GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
XXXXX
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Case: HQR0000934
XXXXX File No. 11710-1
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September 11, 1998
Dear Ms XXXXX
This is in reply to your letter of October 14, 1997 (with attachments) sent to our XXXXX Tax Services Office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to amounts charged by XXXXX to its customers for damages done to the vehicle under rental by the customers. The Department has now completed its review of the tax status of damage payments under various situations. We offer our comments to your request as follows.
Facts:
Under the terms and conditions of the vehicle rental agreement between XXXXX and its customer (the "Renter"), the Renter has the option of purchasing a damage waiver which will limit the Renter's liability in the event of damages or loss to the rented vehicle during the rental period. If the waiver is declined by the Renter and damagesloss occurs to the rented vehicle, the Renter must pay XXXXX for replacing and/or repairing the damages to the vehicle. You request clarification if GST/HST should be applied to the amount invoiced to the renter by XXXXX for the damages.
Interpretation Given
It is our view that the amount charged by XXXXX to the Renter for the damages caused to the vehicle is compensatory in nature. It is to compensate XXXXX for the damages caused to its property (the rented vehicle), and to put XXXXX back to its original position only. The payment is not consideration for a taxable supply of any property or services made by XXXXX[.] Accordingly, it is our view that any amount invoiced by XXXXX to the Renter for the damages under the terms of the vehicle rental agreement should not be subject to tax for GST/HST purposes, whether the amount is paid by the Renter or by an insurance company on behalf of the Renter.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
I trust the above will be of assistance. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613 954-1433.
Yours truly,
Phil Tang
Specialty Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
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