15 August 1994 GST/HST Interpretation 11745-5(on)[1] - Documentary Evidence Provided by

                                                                        Telephone: (613) 954-8585
Fax: (613) 990-1233

Dear XXXXX:

I refer to Mr. XXXXX facsimile message of July 13, 1994, requesting our comments on the documentary evidence provided by XXXXX to substantiate the exercising of a buy-out option under subsection 340(3) of the Excise Tax Act (the Act).

On July 7, 1994, Mr. XXXXX spoke to Mr. Owen Newell of my staff regarding the buyout of an automobile under a grandfathered automobile lease. Mr. XXXXX explained that automobiles are being purchased by the lessees of grandfathered automobile leases where the buyout option is not part of the original written lease agreement. Subsequent to the acquisition of the automobile by the lessee, a letter is prepared by the lessor addressed to the lessee indicating that an oral agreement existed between the lessor and lessee to exercise a buyout option.

The question has arisen whether the letter, prepared after the fact, will suffice for the purposes of grandfathering the acquisition of the automobile under a buyout option pursuant to subsection 340(3). Our response was in the affirmative provided that all the conditions of subsection 340(3) have been met.

The sample document from XXXXX states:

"You will find attached a list of conventions where a verbal agreement has been reached between ourselves and our clients (leases). Each of these verbal agreements provide that the lessees accept to exercise the buy-out option under the initial lease."

This document will not suffice for the purposes of subsection 340(3). The document is simply a listing of leases where verbal agreements to exercise buy-out options exist. The lessor must maintain on file a written letter addressed from the lessor to the lessee stating that the lessor orally gave the lessee the option to purchase the automobile at the time of entering into the lease. The letter should be signed by both lessor and lessee.

If you have any questions or require further information, please contact Mr. Newell at (613) 954-4280.

Yours truly,

H.L. Jones
Director
General Tax Policy
Excise/GST
Policy and Legislation

c.c.:      R. Allwright,
GTP: XXXXX
O. Newell