I have been asked if a corporate owner can have a special collector car as an investment in a company. It would be held for one year and the anticipated profit is about $50k. I didn’t like the idea at first but he is buying it new, not driving it and selling it a year later. He is not a car dealer.
The only downside that I could come up with is that he may have to charge GST on the sale which could deter buyers… He does not have a GST number at this time as it is an investment corporation but I feel that he would need one as the profit is planned to be > $30k.
Does he have to charge GST? (no PST in Alberta). Everything online deals with GST for “Dealers” but I feel like there may need to be a CRA opinion on this.
Any downside to holding within a Corporation?
Both personal and corporate would result in a capital gain (personal on LPP)… I believe.
Registering for GST depends on Sales in excess of $30,000, not Profit of $30,000. However if he does not have sales in excess of $30,000 prior to selling the car he still won’t be registered and would not collect GST.
If it is truly a corporate investment, then the OWNER shouldn’t HAVE it - the car should be owned by the corporation (legal title, registration, etc). However, I suppose there is a way around that - a trust declaration for beneficial ownership, such as discussed here:
As long as the shareholder doesn’t benefit from it (personally), there shouldn’t be an issue. However, if the owner purchases it personally (without corporate funds), he may be able to sell it as a used, personal vehicle, and there would be no income tax on the profit.
If the sale price is over $30K he would exceed the threshold within a single quarter and must register immediately and charge GST/HST on the transaction that put him over the threshold.
I don’t no about that…
@jimt
You mean you don’t “know” about that? LOL
Perhaps I should clarify - if the owner isn’t normally buying and selling cars for profit, and this purchase was not intended solely to earn a profit, and he used personal funds to purchase it, with the intent to use it for himself, then it is personal property like a bicycle or a toaster. You don’t report your profit from selling those kinds of personally owned items.
On the other hand, from what @dawna777 has said, this was NOT such a personal purchase…
@neezer I believe you are mistaken. Read up on Personal Use Property.
Ooops! I stand corrected. Now that you point it out, I do remember that from tax class years ago, but I guess I forgot, since most personal use property doesn’t gain in value.
Thanks for setting me straight @jimt @jleventakis
Anyone can register for GST. The #30k threshold is for mandatory registration.
Can the company register for GST before buying the vehicle? That way they could claim an ITC on the purchase and then remit the GST when sold netting out to only really paying the difference.
The only downside would be that the company would have to continue to file GST returns. But either way the company would have to register to it may as well register before buying the vehicle to get the ITC.
Thanks to all for the input. I found it an interesting situation.
Yes the company could register for GST to claim the GST ITC but my concerns were many… the GST could deter buyers, what happens if the car is sold to someone outside of Canada, etc. It was an interesting exercise but in the end, the owner decided to keep it in his own name and claim the gain on his personal tax.
This forum is interesting for these types of water-cooler subjects… especially when you work from home and don’t have anyone other than Google to bounce things off of.
This is incorrect. When exceeding the $30K threshhold in any four consecutive calendar quarters registration is required FOR THE NEXT quarter, not the one(s) or transaction(s) in the past.
That’s correct for the rolling quarter provision. But there is a second provision whereby if you hit $30k in a single quarter you must register effective the date of the transaction that put you over the $30k in the single quarter. And since the sale is over $30k, they would meet the second provision.
Right you are…forgot about that! It doesn’t come up very often (never for me, anyway). Most orgs are already registered.
If the buyer treats this as an investment, instead of a depreciable property, then I don’t think GST will apply, because this is not normal commercial activity of the CCPC. Unless you argue that this is a CCPC usually engages in investment activity, but that would mean, you are not going to be tax on capital gain, it would be ordinary business income, which I don’t see why would someone do that?
investments have capital gains and losses.
Its tricky because it is an investment company… but the vehicle would be a taxable supply therefore you would be required to charge GST even though it is an investment.
If that’s the case, individual owning antique and selling them would be subject to GST too then, would it not? And there will be no capital gain treatment for those sale