Canada: Sales And Excise Tax Measures - March 22, 2016

Health Measures

The Budget proposes to add insulin pens, insulin pen needles and intermittent urinary catheters to the list of zero-rated medical devices. Zero-rated supplies means that suppliers do not charge purchasers GST/HST on these medical devices but are entitled to claim input tax credits to recover the GST/HST paid on inputs in relation to these supplies. These measures will apply to supplies made after Budget Day and, in the case of insulin pens and insulin pen needles, supplies made on or prior to Budget Day unless the supplier charged, collected or remitted GST/HST in respect of the supply by the supplier.

The Budget proposes to clarify that the GST/HST generally applies to supplies of purely cosmetic procedures provided by all suppliers, including registered charities. A cosmetic procedure will, however, continue to be exempt if it is required for medical or reconstructive purposes or paid for by a provincial health insurance plan. This measure will apply to supplies made after Budget Day.

Exported Call Centre Services

The Budget proposes to modify the zero-rating rules for certain exported supplies of call centre services. Specifically, the supply of a service of rendering technical or customer support to individuals by means of telecommunications (e.g., by telephone, email or web chat) will generally be zero-rated for GST/HST purposes if:

  • the service is supplied to a non-resident person that is not registered for GST/HST purposes; and
  • it can reasonably be expected at the time the supply is made that the technical or customer support is to be rendered primarily to individuals who are outside Canada at the time the support is rendered to those individuals.

This measure will apply to supplies made after Budget Day and to supplies made on or prior to Budget Day unless GST/HST has been charged, collected or remitted in respect of the supply by the supplier.

Reporting of Grandparented Housing Sales

Home builders are subject to special reporting requirements in respect of grandparented housing sales where the purchaser was not entitled to a GST New Housing Rebate or a GST New Residential Rental Rebate under transitional rules. Under the transitional rules that applied when a province joined the HST system or increased its HST rate, certain sales of newly constructed or substantially renovated homes were grandparented for HST purposes, meaning that the sale was not subject to the provincial HST component or the increased HST rate. The transitional rules also include penalties for misreporting.

The Budget proposes to simplify builder reporting by:

  • limiting the reporting requirement to those grandparented housing sales for which the consideration is equal to or greater than $450,000; and
  • providing builders with an opportunity to correct past misreporting and avoid potential penalties by allowing them to elect to report all past grandparented housing sales for which the consideration was equal to or greater than $450,000.

This measure will apply in respect of any reporting period of a person that ends after Budget Day. In addition, if the above election is made, the measure will also apply to any supply of grandparented housing in respect of which the federal component of the HST became payable on or after July 1, 2010. Builders will generally have between May 1, 2016 and December 31, 2016 to make the election.

GST/HST on Donations to Charities

GST/HST does not apply to a donation if the donor does not receive anything in return. However, subject to various exceptions, if the donor receives property or services in exchange for the donation, GST/HST generally applies on the full value of the donation even if the value of the donation exceeds the value of the property or services received.

The Budget proposes a relieving measure to provide that when a charity supplies property or services in exchange for a donation and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. The proposal will ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to the GST/HST. This proposal is designed to bring the GST/HST treatment of such exchanges in line with the split receipting rules under the Tax Act.

This measure will apply to supplies made after Budget Day. In addition, certain transitional will be retroactively provided where a charity did not collect GST/HST on the full value of donations made in exchange for an inducement, for supplies made between December 21, 2002 and Budget Day.

De Minimis Financial Institutions

Pursuant to current GST/HST rules, a person that earns more than $1 million in interest income in respect of bank deposits in a taxation year will be considered to be a financial institution for GST/HST purposes for its following taxation year. As a financial institution, the person would then be subject to special rules, particularly in determining their entitlement to input tax credits.

To allow a person to engage in basic deposit-making activity without it leading to the person being treated as a financial institution for GST/HST purposes, The Budget proposes that interest earned in respect of demand deposits, as well as term deposits and guaranteed investment certificates with an original date to maturity not exceeding 364 days not be included in determining whether the person exceeds the $1 million threshold.

This measure will apply to taxation years of a person beginning on or after Budget Day and to the fiscal year of a person that begins before Budget Day and ends on or after that day for the purposes of determining if the person is required to file the Financial Institution GST/HST Annual Information Return.

Application of GST/HST to Cross-Border Reinsurance

Special GST/HST imported supply rules for financial institutions require a financial institution, including an insurer, with a presence outside Canada to self-assess GST/HST on certain expenses incurred outside Canada that relate to its Canadian activities.

The Budget proposes to clarify that two specific components of imported reinsurance services, ceding commissions and the margin for risk transfer, do not form part of the tax base that is subject to the self-assessment provisions and to set out specific conditions under which the special rules for financial institutions do not impose GST/HST on reinsurance premiums charged by a reinsurer to a primary insurer.

This measure will retroactively apply as of the introduction of the special GST/HST imported supply rules for financial institutions (i.e., in respect of any specified year of a financial institution that ends after November 16, 2005), such that it will allow a financial institution to request a reassessment of the amount of tax owning by it under the special GST/HST imported supply rules for a past specified year, including related penalties or interest (only for the purpose of this measure).

Closely Related Test

Special relieving rules allow the members of a group of closely related corporations or partnerships to neither charge nor collect GST/HST on certain intercompany supplies. In the case of a subsidiary corporation owned by a parent corporation or partnership, the closely related concept is reflected in a test that requires the parent corporation or partnership to own 90% or more of the value and number of the shares of the subsidiary corporation that have full voting rights under all circumstances.

The Budget proposes to require that, in addition to meeting the conditions of the current test, a corporation or partnership must also hold and control 90% or more of the votes in respect of every corporate matter of the subsidiary corporation (with limited exceptions) in order to be considered closely related.

This measure will generally apply as of the day that is one year after Budget Day. It will also apply as March 23, 2016 for the purpose of determining whether the conditions of the closely related test are met in respect of elections under section 150 and section 156 of the Excise Tax Act (Canada) that are filed after March 22, 2016 and that are to be effective as of March 23, 2016.

Restricting the Relief of Excise Tax on Diesel and Aviation Fuel

Subject to limited exceptions, the Excise Tax Act (Canada) imposes an excise tax on diesel and aviation fuel manufactured and delivered in, or imported into, Canada.

To ensure that the scope of these limited exceptions remain targeted, Budget 2016 proposes to clarify instances where relief from excise tax is provided relating to diesel fuel used as heating oil or to generate electricity.

To ensure that the relief provided for heating oil applies only to heating in respect of buildings, the Budget proposes to define heating oil as fuel oil that is consumed exclusively for providing heat to a home, building or similar structure, and is not consumed for generating heat in an industrial process. The Budget also proposes to remove the generation of electricity exemption for diesel fuel used in or by a vehicle, including a conveyance attached to the vehicle, of any mode of transportation.

Both measures will apply to fuel delivered or imported after June 2016, and to fuel delivered or imported before July 2016 that is used, or intended to be used, after June 2016.

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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