8 March 2004 GST/HST Interpretation 47842 - Rental of an Automobile for Band Management Activities

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

This is in response to XXXXX e-mail XXXXX regarding the subject matter. In his e-mail, XXXXX asked whether an Indian band could claim a code 8 rebate under section 261 of the Excise Tax Act (ETA) to recover the GST/HST included in a reimbursement paid to a band official to cover the rental of an automobile off reserve while on travel status for band management activities. On October 6, 2003, we advised XXXXX, via an e-mail that it could. We indicated that a more detailed response on this issue would be provided XXXXX in writing. XXXXX forwarded our e-mail on to the Aboriginal Sector Specialists in the field offices.

The position taken in response to XXXXX enquiry was based on the view that the rental of an automobile by an Indian band or band-empowered entity (BEE) would be treated as the acquisition of a transportation service for purposes of Technical Interpretation Bulletin (TIB) B-039R - GST Administrative Policy - Application of GST to Indians. Therefore, as in the case of other transportation services acquired off reserve, an Indian band or BEE would be required to pay GST/HST on the off-reserve rental of an automobile. The Indian band or BEE would then be entitled to recover the GST/HST paid on the rental of the automobile through the claiming of a code 8 rebate provided that its rental was for band management activities and all other conditions set out in B-039R were met. This view was adopted despite the fact that for purposes of the ETA, section 136(1) of the ETA deems a supply by way of lease, licence or similar arrangement (i.e., the rental of an automobile) to be a supply of tangible personal property.

The decision to treat the rental of an automobile as a transportation service for purposes of B-039R was based on the idea that this type of expense is commonly incurred by band officials or employees in their performance of the duties of the office or employment. It also ensures that all modes of transportation (e.g., air, bus, train, taxi) acquired by Indian bands and BEEs for band management activities off reserve are afforded equal treatment.

In our view, the GST/HST treatment afforded to Indian bands and BEEs on the rental of an automobile can be differentiated from that given on the lease of an automobile under GST/HST Policy Statement P-230R - Application of the Excise Tax Act (ETA) to Leases, Licences and Similar Arrangements of Tangible Personal Property by Indians, Indian Bands and Band Empowered Entities. As an automobile is tangible personal property, P-230R provides tax relief to Indians, Indian bands and BEEs on all lease intervals for the duration of the lease provided the first possession of the automobile is given on reserve and all other requirements set out in B-039R are met.

Generally, the term of a lease is, for example, long-term in nature (e.g., 3 years). The rental of an automobile, on the other hand, is normally for a short period of time (e.g., daily; weekly). In addition, an automobile rental company holds fleet insurance to cover potential damages to all of its rented automobiles. Whereas under an automobile lease agreement, it is the lessee who assumes insurance liability for the automobile. Further, while an option to purchase is generally made available under an automobile lease agreement, it is not made available under an automobile rental agreement.

For the reasons described above, it is our position that the rental of an automobile off reserve by an Indian band or BEE for band management activities will qualify for tax relief by way of a rebate under code 8 provided the conditions set out in B-039R are met.

Following the response provided to XXXXX initial enquiry XXXXX, XXXXX of XXXXX Rulings asked if the normal two-year period applied with respect to the claiming of a rebate for GST/HST paid by an Indian band or BEE on the rental of an automobile that was acquired for band management activities. In response to that question, we advised that the normal two-year period for claiming a general rebate under section 261 of the ETA would apply. That is, the two-year time limit to claim a rebate under code 8 would commence from the time when the Indian band or BEE reimburses or pays an allowance to a band official for travel expenses.

Should you have any questions or require clarification, please call me at (613) 954-7952.