7 February 2007 GST/HST Interpretation 79891 - Meaning of "Dietetic Service" for Purposes 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 letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to employee benefits.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

We understand that XXXXX is an XXXXX. XXXXX. Under the terms of their employment, XXXXX employees are entitled, and encouraged, to lease automobiles directly from XXXXX for their personal use. The normal lease is for XXXXX kilometres or XXXXX months, whichever comes first. Although the leases may contain a purchase option, they are treated as leases for income tax purposes, and are not treated as sales that result in the immediate disposition of the automobile. You have indicated that similar programs are run by XXXXX.

XXXXX has confirmed that, as it is making an automobile available to its employee, a taxable benefit is required to be calculated under paragraph 6(1)(e) of the Income Tax Act.

It is your understanding that under section 165 of the ETA, the lease of the vehicle is a taxable supply made in Canada, in respect of which XXXXX must collect and remit GST/HST. Under section 173 an employer is required to remit 6/106 or 14/114, as appropriate, of the amount of any taxable benefit included in the income of the employee. Included in the calculation of the amount of the benefit in respect of which the remittance must be made, is the amount of any "reimbursement" made by the employee. The reimbursement is defined in paragraph 173(1)(b) to be any amount that the employee pays to the employer that reduces the amount in respect of the supply that would otherwise be required under paragraph 6(1)(e) (among others) of the Income Tax Act to be included in the employee's income. The lease payment made by the employee is captured by this definition, and XXXXX is required to remit tax on the amount of the lease payment as a reimbursement.

Interpretation Requested

You would like to know if your understanding, as outlined above, is correct.

Interpretation Given

Based on the information provided, we confirm your understanding of the ETA as it is written.

We note your reference to remitting GST/HST on taxable benefits based on the factors 6/106 and 14/114. In addition to the rate changes for GST and HST that were effective July 1, 2006, there are also new rates to be used in calculating the GST/HST to remit on taxable benefits. For the 2006 taxation year of individuals, if the taxable benefit relates to the standby charge of an automobile or other taxable benefits, the registrant will be deemed to have collected the GST equal to 5.5/105.5, or the HST equal to 13.5/113.5, of the amount of the value of the taxable benefit reported for income tax purposes, and if the taxable benefit is for a standby charge, on the amount of any reimbursement. For subsequent taxation years, the rates of tax are 5/105 or 13/113, respectively.

If the taxable benefit relates to the operating cost of an automobile, a registrant was previously deemed to have collected the GST equal to 5%, or the HST equal to 11%, on the value of the benefit reported for income tax purposes and on any reimbursements. For the 2006 taxation year of individuals, the rates of tax will be 4.5% for GST and 10.5% for HST and for subsequent taxation years, the rates of tax will be 4% and 10%, respectively.

The CRA is responsible for administering and enforcing the ETA as enacted by Parliament. Matters relating to tax policy and amendments to the legislation are the responsibility of the Department of Finance. We have brought this issue to the attention of the Tax Policy Branch of that Department.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me at 780 495-6244 or Owen Newell, Manager, directly at 613 952-0301.

Yours truly,

Darryl Waldner
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/02/07 — RITS 83139 — XXXXX Pita Chips