Telephone: (613) 954-8585
Fax: (613) 990-1233
11650-9
Section 176
Dear XXXXX
This is further to our meeting on February 28, 1996, concerning notional input tax credits when a person trades a used vehicle as partial payment towards the lease of a new vehicle.
The following is our understanding of the facts for our consideration:
• A consumer (the "lessee") arranges with a XXXXX automobile dealership (the "dealership") located in XXXXX to lease a new vehicle from XXXXX leasing (the "lessor"). The value of the new vehicle is XXXXX[.]
• The dealership sells the new vehicle to the lessor;
• The lessee trades-in a used vehicle which at the time has an outstanding loan of XXXXX[.]
• The dealership credits the lessee XXXXX as a trade-in allowance for the used vehicle and claims a notional input tax credit of XXXXX (7/107ths of XXXXX) based on the trade-in allowance;
• The lease payments are calculated on the value of the new vehicle XXXXX less the trade-in allowance XXXXX net of the outstanding loan on the used vehicle XXXXX[.] The issues in this case to be resolved are:
1. who is entitled to the notional input tax credit on the trade-in of the used vehicle (i.e., the dealership or the lessor);
2. who accounts for GST on the lease payments; and,
3. what is the amount of the lease payment subject to GST?
1. Who is entitled to the notional input tax credit on the trade-in of the used vehicle?
As was stated at the meeting, it appears that the lessor (i.e., XXXXX[)] is the recipient of the trade-in and accordingly, is entitled to the notional input tax credit. However, we suggest that you verify whether the dealership or the lessor recorded the purchase of the used vehicle from the lessee (i.e., the consumer) as well as whether there was any subsequent supply of the used vehicle between the lessor and the dealership. Lastly, please note that the outstanding loan on the trade-in does not affect the amount of the lessor's notional input tax credit claim.
2. Who accounts for GST on the lease payments?
The lessor accounts for GST on the lease payments.
3. What is the amount of the lease payment subject to GST?
The supply of the leased vehicle to the lessee is subject to tax on the full consideration notwithstanding the trade-in amount and the outstanding loan.
Finally, we have reviewed all rulings and interpretations issued by headquarters and the field and have not detected any correspondence concerning the issues discussed above.
If you require further information, please contact me at 952-8806.
Yours truly,
M. Matthews
A/Manager
Input Tax Credit & Co-ordination Unit
General Applications Division
GST Rulings and Interpretations
GAD #: 2663 (GEN)
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P. Lafond
R. Labelle |
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