23 June 1999 GST/HST Interpretation HQR0001553 - GST/HST Implications for Leased Vehicles

Dear Sir:

This letter is to clarify our position given in our letter of December 24, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the application of tax on leased vehicles and vehicle trade-ins. Our letter was in reply to your fax of July 22, 1998.

Interpretation Requested

Example 3 dealt with a situation where the dealership refunds to the lessee an amount in cash to bring the Leasing Depreciation Value to zero. You requested information on how the GST/HST would be calculated in those cases.

Our previous response, concerning this particular situation, was as follows: The charge made by the dealership to XXXXX would be the net value of the vehicle plus the cash payment made to the customer. This amount is the sale price of the new vehicle by the [dealership] and would be the value on which tax is computed on the transaction with XXXXX[.]

Interpretation Given

Our previous comments with respect to the transaction from the perspective of XXXXX and the transaction remains unchanged.

Dealership Tax Calculation

In situations where the leasing depreciation value is negative, the Department will permit the negative Depreciation Charge to be used to reduce the GST/HST base to an amount equal to, at minimum, nil. As a result, when a dealership leases a vehicle to a customer, the tax calculation could appear similar to the following:

•   Calculation of lease payment for GST/HST purposes only

•   The amount of the cash advance on the trade-in is not added when determining the Adjusted Capital Cost, and therefore does not form part of the Finance Base or the Depreciation Base.

Basic Information

We apologize for any inconvenience that may have arisen due to this additional information.

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/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8812.

Yours truly,

Isabelle Breault
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate