10 December 2003 GST/HST Interpretation 41979 - Rebate in Respect of the Purchase of Qualifying Motor Vehicles

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5

File: 11860-1

XXXXX XXXXX

December 10, 2003

Subject:

GST/HST INTERPRETATION Rebate in respect of the purchase of qualifying motor vehicles

Dear XXXXX:

Thank you for your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of your clients as purchasers of vehicles that provide transportation to individuals using wheelchairs. I apologize for the delay in responding to your query. Note that all legislative references are to the Excise Tax Act.

Interpretation Requested

While you have requested a ruling concerning the application of section 258.1, there are no specific transactions under discussion. The concerns expressed in your letter deal with how a supplier arrives at the amount that qualifies as the "certified amount of the purchase price". Based on the information provided by the supplier, the Minister may then pay a rebate to your clients, XXXXX

Although we are not in a position to issue a ruling, we are pleased to provide an interpretation of the provisions of section 258.1 as they apply to the sale of a vehicle in Canada where such a vehicle has been modified or adapted to transport an individual using a wheelchair. We will limit our comments to circumstances where the purchaser/recipient claims the rebate by filing an application for rebate.

Interpretation Given

In order that there be eligibility for rebate, there must first be the supply of a qualifying motor vehicle.

Subsection 258.1(1) defines a "qualifying motor vehicle" as:

A motor vehicle that is equipped with a device designed exclusively to assist in placing a wheelchair in the vehicle without having to collapse the wheelchair and, that, for as long as the motor vehicle has been so equipped has never been used as capital property or been held otherwise than for supply in the ordinary course of business.

Whether a motor vehicle is 'equipped with a device designed exclusively to assist in placing a wheelchair in the vehicle without having to collapse the wheelchair' is a question of fact that must be determined by considering the characteristics of the motor vehicle in question. Generally however, we would consider that a motor vehicle equipped with a ramp that permits an individual using a wheelchair to safely access and exit the motor vehicle would be a "qualifying motor vehicle" (assuming the other conditions have been met).

Subsection 258.1(2) then sets out the circumstances that apply when a qualifying motor vehicle is purchased in Canada. These events include:

•   a registrant makes a taxable sale of a qualifying motor vehicle

•   the recipient has paid all tax payable in respect of the supply

•   the supplier identifies in writing to the recipient a portion of the consideration for the supply that can reasonably be attributed to special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair. The legislation refers to this information as "certified amount of the purchase price."

A concern expressed in your letter is the determination of the certified amount of the purchase price. As previously discussed with XXXXX of your office, it is the supplier who must determine that part of the consideration that can reasonably be attributed to special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair.

The legislation provides for both 'special features incorporated into' and 'adaptations made to'. The common meaning of the term 'special features incorporated' would be that of an integrated or built in distinctive element. 'Adaptation' would have the common meaning of change, alter or make suitable. In addition, the special feature incorporated into or adaptation made to the vehicle must be for the purpose of its use by or in transporting an individual using a wheelchair.

These special features or adaptations could include door access ramps and operating controls, removable/folding seats, systems to anchor the wheelchair, changes to doors and floors to accommodate wheelchairs, etc. In addition, the determination of special features into or adaptations to a vehicle for the purpose of its use by or in transporting an individual using a wheelchair must be decided for each qualifying motor vehicle.

Once the 'special features or 'adaptations' have been identified, the supplier is then in a position to determine that part of the consideration that can reasonably be attributed to the special features or adaptations. The word 'reasonably' would have the common meaning of logically or realistically.

In the case of certain special features incorporated into or adaptations made to the vehicle that are for the purpose of its use by or in transporting an individual using a wheelchair, the consideration that can reasonably be attributed to the special features or adaptations may include the entire consideration that relates to the manufactured product as well as its installation. For example, we would consider the flip out front door ramp as well as the system for deploying the ramp to fall within this category.

However, in other circumstances where there is a special feature or adaptation to a 'common-use' component, the consideration that can reasonably be attributed to the special feature or adaptation may be limited to the incremental amount that relates to the special feature or adaptation to the extent that it is for the purpose of its use by or in transporting an individual using a wheelchair.

In your letter, you take the position that where a component (such as a floor) that is common to all vehicles undergoes a modification for the purpose of transporting an individual using a wheelchair, the total consideration for the 'modified floor' would qualify as an amount that would be included in 'certified amount of the purchase price'. You support your position by referring to section 18.1 of Part II of Schedule VI to the ETA.

In applying the provisions of section 258.1, it is a question of fact whether there is a 'special feature incorporated into ' or 'adaptation made to' as it relates to a particular vehicle. Based on your example of a floor that is made wider to accommodate a wheelchair, we are of the view that this 'widening' could represent either a special feature incorporated into or adaptation made to the vehicle. However, the consideration that should be included in the certified amount of the purchase price is the consideration that can reasonably be attributed to the special feature or the adaptation. In this case, the consideration that can reasonably be attributed to the special feature or the adaptation is limited to the consideration for the increase in floor area.

While the effect of tax relief may vary between the two provisions in question, the circumstances under which the two provisions apply are different. As we understand your clients' circumstances, it is the provisions of section 258.1 that apply.

You have also provided a list of what you consider to be special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair. You have requested that Canada Customs and Revenue Agency (CCRA) confirm that all features/adaptations will qualify for rebate. This is a question of fact that can only be answered by determining whether there is a 'special feature' or 'adaptation' as it relates to a particular vehicle. Notwithstanding, we have reviewed your submission and provided our comments in Appendix A of this document.

After the events described above have taken place, the recipient may then file an application for rebate. It is our position that the recipient is in a position to file an application for rebate only when all the requirements of subsections 258.1(1) and 258.1(2) have been met.

In your letter, you refer to applications for rebate filed by recipients where the supplier has not identified in writing to the recipient that portion of the consideration for the supply that can reasonably be attributed to special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair. Where this requirement is not fulfilled, the legislative provisions have not been met and an application for rebate is not appropriate.

An additional condition is that the recipient must file an application for rebate within four years after the first day on which any tax in respect of the supply became payable. This provision is of special interest where supplies of qualifying motor vehicles are subject to payment arrangements where liability for tax occurs before the total tax is paid or the supply is made.

Subsection 258.1(2) provides, in part, that the Minister shall pay to the recipient a rebate equal to the tax calculated on that portion of the consideration for the supply that can reasonably be attributed to special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair.

After the application for rebate has been filed as required, an auditor (Verification & Enforcement Division of the local Tax Services Office of CCRA) will verify the amount of the rebate to be paid as described in the legislation. This could be evidenced by a copy of the certified amount of the purchase price. In addition, the auditor may confirm with the supplier that the certified amount meets the requirements of the legislation; that is, that it is that portion of the consideration for the supply that can reasonably be attributed to special features that have been incorporated into, or adaptations made to, the vehicle for the purpose of its use by or in transporting an individual using a wheelchair.

Your letter refers to the liability of the supplier and a process that would require suppliers to provide letters of indemnification. As noted above, where the purchaser/recipient claims the rebate by filing an application for rebate, the responsibility of the supplier is to provide information as set out in the legislation. There is no requirement for an indemnification process.

In your letter, you propose that CCRA enter into agreements with suppliers that would permit each supplier to apply a pre-approved percentage of the sale/purchase price that would qualify as the "certified amount of the purchase price". We would expect that the contractual agreements between the suppliers and purchasers would result in different special features, adaptations and certified amounts of purchase price. The legislation recognizes that a supplier, based on its knowledge of its contractual obligations, is in the best position to determine the special features and adaptations that apply to a particular vehicle as well as that part of the consideration that can reasonably be attributed to the special features and adaptations for each qualifying motor vehicle. In addition, it is this particular information that is subject to confirmation by an auditor so that the correct amount of rebate is paid.

At the meeting XXXXX representatives expressed an interest in discussing valuation and filing issues with officials of the Compliance Programs Branch. Sharon Heidinger, Manager, Prepayment Risk Assessment, Audit Program Operations Division, Audit Directorate, is aware of their concerns and may be contacted at (613) 948-6973. Her mailing address is Place de Ville, Tower B, 8th floor, 112 Kent Street, Ottawa ON K1A 0L5.

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 Canada Customs and Revenue Agency with respect to a particular situation.

Should you have further questions or require clarification on the above matter, I may be contacted at (613) 954-4390.

Yours truly,

Suzanne Leclaire
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Appendix A

The following information sets out our position as to the eligibility for rebate for those features and adaptations described in the Appendix to your letter. The numerical references are as set out in your letter. The descriptions are summaries of those provided in your document.

1. Lowered floor

The XXXXX was completely redesigned, including the low floor.

2. Wheel Wells

The front wheel wells were modified (compared to XXXXX bus) to accommodate the low floor of a low floor bus.

3. Front and Rear Axel Assembly and Associated Components

The front and rear axels were modified to accommodate the low floor of a low floor bus.

4. Redesigned Frame or Chassis

The frame/chassis was modified to accommodate the low floor of a low floor bus.

5. Modified Suspensions

The suspension system was redesigned/relocated to accommodate the low floor of a low floor bus.

6. Paneling

The paneling was modified to accommodate the low floor of a low floor bus.

7. Windows

The windows were modified to accommodate the low floor of a low floor bus.

Our comments: Based on the information provided and our understanding of the manufacturing process, the manufacturer designed a low floor bus that incorporated certain characteristics to improve access to the vehicle for all persons. These characteristics are not 'special features incorporated into' or 'adaptations made to' a vehicle for the purpose of its use by or in transporting an individual using a wheelchair. Therefore, no part of the consideration for these design characteristics is eligible for rebate under the provisions of section 258.1.

8. Front Entrance Doors

The front entrance doors were widened to allow for the wheelchair ramp and wheelchair access.

Our comments: The widening of the front entrance qualifies as a special feature or adaptation. The amount that can reasonably be attributed to the special feature or the adaptation is limited to the incremental consideration that relates to modifying/adapting the front entrance to accommodate the wheelchair ramp and wheelchair access.

9. Redesigned Entrance Area

(a) Under this heading, you refer to recessing and refabricating the entry floor to accommodate the wheelchair ramp. In addition, you describe that the front door was widened to accommodate wheelchair access.

Our comments: The recessing/refabricating of the entry floor qualifies as a special feature or adaptation. The widening of the front door qualifies as a special feature or adaptation. The amount that can reasonably be attributed to the special features or the adaptations is limited to the incremental consideration that relates to the recessing and refabricating the entry floor to accommodate the wheelchair ramp as well as the incremental consideration that relates to widening the front door to accommodate wheelchair access.

(b) Under this heading, you also refer to redesigning and relocating the cashbox and driver's seat area to create space to accommodate the wheelchair tie downs.

Our comments: In our opinion, these changes are not 'special features incorporated into' or 'adaptations made to' a vehicle for the purpose of its use by or in transporting an individual using a wheelchair. Therefore, no part of the consideration for these changes is eligible for rebate under the provisions of section 258.1.

Under the heading "Special Features", you list a number of items. The numerical references are as set out in your letter. The descriptions are summaries of those provided in your document.

1 - Lighting - provided above the doorway equipped with the wheelchair ramp.

Our comments: A light that illuminates the wheelchair ramp may qualify as a special feature or adaptation. However, the amount that can reasonably be attributed to this special feature or adaptation is a function of whether there previously existed lighting that illuminated the access and exit of passengers at that location.

2 - Seats and associated components - the seats assembly are fold down and the components consist of chair restraints and passenger tie downs.

Our comments: The folding mechanism of the seat is the special feature or adaptation. The amount that can reasonably be attributed to this special feature or adaptation is limited to the increase in the consideration (material and labour) of providing a folding seat as compared to providing a non-folding (fixed) seat.

The chair restraints constitute a special feature or adaptation. The amount that can reasonably be attributed to this special feature or adaptation includes the material and labour component of both the manufactured product(s) and its installation.

There was no description of 'passenger tie downs, and therefore we are not in a position to provide an opinion.

3 - Exit Signals - located in wheelchair parking area and accessible to wheelchair passengers as well XXXXX, also accessible to wheelchair passengers.

Our comments: The exit signals, as described, constitute special features or adaptations. The amount that can reasonably be attributed to these special features or adaptations includes the material and labour component of both the manufactured products and their installation.

4 - XXXXX

Our comments: XXXXXs ystem is the special feature or adaptation. The amount that can reasonably be attributed to this special feature or adaptation is limited to the consideration for the increase in the consideration (material and labour) of providing the new XXXXX[.]

5 - Visual Signals - a "Stop Requested" message is illuminated when a passenger requests a stop.

Our comments: The visual signals, as described, are not 'special features incorporated into' or 'adaptations made to' a vehicle for the purpose of its use by or in transporting an individual using a wheelchair. Therefore, no part of the consideration for these systems is eligible for rebate under the provisions of section 258.1.

6 - Ramp - a flip out hydraulic ramp to be deployed by the driver from the seated position. It shall flip out at curb height and return back into the recessed floor area.

7 - Driver controls of the ramp - a XXXXX switch on the instrument panel. In addition, the ramp may be manually deployed.

Our comments: The ramp and driver controls, as described, constitute special features or adaptations. The amount that can reasonably be attributed to these special features or adaptations includes the material and labour component of both the manufactured products and their installation.

8 - Power systems - a propulsion system and drive train shall provide power to enable the bus to meet the defined acceleration, top speed and gradability requirement. Sufficient excess power shall be available to operate all accessories.

Our comments: These power systems, as described, are not 'special features incorporated into' or 'adaptations made to' a vehicle for the purpose of its use by or in transporting an individual using a wheelchair. Therefore, no part of the consideration for these systems is eligible for rebate under the provisions of section 258.1.

9 - Kneeling device - a driver-actuated kneeling device shall lower the bus during loading and unloading operations.

Our comments: The kneeling device, as described, constitutes a special feature or adaptation. The amount that can reasonably be attributed to this special feature or adaptation includes the material and labour component of both the manufactured product(s) and its installation.

10 - Brake and throttle interlock - these prevent movement when the bus is placed in a kneeling position.

11 - Indicators: visual and audible devices - These include a visual indicator for the driver and audible warning devices that operate with the kneeling system.

Our comments: The brake/interlock and the visual indicator/audible devices that relate to the kneeling feature constitute special features or adaptations. The amount that can reasonably be attributed to these special features or adaptations includes the material and labour component of both the manufactured products and their installation.

12 - XXXXX

Our comments: XXXXX, as described, constitutes a special feature or adaptation. The amount that can reasonably be attributed to this special feature or adaptation includes the material and labour component of both the manufactured product(s) and its installation.