12 November 1997 GST/HST Interpretation HQR0000183 - Tax Status of Payments for Damaged Grain Hopper Cars

                                                                        GST/HST Rulings and
 Interpretations Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Road
Vanier, Ontario
 XXXXX                                                                                K1A 0L5

Dear XXXXX on behalf of the XXXXX regarding the application of tax under Part IX of the Excise Tax Act (the Act) to certain payments made by XXXXX and XXXXX

Additional information was recently provided by XXXXX . We understand that the XXXXX

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows.

Statement of Facts

1. The Government of Canada is the owner of a number of grain hopper cars (the cars).

2. The cars are administered and controlled by the XXXXX

3. Pursuant to an operating agreement (the agreement) between the XXXXX

4. XXXXX pay a rental fee for the use of the cars. Their responsibilities under the agreement include the maintenance and servicing of the cars apportioned to each of them.

5. In the event that a car is destroyed or badly damaged from any cause whatsoever, the Railway to which such car is apportioned shall give notice to the Director and to the extent that, in the opinion of the Railway and the Director, or his agent, it would be uneconomical to repair the car, the Railway shall pay to the Director the Settlement Value of the car which has been destroyed or damaged.

6. The Settlement Value of each car is determined based on the original purchase price and an established schedule which forms part of the agreement.

7. Transport Canada is registered for purposes of the Excise Tax Act and, with the exception of the payments in respect of damaged or destroyed cars, all payments from the Railways made under this agreement have been treated as consideration for taxable supplies.

Ruling Requested

Are the payments paid by the Railways in respect of damaged and/or destroyed cars subject to tax under Part IX of the Excise Tax Act?

Ruling Given

Based on the facts set out above, we rule that the payments in respect of damaged and/or destroyed cars are subject to tax.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

The agreement between the Director and the Railways provides for the supply by way of lease of grain hopper cars by the Government of Canada to the Railways for consideration. The term "consideration" as defined in subsection 123(1) of the Act, would include all contingent amounts (i.e. amounts which may or may not become payable depending on the occurrence of an event) paid or payable in respect of a supply. In essence, the Settlement Values paid or payable by the Railways represent further consideration for the supply of grain hopper cars by way of lease. As the original supply is subject to tax, any further consideration would also be subject to tax.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-8806.

Yours truly,

Jane Mah, CA
Policy Officer
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch

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