Telephone: (613) 954-5021
Fax: (613) 990-1233
XXXXX August 21, 1996
XXXXX 11650-9 (pl)
XXXXX Subsection 153(4)
Dear XXXXX
This is in reply to your facsimile transmission dated June 28, 1996 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.
Statement of Facts:
In your facsimile transmission you provide the following example for our review and response.
• XXXXX has a direct leasing division (the "lessor") where an individual customer (the "lessee") may lease a vehicle directly from the lessor;
• A car dealership (the "dealership") is prepared to sell a new vehicle to the lessor and accept the lessee's used vehicle as a trade-in. The lessee is not registered for the GST;
• The lessee will, in turn, lease the new vehicle from the lessor based on the following lease amount:
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Dealership's selling price of the new vehicle
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$49,500
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Lessee's trade-in value (amount credited)
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10,800
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Lease amount
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$38,700
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Your question is whether the GST charged to the lessor by the dealership should be calculated on the difference (i.e, 7% x $38,700 = $2,709) or on the full purchase price of the new vehicle (i.e., 7% x $49,500 = $3,465).
Department's Position
Proposed new subsection 153(4) of the ETA provides, among other things, that where a registered supplier accepts used tangible personal property or a leasehold interest therein (both referred to as the "trade-in") from a person as full or partial consideration for another property supplied to that person (referred to as the "recipient") who is not required to collect GST on the trade-in (for example, a non-registrant), the value of the consideration for the supply of the other property is deemed to be equal to the net value provided that the trade-in is for consumption, use or supply in the course of the supplier's commercial activities. This method of determining the deemed value of the supply is commonly known as the "trade-in approach".
It is important to note that one of the conditions discussed above that must be satisfied under the said provision is that the person who is the recipient of the supply of the other property and the person supplying the trade-in must be the same person. A further review of the case at hand indicates that the recipient of the new vehicle (the lessor) and the person who trades-in the used vehicle (the lessee) are not the same person. Accordingly, the trade-in approach cannot be used to calculate a deemed value for the new vehicle thereby requiring the dealership to charge and collect GST from the lessor equal to 7% of the full purchase price of the new vehicle (i.e., 7% x $49,500 = $3,465).
Lastly and for your information, even if it was found that the lessor was in fact the supplier of the trade-in and not the lessee (which is not the case in the above situation) as well as the recipient of the supply of the other property (thus, the same person), subsection 153(4) of the ETA would not apply since the lessor would be required, in most instances, to collect GST in respect of the trade-in (assuming, of course, that the lessor is a GST registrant).
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 Applications Division
GST Rulings and Interpretations Directorate
GAD #: 3113 (GEN)
| c.c.: |
M. Matthews
P. Lafond
R. Smith
R. Labelle |
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