9 August 1996 GST/HST Interpretation 11650-9[6] - Proposed Amendment to Section 153 - The "Trade-in Approach"

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XXXXX                                                                                 11650-9(rs)
Section 153

                                                                        AUGUST 9, 1996

Dear XXXXX

This is in reply to your fax on July 18, 1996, and a telephone conversation on August 6, 1996, in which you requested information with respect to the proposed amendment to section 153 of the Excise Tax Act (the "ETA"). The Ways and Means Motion tabled on April 23, 1996, proposes the addition of new subsection 153(4) to the ETA that provides for the use of the "trade-in approach" in certain circumstances. Proposed subsection 153(4) of the ETA provides rules in respect of calculating the value of the consideration for a supply of tangible personal property made by a supplier. The proposed subsection reduces the value of the consideration for such a supply (where all the other conditions of the subsection have been met). The amount of the reduction is equal to the value of the consideration for the trade-in.

You have requested clarification of the proposed amendment with respect to the following scenarios. In both scenarios you have assumed that the term of the lease is 48 months and the money factor is 0.00415.

Question 1: Calculate the GST payable on the following supply by way of lease where the customer is a non-registrant.

Step 1: Calculate monthly lease payment.

Step 2: Re-calculation of lease payment (for GST purposes only). The amount of the lien on the trade-in is not added when determining the Adjusted Capital Cost and therefore does not form part of the Finance Base or the Depreciation Base.

Question 2: Calculate the GST payable on the following supply by way of lease where the customer is a registrant and is required to charge tax on his supply of the trade-in to the dealership.

Step 1: Calculate monthly lease payment.

Step 2: Re-calculation of lease payment (for GST purposes only). The customer is required to charge tax on his supply of the trade-in to the dealership therefore proposed subsection 153(4) does not apply to the transaction.

Note: The registrant customer has made a taxable supply of the trade-in for consideration of $5,000.00 and is required to collect $350.00 GST on the supply.

Question 3: Calculate the GST payable on the following supply by way of lease where the customer is a non-registrant.

Step 1: Calculate monthly lease payment.

Step 2: Re-calculation of lease payment (for GST purposes only). The amount of the lien on the trade-in is not added when determining the Adjusted Capital Cost and therefore does not form part of the Finance Base or the Depreciation Base.

* Note: The proposed subsection 153(4) trade-in approach does not provide for negative amounts. Further, when applying the above formula the calculation of the Finance Base and the Depreciation Base must be determined independently. In other words, where the Depreciation Base is a negative amount the excess amount may not be used to reduce the Finance Base.

This interpretation is based upon our current understanding of the proposed amendments to 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 on interpretation.

Further, while we trust 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 #: 3092 (GEN)