My client is an HST Registrant & recently financed a car. The Invoice shows the full amount of HST charged however he paid a small portion of down payment & now regularly paying for 84 months Amortization program. He insists to claim the whole amount charged but I say to claim HST only on the part of payment he paid till Dec 31, 2019. Can he claim the whole HST one time before fully paying all the instalments.
“My client is an HST Registrant & recently financed a car. The Invoice shows the full amount of HST charged however he paid a small portion of down payment & now regularly paying for 84 months Amortization program. He insists to claim the whole amount charged but I say to claim HST only on the part of payment he paid till Dec 31, 2019. Can he claim the whole HST one time before fully paying all the instalments.”
It sounds to me that you are going to need to read the entirety of client’s contract in detail to determine precisely what the legal contract entails, which will, of course, require at least some fundamental working knowledge of contract law, to determine the terms and provisions of ownership etc.
Also, as you know, “financed” is not a matter taxed by the Excise Tax Act.
In addition, you mentioned “a car” - IMHO, caution should be exercised, since there are also a whole lot of other rules governing “a car”, so it is quite possible that none of the HST is ever legally claimable, or only part, notwithstanding that the individual may be a GST registrant.
I assume your client is a business, and the business purchased the car as an asset. As such, I would consider the usual conditions that need to be met for the transaction to be recorded in the business records. Did the business take possession of the asset? Is the asset cost recorded in the business records? Is the financing liability recorded in the business records? Is it likely that the business will complete its payment obligations (i.e. the business is not intending to default on the financing)? If so, I would say an asset was fully “acquired” as of that date, and the business should record the full GST paid.
Whilst I can see that you are helpfully “trying to make an easy explanation” for the bookkeeper, please take note that contract law does not hinge on “assume”.
Also, neither does either contract law or Statutory law (ETA) hinge on whether or not a bookkeeper/client recorded the asset or the liability in the bookkeeping records, but rather the reverse.
It may be a matter of choice or a matter of opinion whether the color of the car (passenger vehicle) is a good color or not, or whether the seats are comfortable or not, but the legal status of the car as to legal ownership or as to legal tax status is a matter of law.
Here we might speculate about what the legal documents may say; we might speculate about the probable size of the cost of the passenger vehicle; we might speculate as to what usage it may be put; but that is what it is - speculation.
Thanks Joe & Nezzer.
First of all I would like to thanks both Joe & Nezzer for their valuable comments.
In view of Joe concern about the element of “Financed”, I would say that
- The car was purchased in order to carry on the business which plays the major role in earning income.
- The Purchase document clearly shows the HST number of the seller & the entity is a registered member of the car dealers association.
- The amount of HST has been separately written against the price of the car.
- There is a valid contract of sales & purchase.
- The buyer is also an HST registrant.
- The ownership has transferred to the buyer & he will be claiming the CCA accordingly.
- The seller has received full GST from the third party & it will be included in his Sales & would be
remitted to the CRA.
So based on all above, I would agree that HST has been paid by buyer or on behalf of the buyer & may have been remitted by the seller. Now the buyer has to be adjusted accordingly to claim ITC. So if the seller has paid the HST to CRA then buyer has also the right to claim the same as ITC.
Thanks again Joe & Nezzer for your time & very valuable suggestion.
It depends on the business usage percentage. If it is more than 90% or less than 10% or between. Also, for corporations there is another threshold of 50%.
To be summarized, for businesses with more than 90% business use for passenger vehicle, you can claim full ITC on the year of acquisition. For less than 10% business use, you cannot claim any ITC. For between 10 and 90 percent business usage, in each year you can put an ITC amount according to CCA for that year.
For more info you can check this link that has very good explanations for each case.
Please check these two links for more info.
Link one: Taxtips ITC for vehicles
And link two: GST Memorandum 8-2
Thanks, good to know such a quick evaluation from everyone.
Is the vehicle class 10 or 10.1?
The GST or HST input tax credit or rebate is generally limited to the GST or the HST payable on the threshold amount ($30,000).
Thanks Helga, It’s class 10. Is the $30,000.00 threshold restricted to Leased car or Financed car too.
“Is the $30,000.00 threshold restricted to Leased car or Financed car too.”
- It sounds like you may not be quite getting the legal ramifications of contracts. A contract of lease is not a contract of sale (at least, not at that time, since it may contain conditional clauses). Hence, a lessee is not the owner.
“Is the vehicle class 10 or 10.1?
The GST or HST input tax credit or rebate is generally limited to the GST or the HST payable on the threshold amount ($30,000).”
Hopefully an awareness of Section 327 will encourage the taxpayer to only want to claim the allowed amount when the annual report is checked (professional standards require the CPA to check on such things whatever the type of engagement)… CRA plays with real bullets…
" 327 (1) Every person who has
(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, application, certificate, statement, document or answer filed or made as required by or under this Part or the regulations made under this Part,
(b) for the purpose of evading payment or remittance of any tax or net tax payable under this Part, or obtaining a refund or rebate to which the person is not entitled under this Part,
(i) destroyed, altered, mutilated, secreted or otherwise disposed of any documents of a person, or
(ii) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular in the documents of a person,
(c ) wilfully, in any manner, evaded or attempted to evade compliance with this Part or payment or remittance of tax or net tax imposed under this Part,
(d) wilfully, in any manner, obtained or attempted to obtain a rebate or refund to which the person is not entitled under this Part, or
(e) conspired with any person to commit an offence described in any of paragraphs (a) to ©,
is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to
(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax or net tax that was sought to be evaded, or of the rebate or refund sought, or, where the amount that was sought to be evaded cannot be ascertained, a fine of not less than $1,000 and not more than $25,000, or
(g) both a fine referred to in paragraph (f) and imprisonment for a term not exceeding two years."
Thanks, Today I also enquired from CRA HST line & they indicated that if the ownership is transferred to the HST registrant then the amount charged as HST on price of the car can be claimed to the full extent as per percentage of business usage of the car as ITC.
Thanks to all for your valuable contribution.