Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Ottawa ON
XXXXX K1A 0L5
Dear XXXXX
Thank you for your letter of February 14, 1997, with attachments, concerning the application of the Goods and Services Tax (GST)Harmonized Sales Tax (HST) to the transactions being undertaken by the XXXXX ("the Program"). Our understanding of the facts and the transactions is as follows.
Statement of Facts
1. The Program was established by the XXXXX on April 1, 1996. XXXXX and the Program are nonprofit organizations.
2. The Program was launched in April 1996 by the XXXXX in conjunction with XXXXX and the XXXXX
3. The purpose of the Program is to remove older, highpolluting vehicles located in XXXXX from the road. The Program is intended to operate until XXXXX highpolluting vehicles XXXXX and XXXXX vehicles f XXXXX have been recycled. To achieve this, the Program offers inducements to vehicle owners to voluntarily take such vehicles off the road. The inducements are:
a) public transportation XXXXX monthly passes for one year;
b) a XXXXX "credit" which can be used as a downpayment towards the purchase of a low emissions new replacement vehicle from a participating XXXXX dealer; or
c) a XXXXX "credit" which can be used as a downpayment towards the purchase of a low emissions used replacement vehicle from a participating XXXXX dealer.
4. The vehicle must meet certain criteria to qualify under the Program. A person eligible to receive inducements under the Program can be a private individual or a business.
5. A person participates in the Program by completing and submitting an application. The Program reviews the application to ensure the vehicle meets the qualification criteria and then issues an Authorization Letter to the person.
6. The person presents the Authorization Letter to a designated XXXXX scrapyard (the "Collector") where the vehicle is destroyed and recycled. The Collector invoices the Program a fee of approximately XXXXX plus GST for the disposal of the vehicle and the endorsement of the Authorization Letter.
7. After the Collector endorses the Authorization Letter, the person becomes entitled to choose from one of the incentives listed in Fact 3 above. If a person chooses to purchase another vehicle and submits the Authorization Letter to a dealer as either a XXXXX downpayment on a new vehicle or a XXXXX downpayment on a used vehicle, the dealer forwards the XXXXX to the Program to collect twothirds of the downpayment under the Program. The dealer covers the remaining onethird of the downpayment. If the person chooses monthly transit passes, the person presents the endorsed Authorization Letter to XXXXX obtain the passes.
8. XXXXX administers the Program under policies established by the Program's Steering Committee.
9. The Program receives funding from XXXXX and XXXXX, and uses this funding to cover the reimbursements to the automobile dealers.
10. The Program has the ability to contract in its own name as evidenced by the XXXXX application and the Authorization Letter.
11. The Program does not have, to any significant extent, directors, officers, or employees that are common with XXXXX For instance, the Program has its own Steering Committee made up of:
· XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
23. The Program also has its own Advisory Committee made up of:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
25. The Program enjoys autonomy in its daytoday operations.
26. The Program raises most of its revenues as opposed to receiving funding from XXXXX by becoming members of the Program and vice versa.
28. Activities of the Program include offering inducements to vehicle owners to dispose of their vehicles, processing and approving applications, resupplying transit passes, contracting with recycling contractors to receive and scrap approved vehicles, issuing cheques to automobile dealers, managing a telephone hotline and managing a database.
RULINGS REQUESTED
1. What are the GST consequences to the sponsors of the Program?
2. What are the GST consequences to the Program and should it be registered for GST?
3. What are the GST consequences to the automobile dealers should they be collecting GST on the full selling price of the vehicle?
4. What are the GST consequences to the persons disposing of their vehicles whether the person is an individual or a registrant?
RULINGS GIVEN
1. What are the GST consequences to the sponsors of the Program?
Monetary contributions
It is our ruling that there are no GST consequences to the payments of money made by the contributors to the Program as such payments qualify as grants and therefore no GST is payable. There is no evidence in the information provided that a supply is being made back to the grantors in return for the payment, thus the grants are not consideration for a supply.
Nonmonetary contributions
It is our ruling that the monthly transit passes contributed by the XXXXX and XXXXX to the Program are supplies for no consideration by the transit commissions to the Program. As such, the supply of the transit passes by the transit commissions are exempt pursuant to section 10 of Part VI of Schedule V to the ETA.
It is our ruling that the management services contributed to the Program by XXXXX for no consideration are exempt pursuant to section 10 of Part VI of Schedule V to the ETA.
2. What are the GST consequences to the Program and should it be registered for GST?
Based on the information provided, it is the Department's view that the Program is a person and that the Program is not making taxable supplies. Consequently, the Program is not required to register for the GST.
3. What are the GST consequences to the automobile dealers should they be collecting GST on the full selling price of the vehicle?
No, it is our ruling that the automobile dealers should collect the GST calculated on the net amount paid by the consumer.
Payments to automobile dealerships by the Program
When the dealer sends the Authorization Letter to the Program for a payment equal to twothirds of the monetary value of the redeemed Authorization Letter, it is our opinion that the Program is paying part of the consideration for the supply of the vehicle to the consumer. Since the sale of the vehicle is taxable, the dealer must charge the Program the GST calculated on the consideration it receives from the Program.
4. What are the GST consequences to the persons disposing of their vehicles whether the person is an individual or a registrant?
Nonregistrants
Although disposing of the vehicle is a supply to the Program, it is our ruling that there are no GST consequences to the Program or the nonregistrant individual because that person is not a registrant.
Registrants
Disposing of the vehicle is a supply to the Program and when the person is a registrant and the supply is a taxable, it is our view that the consideration received from the Program in exchange for this supply is the redeemable amount of the Authorization Letter. Therefore, it is our ruling that the registrant must collect and remit the applicable GST from the Program when the registrant redeems the Authorization Letter for the purchase of a new or used vehicle or for the transit passes.
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 transactions for which you requested a ruling.
Explanations
Ruling 1. The monetary contributions qualify as grants under the Department's grants and subsidies policy as described in Technical Information Bulletin B067.
Ruling 2. To conclude whether the Program should be registered for the GST, it must first be determined whether or not the Program is a separate person. Based on the following information which was provided and because of the broad definition of "person" in the ETA, we have concluded that the Program is a separate person as:
1. the Program has the ability to contract in its own name;
2. the Program has its own Steering Committee and Advisory Committee;
3. the Program does not have, to any significant extent, directors, officers, or employees that are common with XXXXX
4. the members of the Program are different from the members of XXXXX
5. the Program enjoys a considerable degree of autonomy in its daytoday operations;
6. the Program raises its revenues from various sources as opposed to receiving funding from XXXXX and
7. Persons do not become members of XXXXX by becoming members of the Program and vice versa.
Authorization Letter
The Authorization Letter is an inducement for agreeing to dispose of a vehicle. Disposing of the vehicle is a supply made to the Program by the individuals and businesses. The recipient of the supply of the disposed vehicle is the Program because it pays the consideration for it (i.e., the Authorization Letter).
The receipt of an inducement has been interpreted by the Department as being consideration for a supply. Pursuant to subsection 153(1) of the ETA, the value of consideration for a supply is deemed to be equal to:
(a) where the consideration or that part is expressed in money, the amount of the money; and
(b) where the consideration or that part is other than money, the fair market value of the consideration or that part at the time the supply was made.
As indicated above, the Authorization Letter is consideration given by the Program for a supply by a person of the vehicle. The value of the consideration is either XXXXX or XXXXX (i.e., the right to a discount on the purchase of a vehicle) or the fair market value of the transit passes.
Ruling 3. The Authorization Letter represents the right to receive a discount of the vehicle sale price. For example, if an automobile dealership sells a used car for $10,000, the dealer collects GST from the consumer based on what the consumer pays as follows:
Selling price of vehicle: $10,000
Less price reduction: (500)
Subtotal: 9,500
GST (7%) 665
Consumer pays: $10,165
As stated previously, when the dealer forwards the Authorization Letter to the Program for a payment equal to twothirds of the monetary value of the redeemed Authorization Letter, the Program is paying part of the consideration for a taxable supply of a vehicle. Therefore, the dealer charges the GST to the Program on the consideration it receives from the Program.
As the remaining onethird of the amount in the Authorization Letter is absorbed by the dealer, there are no GST consequences to this amount. In other words, the dealer does not remit GST on the amount that it absorbs.
Ruling 4. As previously stated, pursuant to subsection 153(1) of the ETA, the value of consideration for a supply is deemed to be equal to:
(a) where the consideration or that part is expressed in money, the amount of the money; and
(b) where the consideration or that part is other than money, the fair market value of the consideration or that part at the time the supply was made.
For example, if the registrant redeems the Authorization Letter for a $750 reduction of the price of a new car which is selling for $10,000, the GST consequences are as follows:
1. The registrant collects GST on $750 from the Program as consideration received for a taxable supply of a service of disposing of the vehicle.
2. The dealer collects GST on $9,250 from registrant which is the $10,000 selling price less the $750 value of the Authorization Letter.
3. The dealer collects GST on $500 from the Program which is part of the consideration paid by the Program to the dealer for a taxable sale of a vehicle.
Note that the amounts charged to the Program by the registrant and the dealer can be treated as taxincluded amounts. Therefore, in the example above, the registrant can choose to treat the $750 as a taxincluded amount, and the dealer can also treat the $500 as a taxincluded amount.
When the registrant redeems the Authorization Letter for monthly transit passes for one year and the supply of disposing the vehicle is taxable, the registrant would collect GST from the Program based on the fair market value of the transit passes.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.
Yours truly,
Susan Eastman
Charities, NonProfit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
| c.c.: |
J.A. Venne
J.M. Place
S. Eastman |
Legislative References: Subsection 123(1) definitions of "business", "commercial activity", "financial instrument", "money", "recipient", "service", "supply"; section 133, agreement as supply; section 135, sponsorship of public sector bodies; section 141.01, subsections 153(1), value of consideration and (3), barters between registrants; subsection 165(1), imposition of tax; section 181.1, rebates; section 24, Schedule V, municipal transit services
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