Leases of Road Vehicles
The GST and the QST apply to leases of road vehicles. When a dealer leases such a vehicle to a person, the dealer may sometimes accept the person's used road vehicle as a trade-in. In such cases, the GST and QST are generally calculated on the monthly lease payments, determined on the basis of the amount credited for the trade-in and the residual value of the new vehicle leased, but not on the basis of a loan related to the trade-in vehicle.
The GST and QST must also be collected on any payment made by the lessee at the end of the contract.
Registrant that leases road vehicles
A registrant must collect the GST and QST at the time a road vehicle is leased (short-term or long-term lease). In the case of a long-term lease, the registrant must also collect the taxes if the lessee exercises the purchase option provided for in the leasing contract.
A dealer registered for the GST and QST leases a $20,000 motor vehicle to an individual. The dealer accepts the individual's used vehicle as a trade-in and grants a $5,000 credit for the trade-in. The residual value of the vehicle is $8,000 and the lease period is 48 months.
The monthly payments are calculated as shown below:
| Value of the new vehicle | $20,000 | |
|---|---|---|
| Credit for the trade-in | − | $5,000 |
| $15,000 | ||
| Residual value (purchase option) | − | $8,000 |
| $7,000 | ||
| Monthly leasing payment ($7,000/48 months) | $145.83 | |
| GST: ($145.83 × 5%) | + | $7.29 |
| QST ($145.83 × 9.975%) | + | $14.55 |
| Monthly payments ($145.83 + $7.29 + $14.55) | $167.67 | |