Dear Sirs:
Re: Application of new paragraph 6(1)(e.1) of the Income Tax Act with respect to section 173 of the Excise Tax Act
We are responding to your letter of January 16, 1991 in which you requested confirmation of Taxation's views on the application of new paragraph 6(1)(e.1) of the Income Tax Act ("ITA") with respect to the application of section 173 of the Excise Tax Act ("ETA") This letter will confirm the informal views provided by telephone-(Fuoco/Szeszycki) on January 31.
Paragraph 6(1)(e) of the ITA provides for the inclusion of a standby charge in an employee's income where the employer provides the employee with an automobile for his use. New subsection 6(7) directs that the amounts that are to be included in income under 6(1)(a) or (e) will be based on a cost amount to the employer that does not include the goods and services tax ("GST") paid by that employer.
New paragraph 6(1)(e.1) provides for the inclusion in income of an amount equal to 7% of that portion of the total 6(1)(a) or (e) benefit reported that is in respect of GST taxable supplies, to which section 173 of the ETA applies. Consequently, using the standby charge to illustrate, although the GST cost to the employer in respect of the automobile is not reflected in the benefit under paragraph 6(1)(e), paragraph 6(1)(e.1) adds the additional 7% benefit where the automobile is a property to which section 173 of the ETA applies.
Section 173 of the ETA includes within its parameters a mechanism whereby the employer, under certain circumstances, may elect to rescind his entitlement to the input tax credit, which effectively removes the requirement to remit GST on the benefit provided to the employee. The election therefore treats the benefit as not being subject to the GST.
21(1)(b)
Yours truly,
B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch