Canada: Budget 2013: GST/HST And Customs Tariff Measures

Last Updated: April 6 2013
Article by Jamie M. Wilks and Carl Irvine

Budget 2013 proposed a number of GST/HST and customs changes, including changes to (i) relieve the GST/HST compliance burden for employers who participate in pension plans, (ii) exempt certain publicly funded personal care services from GST/HST, (iii) provide the Canada Revenue Agency ("CRA") with new tools to combat the use of "zapper" software to evade taxes, and (iv) customs duties on certain imports.

Changes to GST/HST Pension Rules

Under current GST/HST rules (the "Pension Rules"), an employer who participates in a pension plan is deemed to have made a taxable supply to the relevant pension entity, and to have charged and collected GST/HST, where it acquires, uses or consumes property or services in activities relating to the pension plan, and is required to account for such deemed GST/HST. There can be overlap or duplicate GST/HST accounting to the extent that the employer also charges and collects GST/HST on actual taxable supplies made to the relevant pension entity. In such case, the employer is allowed to make a "tax adjustment" to its net tax position in its GST/HST returns to avoid double taxation on essentially the same taxable supply. In order to reduce compliance costs and eliminate the need to make such "tax adjustments", Budget 2013 proposes two new measures.

First, Budget 2013 proposes to allow employers to make a joint election (a "Joint Election") with the relevant pension entity to deem any actual taxable supplies made by the employer to have occurred for no consideration where the employer accounts for and remits tax on the corresponding deemed taxable supplies under the Pension Rules. Such an election eliminates the need for employers to make tax adjustments to their net tax position in their GST/HST returns.

Second, Budget 2013 proposes to relieve employers from the obligation to apply the Pension Rules for a fiscal year where the GST (and the federal component of the HST) that the employer would otherwise be required to account for and remit in the previous year is less than (i) $5,000 and (ii) 10% of the total net GST (and the federal component of the HST) paid by all the pension entities of the particular pension plan in the preceding fiscal year. This exemption is not available where the employer has made the Joint Election.

Employers who do not qualify for this exemption may still be entitled to limited relief in respect of their internal pension activities (e.g., time spent by a payroll employee determining pension contribution deductions). Specifically, an employer would be relieved from applying the Pension Rules in respect of its internal pension activities if the amount of GST (and the federal component of HST) that the employer would have had to account for and remit in the previous fiscal year in respect of those activities alone was less than the $5,000 and 10% thresholds described above. This limited exemption would be available even where an employer had made the Joint Election.

Expansion of GST/HST exemptions for home care services

Basic health care and health-related services are generally exempt from GST/HST. As a result, suppliers of such services do not charge GST/HST (and cannot claim input tax credits to recover GST/HST on their related business inputs).

Currently, certain publicly subsidized or funded homemaker services, such as cleaning, laundering, meal preparation and child care rendered to individuals who, due to age, infirmity or disability require assistance in their home, are exempt from GST/HST. However, the current exemption from GST/HST does not apply to publicly subsidized or funded personal care services provided to such individuals, such as bathing, feeding, and assistance with dressing and taking medication. In light of the increasing significance of such services, Budget 2013 proposes to extend the GST/HST exemption for homemaker services to publicly funded or subsidized personal care services to individuals who, due to age, infirmity or disability, require assistance their home.

New measures to combat the use of "zapper" software

In recent years, the CRA has been increasingly aggressive in pursuing taxpayers who use electronic suppression of sales ("ESS") software (commonly known as "zapper" software) to delete or modify sales transactions from their point-of-sale systems in order to evade the payment of GST/HST and income tax.

In order to further deter the use of "zapper" software, Budget 2013 proposes new administrative monetary penalties ("AMPs") and criminal offenses under the Excise Tax Act and the Income Tax Act (Canada) to combat this form of tax evasion. AMPs of $5,000 will be imposed on the first infraction for the use of ESS software or for the possession or acquisition of such software and $50,000 on any subsequent infraction. Similarly, it is proposed that AMPs of $10,000 will be imposed on the first infraction for the manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software, and $100,000 on any subsequent infraction. Because AMPs can generally be imposed by government agencies, such as the CRA, without court approval and typically provide limited defenses (Budget 2013 proposes that taxpayers will have a limited due diligence defence in certain circumstances), this change will provide the CRA with a significant new power to penalize taxpayers who use, possess, develop or distribute ESS software.

Budget 2013 also proposes the introduction of new criminal offense for the use, possession, acquisition, manufacture, development, sale, possession for sale, offer for sale or otherwise making available of ESS. A person convicted of such an offense on summary conviction could be liable for a fine of up to $500,000 (and not less than $10,000) and/or imprisonment of up to 2 years. A conviction by way of indictment will be punishable by a fine of up to $1,000,000 (and not less than $50,000) and/or imprisonment of up to 5 years.

The combination of new AMPs and new criminal offenses provides the CRA with significant new weapons in its arsenal against tax evasion, over and above existing civil and criminal remedies. In order to allow businesses to ensure that they do not possess ESS software, Budget 2013 proposes that these measures will not come into effect until the later of (i) January 1, 2014; and (ii) the day on which the relevant enacting legislation receives Royal Assent.

Customs changes

Budget 2013 proposes to eliminate Canadian customs duties on imported baby clothes and sports and athletic equipment effective April 1, 2013. Furthermore, after consultation with stakeholders, it is proposed that the General Preferential Tariff for 72 "higher-income and export-competitive countries", including Brazil, India and China be eliminated. These amendments are to take effect on January 1, 2015.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jamie M. Wilks
Carl Irvine
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions