Canada: Federal Budget Offers Some Indirect Taxation And Customs Relief For Businesses

The 2013 federal budget, tabled on March 21, 2013 (Budget 2013), includes various measures relating to indirect taxation and customs that may provide relief to businesses. Here are some selected highlights.

GST/HST New Pension Plan Rules

Current GST/HST rules deem employers that participate in a registered pension plan to have made a taxable supply, and to have collected the GST/HST in respect of that same taxable supply, when they acquire, use or consume property or services for use in activities relating to a pension plan. On the other hand, employers are also required to account for GST/HST on all actual taxable supplies made to a pension entity under the general GST/HST rules. To the extent that these rules result in double accounting for tax, the employer is allowed to make a tax adjustment to its net tax such that tax is only remitted once.

Budget 2013 purports to simplify employer compliance by permitting employers to elect jointly with a pension plan entity to deem that a supply is made for no consideration where tax is also accounted and remitted in respect of the deemed taxable supply. This measure will apply to actual supplies made after March 21, 2013.

Budget 2013 also proposes that employers participating in a registered pension plan be fully relieved from accounting for tax under the deemed supply rules where the amount of GST (and federal component of the HST) required to be accounted for under such rules for the preceding fiscal year is less than each of (i) $5,000; and (ii) 10% of the total net GST (and the federal component of the HST) paid by all pension entities of the pension plan in that preceding fiscal year. An employer will not be entitled to benefit from the foregoing relief in a given year if the joint election referred to above is in effect for that year.

To the extent that the foregoing thresholds are not met for the preceding fiscal year, partial relief may still be available in respect of so-called "internal pension activities" (e.g. time spent by an employee for determining the employer's pension contribution deductions). In this respect, an employer would be relieved from its obligations under the deemed supply rules with respect to its "internal pension activities" where the amount of GST (and the federal component of the HST) pertaining to the application of those rules to "internal pension activities" for the preceding fiscal year is less than each of (i) $5,000; and (ii) 10% of the total net GST (and the federal component of the HST) paid by all pension entities of the pension plan in that preceding fiscal year. The employer will still be entitled to benefit from such relief in a given year even if the joint election referred to above is in effect for that year. This measure will apply in respect of any fiscal year of an employer beginning after March 21, 2013.

Customs Tariff Measures

As previously announced in a notice published in the December 22, 2012 edition of the Canada Gazette , Part I, Budget 2013 proposes to disqualify higher-income and export-competitive countries (including all G-20 countries) from Canada's  General Preferential Tariff (GPT) regime by introducing new economic eligibility criteria that will be applied every two years to determine country eligibility. As we indicated in a previous Tax Law Update, the proposed amendments to the GPT regime could trigger an increase in tariffs on imported goods from more than 70 different countries. Importers should conduct a thorough review of their imports in order to determine whether the proposed measures will affect them.

However, Budget 2013 also seeks to ensure that the foregoing measure will not reduce tariff benefits conferred by the Least Developed Country Tariff (LDCT) regime by maintaining duty-free importation of textiles and apparel imported from least developed countries, even where such goods are produced using textile inputs from countries that are currently GPT beneficiaries. These measures will be effective in respect of goods imported on or after January 1, 2015.

Additionally, businesses carrying activities in the apparel and sports equipment industries should be aware that Budget 2013 proposes to eliminate duties on 37 different tariff items such as baby clothes and sports equipment (excluding bicycles). The Most-Favoured-Nation (MFN) rates for these goods will be reduced to "Free" in respect of all imports effective as of April 1, 2013. The reduction of the MFN rates for these items will consequently result in the reduction of the duty rates applicable under other tariff treatments.

Trade Remedy System

In order to increase the efficiency of Canada's trade remedy system and investigations (anti-dumping and countervailing measures), Budget 2013 proposes to withdraw dumping and subsidy investigative functions from the Canada Border Services Agency (CBSA). Consequently, the CBSA shall no longer oversee dumping and subsidy investigations and the Canadian International Trade Tribunal will act as both the investigative and adjudicative body with respect to overseeing trading practices and sanctioning unfair trade.


1 The author would like to thank  Philippe Kattan and  Nicolas Désy for their collaboration in writing this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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