Equipment Rentals with or without an Operator

Notice to the reader: For Retail Sales Tax (RST) – On July 1, 2010 the 13 per cent Harmonized Sales Tax (HST) took effect in Ontario replacing the existing provincial Retail Sales Tax (RST) and combining it with the federal Goods and Services Tax (GST). As a result, RST provisions described on this page and in other publications ended on June 30, 2010.

Effective July 1, 2010 this publication was archived for RST purposes only. Use caution when you refer to it, since it reflects the law in force for RST at the time it was released and may no longer apply.

Information and Disclaimer

This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter LR-0004, October 2000

Thank you for your letter of September 27, 2000 inquiring about the application of Ontario retail sales tax (RST) on equipment rentals with or without an operator.

Understanding of Facts

It is our understanding that your company, Company A, has purchased audio-visual equipment for rental purposes. Company A would like clarification as to how RST applies in the following scenarios:

Is RST due on the purchase of the audio-visual equipment?
Is RST payable by the customer, if equipment is rented with an operator?
Is RST payable by the customer, if the equipment is rented without an operator?
If Company A receives a Purchase Exemption Certificate from a customer, how does it affect the scenarios in 1. through 3.?

Before addressing your specific enquiries, we would like to clarify a point stated in your letter, i.e."Company A was issued a "PST Exemption #". The Retail Sales Tax Branch does not issue exemption numbers. The number you are referring to is a Vendor Permit number. As a vendor, you may purchase items for resale exempt of RST by issuing your supplier a properly completed purchase exemption certificate (PEC).

Legislation and/or Administrative Policy

The rental of equipment with an operator is the provision of a non-taxable service. Therefore, where the equipment operator remains to run or operate the equipment, no RST should be applied to the rental. The provider of a non-taxable service must pay RST on all equipment, materials and taxable services purchased to provide the service.

Where equipment is simply rented, without an operator running the equipment, RST would apply to the rental charges as stated under paragraphs 2(7)&(8) of the Ontario Retail Sales Tax Act (Act):

(7) Notwithstanding subsection (6) and section 12, where a purchaser,

rents or leases from any person any taxable service at a sale in Ontario; or
acquires tangible personal property at a sale that is the lease or rental to the purchaser of such tangible personal property without provision for the transfer to the purchaser of title thereto, or with the provision of such transfer only upon the exercise of an option or similar right to acquire such tangible personal property, the tax imposed by this section shall be computed, paid and collected on the due date of, and on the fair value of the consideration given in payment of, each rental payment by or on behalf of the purchaser in respect of the lease or rental of such taxable service or tangible personal property, and tax shall, in addition, be computed, paid and collected at the time of, and on the fair value for, each of the obtaining of any option or similar right to purchase the tangible personal property leased or rented or the exercising of any such option or similar right.

(8) For the purposes of subsection (7), tax at the rate of 8 per cent shall be computed, paid and collected on the due date of any payment to be made on or after the 2nd day of May, 1988.

Analysis and Conclusion

With respect to audio/visual equipment purchased for rental with or without an operator, one must look at the primary use of the equipment.

If the rental of the audio/visual equipment is rented primarily without an operator, then Company A may purchase the equipment exempt from RST by providing their supplier with a properly completed PEC. RST must be collected from Company A's clients on the rental charges unless the client provides Company A with a PEC. If Company A's client does provide a PEC, then no RST is to be charged on the rental.

If this same equipment is also used by Company A to render a non-taxable service (i.e., rental with an operator), Company A must account for RST on their cost to use the equipment at that time (i.e., regular rental charge without an operator less mark-up).

However, if audio/visual equipment is rented primarily with a technical operator, RST is not to be applied to the client's rental charges since Company A is providing non-taxable service. RST is required to be paid by Company A on the equipment at the time of purchase even if this same equipment is occasionally rented without an operator.