Telephone: (613) 954-8585
Fax: (613) 990-1233
11650-3 (pl)
Subsection 123(1) "Passenger Vehicle"
and sections 199, 201, 202 & 203
Dear XXXXX
Thank you for your electronic mail message dated April 27, 1995, from XXXXX of your office in which you request a GST interpretation of the definition of the term "passenger vehicle" under subsection 123(1) of the Excise Tax Act (the "ETA") for purposes of claiming an input tax credit ("ITC").
Statement of Facts:
Our understanding of the relevant facts presented by you are as follows:
• assuming the seating requirements are met, the determination of whether a van or pick-up truck is a "passenger vehicle" depends on the vehicle's use for "the transportation of goods or equipment ... in the taxation year in which it is acquired ..." as provided by in the definition of "automobile" under subsection 248(1) of the Income Tax Act (the "ITA");
• the ETA legislation does provide for a change of use in commercial activities for a passenger vehicle or for capital property but there are no change of use rules when the vehicle is redefined as either a motor vehicle or a passenger vehicle;
• Example 1: A registrant individual, with a taxation year of December 31, purchases a truck on December 15, 1994, for $30,000. The truck has the seating capacity for the driver and two passengers. In the taxation year in which it is acquired (1994), the individual uses the truck 60% for transporting goods or equipment in the course of gaining or producing farming income. After keeping mileage records for 3 months, the registrant substantiates that the truck is used 75% in commercial farm activities. Since the truck was used primarily for transporting goods or equipment in the taxation year in which it was acquired, the truck is considered to be a motor vehicle and not a passenger vehicle. Therefore, the general capital personal property ("CPP") rules would apply. Accordingly, the registrant is entitled to a full input tax credit on the GST paid on the $30,000 purchase price.
It is later determined that starting in January, 1995, the individual will commence to use the truck for less than 50% for transporting goods or equipment. There is no change of use rules under the ETA which would change the truck from CPP to a passenger vehicle starting January 1, 1995. Therefore, there is no recapture of input tax credits claimed in excess of the $24,000 threshold and, accordingly, the registrant would be entitled to a full input tax credit based on the 15 day period that it was not a passenger vehicle even though for the remainder of that period it is considered to be a passenger vehicle.
• Example 2: Let's now assume the same fact situation except that the use in commercial activities at the time of acquisition is 95% rather than 60%. It will not be crucial at the time of the initial ITC claim to determine if the truck is a passenger vehicle since a full ITC claim is allowed under either the general CPP rules or the special passenger vehicle rules. However, if the truck was used primarily for transporting goods or equipment in 1994 (being the year of acquisition) and the use falls below 50% in 1995 and the commercial use falls below 90% (but still more than 50%), there is no deemed disposition. The reason is that, although the truck is used for carrying passengers, for GST purposes the truck is never considered to be a "passenger vehicle" (as defined under the ITA) after the taxation year in which it was acquired.
• In circumstances where there is a question as to the actual use of a vehicle, the auditor will request that the registrant maintain a log book for 3 months before determining the correct ITC provision to apply in the period of acquisition. Yet, problems occur where, during that three month period, the vehicle was not used by the registrant primarily for transporting goods and equipment but may have been used for that purpose by the end of the taxation year of acquisition.
Your questions is whether the purchase of a vehicle by a registrant can qualify as a "passenger vehicle" at any time prior to the end of the taxation year of acquisition for GST purposes;
THE DEPARTMENT'S POSITION:
The meaning of a "passenger vehicle" under subsection 123(1) of the ETA refers us directly to its definition under subsection 248(1) of the ITA. The ITA provision says that a "passenger vehicle" is:
"an automobile acquired after June 17, 1987 (other than an automobile acquired after that date pursuant to an obligation in writing entered into before June 18, 1987) and an automobile leased under a lease entered into, extended or renewed after June 17, 1987;"
(emphasis added)
The definition of an "automobile" under subsection 248(1) of the ITA means:
"(a) a "motor vehicle" that is designed or adapted primarily to carry individuals on highways and streets and that has the seating capacity for not more that the driver and eight passengers,
but does not include:
(b) an ambulance;
(c) a "motor vehicle" acquired primarily for use as a taxi, a bus used in a business of transporting passengers or a hearse used in the course of a business of arranging and managing funerals,
(d) except for the purposes of section 6, a "motor vehicle" acquired to be sold, rented or leased in the course of carrying on a business of selling, renting or leasing motor vehicles or a "motor vehicle" used for the purpose of transporting passengers in the course of carrying on a business of arranging or managing funerals; and,
(e) a "motor vehicle" of a type commonly called a van or pick-up truck or a similar vehicle:
(i) that has a seating capacity for not more than the driver and two passengers and that, in the taxation year in which it is acquired, is used primarily for the transportation of goods or equipment in the course of gaining or producing income; or
(ii) the use of which, in the taxation year in which it is acquired, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income;"
(emphasis added)
Lastly and for your information, a "motor vehicle" under the ITA means:
"an automotive vehicle designed or adapted to be used on highways and streets but does not include:
(a) a trolley bus; or,
(b) a vehicle designed or adapted to be operated exclusively on rails;"
We agree that, for GST purposes, there currently exists a problem determining if a truck or van is a passenger vehicle prior to the end of the registrant's taxation year. The definition of "automobile" stated above provides that the determination is only dependent on its use in the taxation year of acquisition. Yet, under the GST regime, it may be important to know if the vehicle qualifies as a passenger vehicle prior to the taxation year end. More specifically, since the truck was considered, in your examples, not to be an "automobile" for income tax purposes, we also agree with your statement that the special ITC rules for passenger vehicles would not apply for GST purposes.
However, for consistency purposes, where a vehicle is purchased by a registrant in a taxation year, the vehicle should be considered to be the same class of property under both Acts, i.e., either a "passenger vehicle" or a "motor vehicle". Since for ITA purposes, the determination of the class is established "... in the taxation year in which it was acquired ...", for GST purposes, the applicable ETA provision(s) (i.e., the capital property rules or the passenger vehicle rules) cannot be ascertained until Taxation has first made this determination. Furthermore, since the definition of a "passenger vehicle" under subsection 123(1) of the ETA "has the meaning assigned ..." in the ITA, GST has no other option but to wait for Taxation's determination even though it may be made after the registrant's reporting period. In other words, it is only at the time Taxation makes their determination under subsection 248(1) of the ITA (whether a vehicle is a "passenger vehicle" or a "motor vehicle" in the taxation year of acquisition) will GST be able to apply the appropriate ETA provisions.
Note that this interpretation does not preclude a registrant from claiming ITCs on the vehicle in the reporting period of the acquisition. However, in circumstances where, in the taxation year of acquisition, the vehicle is determined under the ITA to be one class of property and, for GST purposes, the calculation of the ITC entitlement by a registrant in a return was based on the rules for another class of property (e.g., Full ITCs were claimed by a registered individual under the capital property rules on a vehicle which is used less than exclusively but more than 50% in commercial activities and it is subsequently determined that, in the taxation year of acquisition, the vehicle is a "passenger vehicle" for ITA purposes), the registrant will be required to adjust that return in accordance with subsections 225(1) and 228(1) of the ETA, i.e., calculation of net tax.
If you require further information, please contact Michael Matthews, A/Manager, ITC Unit at (613) 952-8806 or Paul Lafond, the officer responsible for the definition of "passenger vehicle" at (613) 954-9700.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GTP : 1246 (REG)
| c.c.: |
M. Matthews
P. Lafond XXXXX |
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