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XXXXX File I 11,725-12
XXXXX 11,643-2
Leg. Ref: s. 123, 182, 177
May 24, 1994
Dear XXXXX
This is in reply to your letters of March 25 and April 21, 1992, concerning the application of the Goods and Services Tax (GST) to a fact situation. We apologize for the delay in responding to your submission.
Our understanding of the facts is as follows:
• "D" Co. leased trucks from "F" Co., a major financial institution;
• the lease "D" Co. entered into is a "normal" four year operating lease with an approximate fair market value buy back at the end of the four year lease;
• "D" Co. breached the terms of the lease by defaulting on their payments;
• as a result, "F" Co. appointed "A" Co., an agent, to repossess (seize) the trucks and sell them on behalf of "F" Co.;
• "A" Co., on behalf of "F" Co., contracted with a truck dealer, "T" Co., to sell the trucks;
• "A" Co., on behalf of "F" Co., contracted with a truck dealer, "T" Co., to sell the trucks;
• the trucks were sold by "T" Co. to a third party; and
• in selling the trucks, "T" Co. disclosed to the third party that the trucks were being sold on behalf of "A" Co.
In our response, we have assumed that "D" Co., "F" Co., "A" Co. and "T" Co. are all registered for the purposes of the GST.
Interpretations Requested:
You would like to know if section 182 of the Excise Tax Act (the Act) is applicable to the fact situation indicated above as well as whether the method provided in your letter is the correct way to account for the GST.
Interpretations Given
Section 182 of the Act applies where, "... as a consequence of a breach, modification or termination after 1990 of an agreement ... an amount is paid or forfeited by a person to the registrant otherwise than as consideration for the supply, ...". As per subsection 123(1) of the Act "an amount means money, property or a service ...".
In this case there was a breach of a contract, however, section 182 of the Act does not apply. The money received by "F" Co. is consideration for the supply of the trucks and not as a result of the breach of the contract. In addition, the return of the vehicles from "D" Co. to "F" Co. does not constitute an "amount" that was paid or forfeited by "D" Co. to "F" Co. The sale of the trucks is a taxable supply and is subject to the GST.
In the situation described above, we have assumed that at some point prior to the supply of the trucks, "T" Co. would have had to have disclosed to the recipient who the principal was (in this case "F" Co.) for the purpose of transferring the vehicle registration from "F" Co. to the recipient.
Therefore, "F" Co., would have been required to collect and account for the GST on the sale of the trucks. The agents, "T" Co. and "A" Co. would have invoiced "F" Co. for their respective services, plus the GST. Based on this scenario, the method indicated in your letter is the correct way to account for the GST[.]
If, however, "T" Co. was an agent of "A" Co. and not an agent of "F" Co., then "T" Co. would invoice "A" Co. for its 10% commission plus GST. "A" Co. would be eligible for an input tax credit (ITC) for the GST paid to "T" Co. "A" Co. would then invoice "F" Co., its 10% commission, plus a disbursement covering the amount "A" Co. paid to "T" Co. The GST would be levied on the total of those two amounts. "F" Co. would collect and account for the GST on the sale of the trucks. "F" Co. would be entitled to claim an ITC for the GST paid to "A" Co.
This interpretation is based upon our current understanding of the Act and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
Sincerely,
H.L. Jones
Director
General Tax Policy
Goods and Services Tax
| c.c.: |
David C. Moore
Patrick Banham
Cheryl Williams |
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