Lease of a Road Vehicle

The GST and QST apply to leases of road vehicles.

A dealer sometimes accepts a used road vehicle as a trade-in from a person to whom the dealer is planning to lease a vehicle. In such cases, the GST and QST are generally calculated on the monthly lease payments, determined on the basis of the residual value of the new vehicle leased and the amount credited for the trade-in, but disregarding any loan on the road vehicle traded in.

The GST and QST must also be collected on any cash payment made by the lessee at the end of the contract.

Registrant who leases road vehicles

The lessor must collect the QST at the time a road vehicle is leased (short- or long-term lease). In addition, in the case of a long-term lease, the lessor must collect QST if the lessee exercises the purchase option provided for in the contract.

Example

A registered dealer leases a $20,000 motor vehicle to an individual. The dealer accepts the individual's used vehicle as partial consideration for the vehicle leased, giving a $5,000 credit for the trade-in. At the individual's request, the dealer agrees to remit a portion of the credit ($3,000) to the individual in cash.

The monthly payments are calculated as shown below (assuming a 0% interest rate):

Term of the lease on the new vehicle	48 months
Value of the new vehicle	$20,000
Credit for the trade-in	$5,000
Cash remitted to individual	- $3,000
Net amount credited	$2,000
Subtotal ($20,000 - $2,000)	$18,000
	- $8,000
Residual value (purchase option)	$10,000
Monthly lease payment ($10,000/48 months)	= $208.33
Calculation of the taxes on monthly payments
Calculation of the GST (5% × ($20,000 - $5,000 - $8,000/48))	+ $7.29
Calculation of the QST (9.5% × (($20,000 - $5,000 - $8,000/48) + $7.29))	+ $14.55
Calculation of monthly payments ($208.33 + $7.29 + $14.55)	= $230.17

Where a cash amount is remitted to the lessee, the GST and QST are not calculated on the total monthly lease payment, but on a lesser amount, because the cash amount remitted to the lessee is not taken into account in determining the consideration for the supply on which the GST and QST are calculated.

Consequently, a second calculation must be made, by reapplying the same formula used to calculate the monthly lease payment, but without first subtracting the cash amount remitted.