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 Please be aware that any statute or policy referred to in this letter may have been superseded.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-0011, November 2003
Thank you for your facsimile transmission of September 9, 2003 regarding the application of Ontario retail
sales tax (RST) to vehicle leases.
Your letter pertains to a hypothetical situation. The Branch does not provide interpretations concerning
hypothetical situations as the information may not necessarily apply to the transactions of an actual
taxpayer due to possible differences in the taxpayer's situation. However, we are providing you with a
general ruling based solely on the information which you have provided. Please note that this is not a
ruling specific to any one taxpayer.
Understanding of Facts
The situation is as follows:
- Company A and Company B are both incorporated and 100% owned by the same individual.
- Company A owns and purchases automobiles for the purpose of leasing them to Company B.
- Company B, in turn, leases the vehicles to other individuals. Company B does not own or buy any vehicles.
- Individuals could lease the vehicles from Company B to use in a self-employment capacity such as a courier service or taxi service, or the vehicles could be leased by Company B for the general use of the public.
Your specific questions will be addressed in the "Conclusion" section of this letter.
Legislation and/or Administrative Policy
Under subsection 2(1) of the Retail Sales Tax Act (Act) every purchaser of tangible personal property
(TPP) must pay RST on the consumption or use of that TPP. The general rate of RST is 8% on the fair
value.
Under section 1 of the Act, a "purchaser" means a consumer or person who acquires TPP anywhere or
receives a taxable service at a sale in Ontario, for his, her or its own consumption or use, or for the
consumption or use in Ontario of other persons at his, her or its expense.
A sale includes a lease. Charges for the right to use taxable TPP under a lease are subject to RST. A
lease permits the use of TPP, but never passes title/ownership to the user/customer. Under subsections
2(7) and (8) of the Act, RST is remitted by the or lessor on each lease payment as it becomes due.
Only vendors who hold a vendor permit issued by the ministry and a valid motor vehicle dealer's
licence issued by the Ontario Motor Vehicle Industry Council (OMVIC), may purchase passenger cars,
vans and light trucks for resale exempt from RST. Therefore, every purchaser of a motor vehicle who
claims that he is purchasing the said vehicle exempt from RST on the basis that it is being purchased for
resale, must have a valid dealer licence.
Analysis
TPP that is purchased for the purpose of resale/lease is not subject to RST as the goods are not being
purchased to be used or consumed by the purchaser. Purchasers are taxed based on their use or
consumption of TPP or taxable services in Ontario. A vendor who purchases taxable TPP for the purpose
of resale/lease may purchase the TPP exempt from RST by providing the supplier with a properly
completed purchase exemption certificate (PEC). The vendor would then be required to collect and remit
RST on the amount charged to their customer. Vendors who have paid RST on their purchases of goods for resale are not purchasers under the Act and may apply for a refund of tax paid in error.
Conclusion
The following are response to your questions:
(1) Does PST have to be collected by Company A when leasing to Company B?
As Company B is leasing the vehicles from Company A for the purpose of resale (i.e., to lease to
third parties), Company B is not a purchaser under the Act. Company B may claim exemption on
the lease payments from Company A by providing Company A with a valid PEC.
(2) Does PST have to be collected by Company B when leasing to the individuals named above (ie.
Courier drivers, taxi drivers or general public)?
Company B must charge, collect and remit RST on each lease payment as the payments become
due. Company B is required to be registered as a vendor with the RST Branch for the collection
and remittance of RST.
(3) Does PST have to be collected by the courier drivers or taxi drivers in the course of running their
respective businesses?
RST does not apply to charges billed by courier drivers or taxi drivers to ship/transport goods or
passengers.
We enclose RST Guides 204 - Purchase Exemption Certificates, 502 - Rentals or Leases and 512-
Motor Vehicle Dealers for further information.
