9 November 1994 External T.I. 9426525 - STANDBY CHARGE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

	In a situation where an employer purchases an automobile 	while taking credit for a trade-in, is the provincial 	sales tax based on the gross purchase price of the new 	automobile or is that base reduced by the value of the 	trade-in.

Position TAKEN:

	The cost base for the calculation of the provincial 	sales tax is net amount after taking into account the 	trade-in.

Reasons FOR POSITION TAKEN:

	In each provincial and territorial jurisdiction the 	retail sales tax legislation provides for the use of a 	trade-in to reduce the cost base for PST purposes.

		942652
XXXXXXXXXX	J.A. Szeszycki

Attention: XXXXXXXXXX

November 9, 1994

Dear Sirs:

Re: Standby Charge - Provincial Sales Tax

This is in reply to your letter of October 14, 1994 in which you requested our views as to the amount of the provincial sales tax that forms part of the cost to the employer of acquiring an automobile, for standby charge purposes. In particular, your concern is specific to situations where an employer trades in a used vehicle for another automobile.

The cost to the employer of acquiring an automobile, for purposes of the standby charge calculation under subsection 6(2) of the Income Tax Act, includes the provincial sales tax in respect of the purchase. In situations where another vehicle is provided in trade, on account of the purchase price of the automobile, it is our understanding that the provincial sales tax payable is based on the net sales price, after taking into account the value of the trade-in vehicle.

On the assumption that each province and territory that has sales tax legislation in place has, as you have indicated, a provision such as the one described, a standby charge calculation program designed to use the actual sales tax computed on the net amount of the transaction would be appropriate.

We hope our comments will provide the assistance you require.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch