Section 202

An individual, while registered for GST/HST purposes, acquires a truck exclusively for personal use. Subsequently, the individual commences to use the vehicle as capital property in commercial activities. Is the registrant is entitled to an ITC, and how is it computed?

After noting that “if the vehicle in question is a motor vehicle, the capital rules apply, and if the vehicle is a passenger vehicle, the passenger vehicle rules apply,” CRA noted that, in the latter scenario:

As the passenger vehicle was not acquired for use exclusively (90% or more) in commercial activities of the registrant, the registrant is not eligible to claim regular ITCs on the acquisition.

Later when the registrant begins to use the passenger vehicle in commercial activities he will be eligible for ITCs as described below.

When a registered individual or partnership acquires or imports a passenger vehicle for less than exclusive (ninety percent or more) use in commercial activities, the registrant's ITC is the tax fraction (i.e. 13/113) of the capital cost allowance (CCA) deducted for Income Tax purposes from those commercial activities for that or the subsequent taxation year, as the case may be. The amount allowed for CCA already excludes any portion of the cost of the passenger vehicle or aircraft which is attributable to personal use.

In those cases when a passenger vehicle is used for both taxable and exempt activities, the amount must be prorated according to paragraph 202(4)(b) of the Act.

Regarding the acquisition by a GST registered individual of a passenger vehicle (the "vehicle") for use less than exclusively (i.e., less than 90%) in the registrant's commercial activities, CRA stated:

Generally, subsection 202(4) … provides for an ITC (determined by the formula 'A x B') equal to the tax fraction (7/107) of the CCA in respect of the passenger vehicle or aircraft that was deducted under the Income Tax Act in computing the income of the registrant from those commercial activities for that taxation year of the registrant . …

[A]lthough [s. 202(4)] does not require the registrant to segregate the class 10 vehicle from all other property in that class… it does, however, call for a separate calculation to be made by the registrant (formula 'A x B' discussed above) to determine the correct amount of ITC available on the passenger vehicle. It is therefore our opinion that a separate tracking system may be required … .

The registrant will be entitled to claim an ITC in the year of disposition of the passenger vehicle determined by the formula provided under subsection 202(4) of the ETA for the period in which the vehicle was used in that taxation year in the commercial activities of the registrant. In other words, no ITC will be available to the registrant on the passenger vehicle for the period subsequent to its disposition since the property is no longer used in the registrant's commercial activities.

A registered individual (the "registrant") acquired a passenger vehicle which was used 80% in the registrant's commercial activities, and with the remaining 20% use being personal use of an employee of the registrant which was a taxable benefit pursuant to s. 6(1)(e). CRA found that the registrant was entitled to a full ITC on the acquisition pursuant to s. 202(2) on the basis that the personal use of the passenger vehicle by the employee was to be “considered, in the case at hand, to form part of the registrant's commercial activity by virtue of subsection 173(1)(d) … thereby making the total use of the property exclusively in commercial activity (i.e., 80% commercial activity plus 20% deemed commercial activity), the registrant.” However, the registrant “will be required to remit tax in accordance with subsection 173(1) … on the employee's taxable benefit calculated on the passenger vehicle since the exception under subparagraph (e)(iii) [now, s. 173(1)(d)(iii)] (not exclusively used in commercial activity) will not apply in the circumstance.”