Telephone: (613) 954-5021
Fax: (613) 990-1233
XXXXX 11650-9 (pl)
Subsection 153(4)
Dear XXXXX
This is in reply to your facsimile transmissions dated May 1, 3 and 17, 1996, and our recent telephone conversation in which you request a GST interpretation of new subsection 153(4) of the Excise Tax Act (the "ETA") in reference to the amendments proposed in the Notice of Ways and Means Motion tabled April 23, 1996.
In your facsimile transmissions you provide the following examples for our review and response. Please note that the Department was required to make additional assumptions to correctly reply to your examples. These assumptions are clearly indicated in our response.
Example #1:
A customer trades in a vehicle and leases a new vehicle.
Facts provided:
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• Value of the new vehicle:
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$20,000
|
|
• Value of the trade-in vehicle:
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$ 5,000
|
|
• Lessor's purchase price of the new vehicle from the dealership:
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$15,000
|
|
• Monthly lease payments to the customer on the new vehicle:
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$ 300/mth
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Note: the lessor is a separate corporation registered for the GST who may or may not be related to the dealership corporation.
Department's assumptions:
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• The customer is a non-registrant;
|
|
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• Lease period on the new vehicle:
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48 months
|
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• Residual value on the leased new vehicle:
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$8,000
|
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• Money factor (interest rate):
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0.0%
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Response requested:
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(i) GST payable by the lessor on the new vehicle - 7% x $15,000:
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$1,050
|
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(ii) ITC eligible to the lessor on the GST paid on the new vehicle
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$1,050
|
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(iii) ITC or notional ITC eligible to the dealership on the trade-in vehicle:
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Nil
|
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(iv) GST charged on the monthly lease payments - 7% x ($20,000 - $5,000 - $8,000) / 48 months):
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$10.21/mth
|
Example #2:
A customer trades in a vehicle (which has a lien) and leases a new vehicle.
Facts Provided:
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• Value of the new vehicle:
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$20,000
|
|
• Value of the trade-in vehicle:
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$20,000
|
|
• Lien on the trade-in vehicle:
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$18,000
|
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• Lease payments on the new vehicle:
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$300/mth
|
Department's assumptions:
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• The customer is a non-registrant and the dealer is a registrant;
|
|
|
• Lease period on the new vehicle:
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48 months
|
|
• Residual value on the leased new vehicle:
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$8,000
|
|
• Money factor (interest rate):
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0.0%
|
Response requested:
|
(i) GST charged on the monthly lease payments - 7% x ($20,000 - $20,000 - $8,000) / 48 months:
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Nil
|
Example #3:
Accommodation sale.
Facts provided:
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• A non-registrant vendor wishes to sell their vehicle to a non-registrant purchaser;
|
|
• The vendor sells the vehicle to a dealer as a trade-in and purchases a new vehicle from that dealer;
|
|
• The dealer sells the trade-in vehicle to the purchaser;
|
|
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• Sale price of the new vehicle:
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$20,000
|
|
• Value of the trade-in vehicle:
|
$ 5,000
|
|
• Sale price of the trade-in vehicle to the purchaser:
|
$ 5,000
|
Department's assumption:
• The dealer is registered for the GST.
Response requested:
|
(i) GST payable on the sale of the new vehicle - 7% x ($20,000 - $5,000)
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$1,050 |
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(ii) GST payable on the subsequent sale of the trade-in vehicle - 7% x $5,000
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$ 350 |
Example #4:
Consignment sale.
Facts provided:
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• A non-registrant vendor uses a dealer to sell their vehicle on consignment;
|
|
• The dealer receives a fee for finding a buyer and for negotiating the sale to a non-registrant purchaser;
|
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• Sale price of the vehicle:
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$10,000
|
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• Dealer's fee:
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$ 500
|
Department's assumptions:
• The dealer is registered for the GST;
Response requested:
|
(i) GST charged by the vendor (non-registrant) on the vehicle:
|
Nil |
|
(ii) GST charged on the dealer's fee: 7% x $500 =
|
$35 |
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(iii) GST charged on the sale of the vehicle by the dealer: 7% x $10,000 =
|
$700 |
Example #5:
A leased vehicle is traded in by a non-registrant for another leased vehicle.
Facts provided:
|
• Sale price of the new vehicle:
|
$20,000
|
|
• Residual value of the old leased vehicle:
|
$ 5,000
|
|
• Value of the old leased vehicle:
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$ 7,000
|
Department's assumptions:
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• The non-registrant exercises the buy-out option on the old leased vehicle;
|
|
• The registered dealership accepts a trade-in of $7,000 for the old vehicle.
|
|
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• Residual value of the new leased vehicle:
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$9,000
|
|
• Lease period on the new vehicle:
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24 months
|
|
• Money factor (interest rate):
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0.0%
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Response requested:
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(i) GST charged on the old leased vehicle:
|
7% x $5,000 = $350 |
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(ii) GST charged on the monthly lease payments on the new leased vehicle - 7% x ($20,000 - $7,000 - $9,000) / 24 months:
|
$11.67/mth |
Example #6:
A leased vehicle is traded in for the purchase of a new vehicle by a non-registrant.
Facts provided:
|
• Purchase price of the new vehicle:
|
$20,000
|
|
• Residual value of the old leased vehicle:
|
$ 5,000
|
|
• Value of the old leased vehicle:
|
$ 7,000
|
Department's assumptions:
• The non-registrant exercises the buy-out option on the old leased vehicle;
• The registered dealership accepts a trade-in of $7,000 for the old leased vehicle.
Response requested:
|
(i) GST charged on the old leased vehicle: 7% x $5,000 =
|
$350 |
|
(ii) GST charged on the new vehicle: 7% x ($20,000 - $7,000) =
|
$910 |
Example #7:
A non-registrant acquires two vehicles and trades in one vehicle:
Facts provided:
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• Selling price of the two vehicles ($5,000 each):
|
$10,000 |
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• Amount allowed for the trade-in vehicle:
|
$ 9,000 |
Department's assumption:
• the non-registrant acquires the two vehicles from a dealer registered for the GST.
Response requested:
|
(i) Total GST charged on the two vehicles - 7% x ($10,000 - $9,000):
|
$70 |
This interpretation is based upon our current understanding of the proposed amendments of the ETA and Regulations thereunder in their present form and does not take into account the effects of any 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.
If you require further information, please contact Michael Matthews, Manager, Industries Unit at (613) 952-8806.
Yours truly,
H.L. Jones
Director
General Operations and Border Issues Division
GST Rulings and Interpretations Directorate
GAD #: 2933 (GEN)
2949 (GEN)
2993 (GEN)
| c.c.: |
M. Matthews
P. Lafond
R. Smith
R. Labelle |
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