9 June 2000 GST/HST Ruling 30326 - Subvention Payments Relating to Leasing of Motor Vehicles

Dear XXXXX

Thank you for your letter of February 29, 2000 with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

XXXXX have entered into a "subvention program". A subvention program is a program pursuant to which XXXXX pays XXXXX to provide leases to lessees with a monthly lease payment that is lower than would otherwise be offered to the lessee by XXXXX.

The "subvention amount" is the difference between (i) the present value of the monthly lease payment and the Residual Value under the lease, where the present value is calculated using the Bar Rate and (ii) the present value of the same monthly lease payments and Residual Value, where the present value is calculated using the Program Rate.

XXXXX will invoice XXXXX once per month for all the subvention amounts for all leases funded during the prior calendar month. Invoices will be due six days after the invoices have been received by XXXXX[.] The subvention payment reflects a payment with respect to the lease of an automobile by a lessee at a rate, which is below normal market rates.

Ruling Requested

You are seeking a ruling with respect to the application of the GST/HST to subvention amounts paid to XXXXX by XXXXX or by XXXXX under a subvention program.

Ruling Given

Based on the facts set out above, we rule that GST/HST is not payable in respect to subvention amounts paid to XXXXX by XXXXX under a subvention program, since it is a payment of money as interest in respect of a financial instrument and, accordingly, an exempt financial service pursuant to ETA paragraph 123(1)(f) of the definition of "financial service".

We also rule that in the event the subvention amounts are paid by the XXXXX XXXXX to XXXXX, it would still consist of a payment of money as interest in respect of a financial instrument, only if the XXXXX and XXXXX are parties to the subvention program agreement.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST 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 our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 941-2046.

Yours truly,

Nathalie Joly
Financial Institutions Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

This letter is not to be used as a reference. For further direction, please contact the Financial Services Unit of the GST/HST Rulings Directorate.