15 September 1997 GST/HST Interpretation HQR0000650 - Application of the GST/HST to the Supply of Lease Payments of Specified Motor Vehicles Made Outside Canada

Thank you for your letter of April 16, 1997 , addressed to Mr. Les Jones, concerning the application of the Goods and Services Tax ("GST") and Harmonized Sales Tax ("HST") to your operations.

Interpretation Requested

What are the GST/HST place of supply rules for specified motor vehicles ("S.M.V.") which are leased to a Canadian registrant by a registrant?[Application of the GST/HST to the Supply of Lease Payments of Specified Motor Vehicles Made Outside Canada]

Interpretation Given

Supply of S.M.V. Made Outside of Canada

Paragraph 142(2)(b) of the Excise Tax Act ("ETA") deems a supply of tangible personal property to be made outside Canada if in the case of a supply otherwise than by way of sale, possession or use of the property is given or made available outside Canada to the recipient of the supply. Therefore, GST/HST, in particular subsection 165(1) and (2) of the ETA, does not apply to a supply of lease payments for a S.M.V. which is deemed to be made outside Canada under paragraph 142(2)(b) of the Act for the entire period of the lease even if the S.M.V. is subsequently imported into Canada during a lease interval. Although section 136.1 of the ETA, deems each lease interval to be a separate supply, possession of the S.M.V. is given or use of the S.M.V. is made available only once under the lease agreement. This point in time is at the beginning of the lease and does not change during the lease.

Supply of S.M.V. Made in Canada

Paragraph 142(1)(b) of the ETA deems a supply of tangible personal property to be made in Canada if in the case of a supply otherwise than by way of sale, possession or use of the property is given or made available in Canada to the recipient of the supply. If a supply by way of lease of a S.M.V. is made in Canada under paragraph 142(1)(b) of the ETA, then subsection 165(1) of the Act would apply to all lease intervals under the lease agreement, even if the S.M.V. is subsequently taken out of Canada during any lease interval. The reason for the above treatment is that even though each lease interval is a separate supply under section 136.1 of the ETA, in order to determine the place of supply of the lease, we must refer to the place where the possession of the S.M.V. was given or the use of it was made available. In the situation at hand, this place is in Canada. This location remains fixed for the purposes of section 136.1 of the ETA.

Supply of S.M.V. Made in a Province

The following analysis is provided to determine if a supply by way of a lease of a S.M.V. that is made in Canada, is made in a province.

Pursuant to section 144.1 of the ETA, a supply made in Canada is considered to be made in a particular province if it is determined under the rules of Schedule IX to the ETA to be made in that province. If the rules in Schedule IX to the ETA do not apply to deem the supply to be made in a particular province, it is deemed to be made outside that province. Furthermore, a supply made in Canada that is not made in a participating province is deemed to be made in a nonparticipating province.

Pursuant to section 2 of Part II of Schedule IX to the ETA, a supply of tangible personal property, otherwise than by way of sale, is made in a province if:

(a) in the case of a supply made under an agreement under which continuous possession or use of the property is provided for a period of no more than three months, the supplier delivers the property or makes it available in the province to the recipient of the supply, and

(b) in any other case,

(i) where the property is a S.M.V., it is required, at the time the supply is made, to be registered under the laws of the province relating to the registration of motor vehicles.

A "specified motor vehicle" is defined in subsection 123(1) of the ETA. This definition enumerates a number of tariff items under Schedule I to the Customs Tariff. Goods that are, or would be if they were imported, classified under these tariff headings (other than racing cars) are defined as S.M.V.

A supply by way of lease, licence or similar arrangement of a S.M.V., under which continuous possession or use is to be provided for greater than three months, is regarded as made in the province in which the vehicle is required to be registered, under the laws of the province relating to the registration of motor vehicles, at the beginning of each lease interval (as described in section 136.1 of the ETA).

To summarize, if a supply of a S.M.V. is made in Canada under paragraph 142(1)(b) of the ETA and made in a participating province under section 144.1 of the Act, HST would apply at the rate of 15% in accordance with subsections 165(1) and 165(2) of the Act.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

Should you require further information concerning the above, please feel free to contact me at (613) 952-0419.

Michèle Routhier
A/Policy Officer
Border Issues
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch