on Example III in IT63R5.
Employer-leased Automobile Taxable Benefits
2005 Taxation Year
Assumptions:
Lease costs of automobile for the year
(excluding GST of $756 and PST of $864) |
$10,800 |
| Insurance costs included in $10,800 |
1,500 |
Operating costs for the year paid by employer
(excluding GST of $350 and PST of $400) |
5,000 |
| Number of days automobile available to employee |
365 |
| Total kilometres driven in the year |
50,000 |
| Personal-use kilometres driven in the year |
10,000 |
| Paragraph 6(1)(k) benefit for operating expenses: |
| 10,000km x $.20 |
$2,000 |
| Paragraph 6(1)(e) standby charge: |
| 2/3 x ($11,664 - $1,500) |
$6,776 |
| GST equivalent on standby charge under paragraph 6(1)(e.1): |
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| 6/106 x $6,776 |
$384 |
| GST considered to have been collected on operating cost benefit: |
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| $2,000 x 5% |
$100 |
| Total GST to be remitted by employer on the automobile benefit |
$484 |
| Employer's ITC Calculation |
| 1. Actual use in exempt activities |
30,000 kms |
| 2. Actual use in commercial activities |
10,000 kms |
| 3. Deemed use in commercial activities under paragraph 173(1)(c) |
10,000 kms |
| 4. Total use in commercial activities (2 + 3) |
20,000 kms |
| Percentage of total use in commercial activities: |
| 20,000/50,000 kms |
40% |
| ITC on annual lease costs: |
| 40% x ($672 [xxiv]footnote 1) |
$269 |
| ITC on operating costs: |
| 40% x ($5,000 x .07) |
$140 |
| Total ITC available to employer |
$409 |
Please note, however, the election is not available in respect of leased property other than passenger vehicles and aircraft. The election cannot be made in respect of other types of property, such as a leased vehicle that does not meet the definition of passenger vehicle. This issue has been brought to the attention of the Legislative Policy Division.
ISSUE 4:
Paragraph 170(1)(b) of the ETA refers to the supply of property acquired, imported or brought in by the registrant. It does not refer to the means (e.g., purchase or lease) by which the acquisition, importation or bringing in is accomplished. Paragraph 170(1)(b) of the ETA applies, therefore, to property acquired by way of lease.
Should you have any further question regarding this matter, please do not hesitate to contact me at (613) 954-7931.
2005/06/20 — RITS 59136 — Section 256 New Housing Rebate
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