Global Tax Alert | 21 April 2014

Canada releases draft legislation for sales tax technical amendments

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Executive summary

On 8 April 2014, Canada’s Department of Finance released for public comment draft legislative proposals and explanatory notes relating to technical changes to the Excise Tax Act and related regulations. The proposals include:

  • Amendment to the definitions of “builder” and “substantial renovation”
  • Subsidized housing
  • Public service body rebate for non-profit organization operating a health care facility
  • Zero-rating the refining of metals services supplied to a nonresident not registered for GST/HST purposes
  • Temporary importation of certain railcars
  • GST/HST relief upon re-entry of goods on which duty has been paid (Canadian goods returned)

Interested parties are invited to provide comments on the draft legislative proposals by 8 May 2014.

Detailed discussion

Amendment to the definitions of “builder” and “substantial renovation”

To provide for the consistent treatment of different types of housing, these definitions are being amended.

The current definition of “builder” includes persons that substantially renovate various types of housing but not persons that substantially renovate residential condominium units. This current definition could result in condominium units substantially renovated for resale or rental not being subject to GST/HST similar to other types of housing that are substantially renovated. The definition of “builder” is amended so that a person who substantially renovates a residential condominium unit is a “builder” for GST/HST purposes where the other conditions in the definition of “builder” are met.

Residential housing that is substantially renovated is generally treated the same as newly constructed housing for GST/HST purposes and is therefore subject to GST/HST under the same rules and conditions as newly constructed housing. In addition, an individual may qualify for a new housing rebate if the individual substantially renovates their home. For residential housing to be considered substantially renovated under the current definition of “substantial renovation,” “all or substantially all” of the building must be removed or replaced, other than certain core structural components of the building. Because the current definition refers to the entire building being substantially renovated, certain renovations of residential housing units that would otherwise be considered a “substantial renovation” may fall outside the current definition. Accordingly, the definition is amended to apply the “all or substantially all” test with respect to the whole or part of a residential complex in which one or more residential units are located.

The amendments apply to a person’s sales of substantially renovated housing made after 8 April 2014. However, if there was a sale made on or before 8 April 2014 and tax was charged, collected or remitted, the amendments will also apply to these sales. The amendments will apply to deemed sales as well.

In addition, under a transitional rule, a person that makes or is deemed to make a taxable sale of residential housing after 8 April 2014 may be allowed to claim input tax credits relating to the taxable sale that would normally be disallowed due to the limitation periods in which to claim input tax credits.

Subsidized housing

Under the self-supply rules, when a builder constructs or substantially renovates residential housing and subsequently rents it out or occupies it as a place of residence before it’s sold, the builder is required to pay GST/HST as if the housing was sold and repurchased by the builder (referred to as self-supply). The builder is deemed to have paid and collected GST/HST calculated on the fair market value of the housing at the time of the self-supply and the GST/HST rate that is in effect at the time of the self-supply in the province in which the housing is situated. There is also a special rule that is used to determine the amount of GST/HST the builder is deemed to have paid and collected on the self-supply where the housing in question is government-funded housing (subsidized housing).

To address certain anomalies (e.g., housing inputs purchased at one GST/HST rate and the self-supply is at a different GST/HST rate), the special rule for subsidized housing is amended. This means that the GST/HST payable in respect of housing inputs for the purpose of this rule is equal to the total GST/HST that would have been payable on the acquisition of the inputs if the GST/HST rate applicable for the housing inputs was the rate applicable at the time of the self-supply and the housing inputs had been acquired in the province in which the housing is situated. The amendment does not change any relief currently available for the acquisition of housing inputs that do not attract GST/HST where those inputs are relieved from GST/HST for reasons other than their importation or bringing into a participating province, for use exclusively in the course of commercial activities.

This amendment applies to any self-supply of subsidized housing that occurs on or after 1 April 2013. An exception would apply where construction commenced on or before 8 April 2014 and transitional rules exist.

Public service body rebate for non-profit organization operating a health care facility

A new subsection is added to clarify the conditions under which a non-profit organization (NPO) may be entitled to claim a public service body (PSB) rebate as a charity under Section 259 on the basis that it qualifies as a charity for rebate purposes because it operates a health care facility. The NPO can only claim the PSB rebate to the extent that the GST/HST it incurs relates to its intended consumption, use or supply of property and service in the course of its activities of operating the health care facility.

A new subsection is also added as a consequence of the above amendment to describe the relevant times for determining the extent to which a property or service is intended for consumption, use or supply in the course of the NPO’s activities in operating the health care facility. The relevant times are consistent with the relevant times for determining the extent of intended consumption, use or supply in the course of activities for which a PSB rebate can be claimed.

These amendments apply for rebate applications filed on or after the day that is 10 years before 8 April 2014.

Zero-Rating the refining of metals services supplied to a nonresident not registered for GST/HST purposes

New Section 6.3 is added to the Export Schedule (Part V of Schedule VI). This amendment will zero-rate services of refining metals (including precious metals) to produce precious metals where the services are supplied to a nonresident person not registered for GST/HST purposes. Also, an assaying, gem removal or similar service supplied in conjunction with the refining services will also be zero-rated.

This proposed amendment applies to any supply made after 8 April 2014 and to any supply made on or before 8 April 2014 if the supplier has not charged or collected the GST/HST in connection with those supplies.

A special rule applies where a supplier has not charged or collected GST/HST on a supply that would be zero-rated under the new section described above but has accounted for the tax when determining its net tax for a reporting period on or before 8 April 2014 that ended after 2010. The supplier can claim a rebate for tax remitted in error even if the normal time limit for the rebate has expired or the amount has been assessed. The rebate application has to be filed before the later of the date that is one year after the day the amendment receives Royal Assent and the day that is two years after the day on which the supplier’s return for the reporting period was filed.

Temporary importation of certain railcars

The importation of railway cars that meet the conditions for remission described in the Railway Rolling Stock (Canadian Domestic Use) Remission Order No. 2 was considered a non-taxable import for GST/HST purposes. Railway cars that meet the conditions of the remission order are now prescribed under a new section. The amendment includes specific language to this effect instead of referring to the repealed remission order.

Generally, railway passenger, baggage or freight cars that are imported temporarily for Canadian domestic use are prescribed in circumstances where the same kind of railway cars manufactured or produced in Canada are not available in Canada at a reasonable cost. This means that these imports would be non-taxable for GST/HST purposes. This amendment is deemed to have come into force on 1 January 1998.

GST/HST relief upon re-entry of goods on which duty has been paid (Canadian goods returned)

Goods that originated in Canada or were previously accounted for under the Customs Act and are returned to Canada without having been advanced in value or improved in condition are commonly referred to as “Canadian Goods Returned.” The amendment sets out the conditions for these goods or goods that would be so classified if the goods were not previously relieved of customs duties to qualify as prescribed goods and therefore be relieved from GST/HST when imported into Canada. This amendment is deemed to have come into force on 31 December 1990.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), West
  • Ken Ghag
    +1 604 643 5459
    ken.k.ghag@ca.ey.com
  • David Robertson
    +1 403 206 5474
    david.d.robertston@ca.ey.com
Ernst & Young LLP (Canada), Central
  • Dalton Albrecht
    +1 416 943 3070
    dalton.albrecht@ca.ey.com
  • Sania Ilahi
    +1 416 941 1832
    sania.ilahi@ca.ey.com
Ernst & Young LLP (Canada), East
  • Jean-Hugues Chabot
    +1 514 874 4345
    jean-hugues.chabot@ca.ey.com
  • Manon Jubinville
    +1 514 874 4391
    manon.jubinville@ca.ey.com
  • Daniel Legault
    +1 514 879 8176
    daniel.p.legault@ca.ey.com
  • Mary Anne McMahon
    +1 613 598 4266
    maryanne.mcmahon@ca.ey.com

EYG no. CM4365