GST/HST and automobiles

Passenger vehicles that cost more than a prescribed amount (currently $30,000, net of PST and GST or HST) are included in a separate depreciable class identified as Class 10.1. For such vehicles, the ITC is limited to the tax on $30,000, excluding PST and GST or HST. Upon the subsequent sale of a Class 10.1 vehicle, it may be possible to recover a portion of the unclaimed GST/HST.

Special rules apply to GST/HST-registered sole proprietors and partnerships where the vehicle is used less than 90% in a commercial activity. In such cases, GST/HST is recovered based on annual deductible capital cost allowance (CCA) claims. Upon the subsequent sale of the passenger vehicle, it may be possible to recapture a portion of the unclaimed GST/HST.

The GST/HST must also be considered if a vehicle is sold or traded in. The rules differ depending on the status of the vendor. Is the vendor registered for the GST/HST? Is the vendor a corporation, a sole proprietor or a partnership? Was the vehicle used exclusively in a commercial activity? Your tax adviser can help you avoid any pitfalls in this regard.

GST/HST also has to be considered if you provide your employees with vehicles for their personal use or pay for any of their vehicles’ operating expenses. If your company is a GST/HST registrant, the resulting taxable benefit is deemed to be a taxable supply and GST/HST must be remitted on the benefit amount. Your company must remit the tax on its GST/HST return that covers the last day of February each year. The GST/HST with respect to vehicles provided to shareholders who are not employees must be reported on the GST/HST return that includes the last day of the taxation year.

How much do you owe?

The GST/HST to be remitted for automobile benefits is calculated by a formula that varies with the nature of the benefit and whether the employee or shareholder who is being taxed on the benefit works or lives in a participating province.
The remittance for 2016 is calculated as follows:

2016 standby charge and operating cost benefit Standby charge Operating cost benefit
GST provinces12 4/104 3%
Ontario 12/112 or 4/104, 6/106 or 8/10813,14 9%/7.2%13
Quebec – GST 4/104 3%
Quebec – QST 9.975/109.975 6%
Prince Edward Island 13.25/113.2514 or 4/10413 10.25%14/6.63%13
Nova Scotia 14/114 11%
New Brunswick and Newfoundland and Labrador 13/11315 10%16

Example: During 2016, an automobile is made available to an employee in a GST province. That person drives 15,000 personal km and only 5,000 business km in the year. The employer pays $500 of the operating costs and the employee pays the remainder. An operating cost benefit of $3,900 ($0.26 per personal km) must be reported and the employer must remit $117 of GST on the benefit ($3,900 × 3%). If the employee reimburses the employer $500 by no later than 45 days after the year-end, no amount has to be reported as an operating cost benefit and no amount has to be remitted for GST.

Tax tip: If personal use of the automobile is high and the employee or shareholder incurs most but not all of the operating costs, the taxable operating cost benefit and related GST/HST remittance may be higher than the portion of actual operating costs paid by the employer. Consider reviewing employment arrangements from time to time to determine if any changes should be made.

12 This includes British Columbia, Alberta, Saskatchewan, Manitoba and the Territories.
13 The lower rate applies to registrants subject to RITCs. For the Ontario standby charge, the rate to apply (4/104, 6/106 or 8/108) depends on when the vehicle was purchased.
14 Standby charge will increase to 14/114 after 2016, and operating cost benefit will increase to 11% after 2016.
15 The standby charge will increase to 14/114 after 2016.
16 The operating cost benefit will increase to 11% after 2016.

Employee or partner expenses rebate

Certain employees and partners may be able to claim a GST/HST rebate for particular expenses that are deductible in calculating income for tax purposes (for example, deductible ).

Although you have up to four years to make a claim, the rebate is generally claimed on an annual basis as part of your personal tax return on Form GST 370 (“Employee and Partner
GST/HST Rebate Application”).

The rebate is calculated as a percentage of eligible expenses (according to the chart below). To claim the rebate, your employer must be registered for GST/HST and cannot be a
listed financial institution, such as a bank, credit union, insurance company or an investment or insurance business.

Employee or partner rebate 2016
GST provinces 4/104
Quebec – GST 4/104
Quebec – QST 9.975 / 109.975
Prince Edward Island 13/113 or 15/11517
Nova Scotia 14/114
Ontario 13/113
New Brunswick, and Newfoundland and Labrador 13/113 or 15/11517

If you receive a tax-free travel allowance that you include in income (for example, a per km allowance) and you claim offsetting expenses, you cannot claim the rebate. Your GST/HST-registered employer, however, may be entitled to claim a notional ITC for the amount paid (see below—“Travel and other allowances.”) The rules are just the reverse if you receive a travel allowance that has to be included in income, for example, a flat allowance of $400 a month. In this case, you may be able to claim the rebate, but your employer cannot claim an ITC.

17 For Prince Edward Island, 13/113 until September 30, 2016, 15/115 on or after October 1, 2016. For New Brunswick and Newfoundland and Labrador, 13/113 until June 30, 2016, 15/115 on or after July 1, 2016.

Travel and other allowances

In situations where the employee is not entitled to claim a rebate (for example, the employee has received a tax-free travel allowance that is not required to be included in income), the employer may be entitled to claim a notional ITC for the amount paid. In such cases, the employer will generally use the same fractions noted in the above chart (for employee and partner rebates), based on when the allowance is paid. Where the employer is entitled to claim the notional ITC, the employee cannot claim the rebate.

The tax fractions noted above for Ontario and Prince Edward Island do not consider the recapture of ITC restrictions for large businesses in those provinces (see topic 47). Where such restrictions apply, the ITC is reduced for the provincial component of the credit. For the province of Quebec, a 3.5% rate may be used where the large business ITC restrictions apply (and 9.975/109.975 otherwise).

If the supplies for which the allowance is paid are made in two or more participating provinces, the lowest tax rate for those participating provinces should be used.

Tax tip: Confused about the application of GST/HST to automobiles and allowances? Don’t be surprised—the rules in this area are extremely complex. It may be well worth a trip to your tax adviser to make sense of the GST/HST rules as they apply to your business.