Case #: HQR0000947
File: 11585-0, 11585-21
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Att: XXXXX
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August 31, 1998
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Re:
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Payment for Loss of Rental Income
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This is in reply to your memo of November 19, 1997 concerning the tax status of an amount charged by a car rental company to its customer for loss of rental income when the vehicle under rental was damaged by the customer who had not purchased a loss damage waiver. We apologize for the delay in replying.
Facts
Based on the terms of the car rental agreement provided, our understanding of the relevant facts of the situation is as follows:
• A renter agrees to rent a vehicle from a car rental company for a consideration which is calculated on a flat daily amount plus a specific charge based on distance driven.
• The renter has the choice of accepting a loss damage waiver for an additional charge which would limit the renter's liability for vehicle damage or loss to a pre-determined amount.
• If the renter decides not to purchase the loss damage waiver, the renter will be required to pay "on demand all loss or damage (however caused) to the vehicle while rented under this agreement".
XXXXX
• If the renter purchases the loss damage waiver, the renter is still responsible for reasonable loss of use, loss of or damage to the vehicle under certain specific circumstances (e.g. breach of any use restriction as provided for in the agreement).
Issue
Whether the amount charged by the car rental company for the recovery of loss of rental income resulting from the damageloss to the vehicle under rental is subject to tax.
Our Comments
The Department has recently concluded its review of the GST status of payments made for the loss or damage to a vehicle under a car rental agreement. It is the Department's position that where rental agreement provides that the renter is required to compensate or re-imburse the car rental company for loss or damage caused to the vehicle while under rental or for the recovery of loss of rental revenue resulting from the damage to the vehicle, the payment made by the renter is not consideration for a taxable supply, and is not subject to GST/HST. This position applies to either situation where the customer has accepted or declined the purchase of the loss damage waiver.
Accordingly, in line with this position, it is our view that the payment made by the renter for the recovery of a loss of rental income suffered by the car rental company as described in your memo is not consideration for a taxable supply, and is hence not subject to GST/HST.
I trust the foregoing comments will be of assistance to you. Should you wish to discuss this issue further, please do not hesitate to call me at (613) 954-1433.
Phil Tang,
Specialty Tax Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate
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