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The Tax Court of Canada (TCC) recently considered how the GST/HST works in situations where individuals and businesses buy and sell used motor vehicles, and the case is instructive.

In Brian & Deborah Dewan Enterprises Ltd. v. The Queen (2017 TCC 135), the TCC dismissed the appeal of the appellant which failed to collect and remit the GST/HST on disposition of vehicles used in its commercial activities on the mistaken belief that the GST/HST was paid by the purchaser to the Ministry of Transportation (MTO) on registration of the vehicles. 

Businesses which fail to understand the possible interaction of the federal GST/HST and provincial sales tax in certain circumstances, for example, in this case, the Ontario Motor Vehicle Tax (MVT) on disposition of used vehicles, would be put in a disadvantageous position and suffer losses.

The facts in the case are straightforward.  The appellant, a GST/HST registrant, disposed three limousines that had been used in its transportation business.  The appellant did not collect and remit the GST/HST on the sales of the limousines because it believed that the GST/HST was paid directly by the purchaser when the purchaser paid a tax of 13% upon the registration of the limousines at the MTO.  Furthermore, as the appellant’s sales document did not show (a) its GST/HST registration number and (b) that the GST/HST was paid on the sold vehicles, the MTO assumed that the transaction was a private sale between non-registrants and, therefore, charged the purchaser the MVT upon the registration of the vehicles.  The appellant was assessed by the CRA and it appealed to the TCC.

The TCC said that the provisions in the Excise Tax Act (ETA) are clear -- the appellant was deemed to have made a supply when it disposed of the limousines which were acquired for use in its commercial activities and should have collected and remitted the GST/HST on the sale of the limousines (s.141.1(1) and s.221 of the ETA).  Although the TCC was sympathetic to the appellant’s situation (as the appellant remained liable to remit the GST/HST which should have been collected from the purchaser and the purchaser was not being eligible for input tax credits as it did not pay GST/HST on the transaction), the TCC had no choice but to dismiss the appeal. 

The TCC, however, went on to explain the interaction of the GST/HST and the MVT, which many find to be confusing as both taxes have an identical rate of 13%.  The TCC emphasized that these two taxes are under different tax regimes and operate separately.   Although there is an exemption to a purchaser of a used vehicle when the taxable supply is made by a GST/HST registrant (Ontario’s Retail Sales Tax Act sections 4.2(1.1) & 4.2(4)(b.1)(i)), the TCC said that issues often arise when the sales invoice does not show that the vehicle is sold by a person who is a GST/HST registrant. As pointed out by the TCC, as the appellant’s invoice was inadequate, the purchaser was not relieved from paying the MVT.  The TCC further pointed out that if the MVT is erroneously paid, the purchaser may ask the MTO for a refund provided certain conditions are met; however, based on the facts available, the TCC was uncertain as to whether these conditions could be met.

Commercial businesses buying and selling used vehicles either need to get on top of these technical rules, or pay for the legal advice to figure them out.   An ounce of prevention is worth a pound of cure!

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