November 8th, 2023
When certain conditions are met, it may be advantageous for an employer to make the election under subsection 173(2) of the Excise Tax Act, particularly for simplicity purposes.
What are the conditions for the election?
In the case of a registrant that is not a financial institution:
- An election form must refer to a passenger vehicle or aircraft acquired by lease
- The passenger vehicule or aircraft must be used mainly outside commercial activities (≥50% of the time).
In the case of a registrant that is a financial institution:
- An election form must cover a passenger vehicle or aircraft acquired by lease or purchase;
The election does not have to be sent to the tax authorities, but must be kept, duly completed, in the accounting books for a period of six years after the day on which the election ceases to be in effect.
What are the impacts?
- The registrant chooses to consider the passenger vehicle or aircraft described on the form (FP-2030 in Quebec) as being used exclusively for non-commercial activities.
- The registrant will no longer have to remit any GST/HST and QST on the standby charge or on the operating-costs benefit included in the employee’s or shareholder’s income for income tax purposes.
- The registrant still has to include the applicable GST/HST and QST in the value of the taxable benefit when calculating the employee or shareholder benefit for income tax purposes.
- The registrant will no longer be able to claim ITCs or ITRs to recover the GST/HST and QST paid or payable on lease payments for the passenger vehicle or aircraft, or on operating expenses related to the passenger vehicle or aircraft.
- The registrant will be required to remit ITCs and ITRs previously claimed in a reporting period prior to the date the election was made but covering a period after that date. If ITCs already claimed must be remitted, the net tax adjustment must be entered on line 104 of the GST/HST return; if ITRs already claimed must be remitted, the net tax adjustment must be entered on line 204 of the QST return.
Don’t hesitate to contact us if you’d like to find out if this election is available to you!
