23 December 1998 GST/HST Interpretation HQR0001463 - Application of Goods and Services ("GST") and Harmonized Sales Tax ("HST") Repairs of Leased Vehicles and Insurance Claims

Dear XXXXX

Thank you for your facsimile of November 24, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the scenarios described in your letter.

Our understanding of the facts, as stated in your letter, are as follows:

An automobile lessor leases automobiles to individuals, who may be unregistered for GST/HST purposes. The lease agreement provides that the lessee is responsible for repairs and maintenance to the vehicle at their own expense. Also, pursuant to the lease, lessees are required to name the lessor as an additional insured or "loss payee" on the insurance policy.

Interpretation Requested

You have presented the following two scenarios regarding the GST/HST implications of repairs effected to vehicles by individuals unregistered for GST/HST purposes and the payment for such repairs by insurers.

1. In the first scenario, it is proposed that an insurer pays the repair bill net-of-GST under the assumption that the GST/HST would be recoverable by the lessor.

2. In the second scenario, the insurer pays the total repair costs including the GST/HST to the repair shop, and subsequently proposes to invoice the lessor for the GST/HST portion. This also appears to be based on the assumption that the lessor is entitled to recover the GST/HST.

You have reached the following conclusions in response to the preceding scenarios and you have requested that we confirm the positions you have taken:

1. In accordance with Revenue Canada's interpretation, to the extent the contractual relationships and procedures would support it, a lessor of vehicles could be the recipient of the repair services, enabling the insurer to pay the claim net of GST to the lessor. However, consistent with the lessee accepting responsibility to repair the vehicle at his/her own expense, the lessor is generally not invoiced by the supplier of the repair services. In light of this, it does not appear that in these circumstances the lessor could be regarded as the "recipient" of the repair services according to the definition for GST/HST purposes by virtue of being the co-insured or loss payee on the insurance policy. If it is not the recipient, it is not entitled to claim an ITC for the GST payable.

2. With respect to this query whereby the insurer would pay the repair costs directly and subsequently invoice the lessor for the GST/HST portion, it would appear that the insurer is requesting a reimbursement of the GST/HST cost incurred by them. Presumably, the insurer would not remit any GST/HST paid by the lessor. Accordingly, the reimbursement of GST/HST by the lessor to the insurer would not be recoverable as an ITC as the lessor was not the recipient of the supply who acquired the repair for use in its commercial activities.

Interpretation Given

Based on the information provided, we confirm that we are in agreement with your analysis and your conclusions with respect to the two scenarios described above.

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) 952-9577 or Duncan Jones at (613) 952-9210.

Yours truly,

Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch