Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 140603
Dear [Client]:
Subject: GST/HST RULING
Obligation to pay GST on payout under lease agreement
Thank you for your fax of [mm/dd/yyyy], and the supplemental documents, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the final payout for a leased vehicle that had been damaged in an accident. We apologize for the delay in responding to your ruling request.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand from your fax, the vehicle lease agreement, the lease worksheet, the emails exchanged between yourself and […] (the dealership), the automobile proof of loss form and the bill of sale between yourself and the insurer that:
1. Your wife, […], leased a car from the dealership in […][City 1, Province 1].
2. The vehicle lease agreement shows that the vehicle was leased for “personal, family, household” use.
3. The vehicle lease agreement required you to acquire insurance for the leased vehicle and name the dealership as an additional insured and loss payee where possible under the applicable insurance. The vehicle lease agreement also required you to assign to the dealership any monies paid under the insurance, […].
4. The vehicle lease agreement refers to your […] obligation to pay for the vehicle in the event of […] constructive total loss of the vehicle.
5. The car was damaged in an accident […] and was written off.
6. An “Automobile Proof of Loss” claim form was completed showing the insurer as […], and you as the insured. The form states, “[…] The amount claimed should be net of recoverable GST.” It asks “Is the insured registered for GST? Yes .. No..” This part of the form was left blank.
7. The “Automobile Proof of Loss” claim shows:
* total amount of loss or damage: $[…][X]
* deductible: $[…][Y]
* total amount claimed in respect to the loss or damage is: $[…][X-Y].
8. The amount: $[X] is shown on the lease worksheet, […], as “leased vehicle price”, which does not include the GST.
9. A Bill of Sale was completed showing the insurer as acquiring and you as the “Seller” of the automobile […].
10. The insurer sent a compensation cheque, which was made out to both you and the dealership in the amount of $[X-Y].
11. You endorsed the cheque and forwarded it to the dealership for their signature and division of the insurance proceeds between you and the dealership.
12. […]
RULING REQUESTED
You would like to know if there is an obligation to pay GST for the remaining balance under this lease agreement at the time of the final payout.
RULING GIVEN
Based on the facts set out above, we rule that there is an obligation to pay GST on the final payout under this lease agreement.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
As there are no provisions to exempt or zero-rate the supply of the vehicle by the dealership this is a taxable supply subject to GST. Section 165 of the ETA imposes a tax on every recipient of a taxable supply and pursuant to subsection 221(1), the person making the supply (i.e. vendor) is responsible for collecting the tax.
The vehicle was transferred by you to the insurer as part of the insurance settlement. Where an insured person is not eligible to claim an ITC or a rebate, the amount paid by the insurer to settle the insurance claim under the terms of the insurance policy generally includes an amount in respect of the GST/HST portion paid by the insured person.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8531. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Corinne Campbell-Rosser
Insurance and ITC Allocations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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