|
XXXXX
|
Ss. 153(4), 176(1)
11650-9(rl)
|
Dear XXXXX:
Thank you for your fax dated May 6, 1996, concerning trade-ins of used cars and the transitional measures applicable to such trade-ins following the announcement of amendments to the Excise Tax Act (ETA). You submitted to us a sample case study.
Statement of Facts:
1. A dealer enters into an agreement with a consumer (non-GST registrant) to sell the consumer a used car for $10,000 on April 23, 1996.
2. On April 23, 1996, the dealer and the consumer sign an agreement. As part of the purchase price, the consumer agrees to trade in her used car valued at $2,000.
3. No money or consideration passes between the parties at this time.
4. On April 26, 1996, in accordance with the bill of sale, the consumer pays the dealer $8,000 and gives the dealer her used car.
6. The consumer then takes delivery of the used car purchased from the dealer.
Interpretation Requested:
1. Is the dealer eligible to claim a notional input tax credit equal to $130.84 (7/107 of $2,000) pursuant to subsection 176(1) of the ETA?
2. (a) Should the dealer charge tax on the full consideration for the supply of the car to the consumer equal to $700 (7% of $10,000)
(b) Should the dealer charge tax on the difference between the consideration for the supply by the dealer and the trade-in supplied by the consumer equal to $560 (7% of $8,000)?
The Department's Position:
Question 1: Eligibility for Notional Input Tax Credits
The dealer is eligible to claim a notional input tax credit pursuant to subsection 176(1) of the ETA, as applicable before the announced modifications to the ETA ("the amendment"). In the sample case you submitted, the dealer is eligible for a notional input tax credit on the acquisition of the used car supplied by the consumer to the dealer. The notional input tax credit is equal to the tax fraction of the consideration of the trade-in supplied by the consumer to the dealer, i.e., $130.84 (7/107th. of $2,000).
Question 2: Calculation of Tax Payable on the Supply by the Dealer
Tax is payable on the full consideration of the supply made by the dealer to the consumer. In the sample case you submitted, the dealer should charge tax for an amount equal to $700 (7% of $10,000 ).
Rationale
Pursuant to subsection 133(1) of the ETA, the entering into an agreement in respect of a supply is treated as the making of the supply. The legislative provisions relevant to the sample case (before and after the amendment) are triggered by the making of supplies. Therefore, the applicable provisions will be the ones in force at the date the agreement is entered into.
In the sample case at issue the agreement is entered into on April 23, 1996. At that time, it is the pre-amended version of subsection 176(1) of the ETA which was in force and the new subsection 153(4) of the ETA was not yet in force. The amendment of subsection 176(1) and the introduction of subsection 153(4) became effective April 24, 1996. As a result, the supplies are treated in the same manner as before the amendment.
This interpretation is based upon our current understanding of the Excise Tax 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.
Should you have any further questions, please do not hesitate to contact Raymond Labelle at (613) 952-8815 or Michael Matthews at (613) 952-8806.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
GAD #: 2952(GEN)
| c.c.: |
M. Matthews
R. Labelle |
Email this Content