Indirect tax measures
New tax on selected luxury goods
The Budget proposes to introduce a luxury tax on the sale of new luxury cars and personal aircraft priced over $100,000, and boats priced over $250,000, effective Jan. 1, 2022. For vehicles, aircraft and boats sold in Canada, the tax would apply at the point of purchase if the final sale price paid by a consumer (not including the GST/HST or provincial sales tax) exceeds the $100,000 or $250,000 thresholds. Importations of vehicles, aircraft and boats would also be subject to the tax, and collected at the time of import by CBSA.
For vehicles and aircraft, the tax rate would be the lesser of 10% of the full value, and 20% of the value over $100,000. For boats, the tax rate would be the lesser of 10% of the full value, and 20% of the value over $250,000. Large aircraft, public sector and rescue aircraft, and air ambulances are excluded.
GST/HST and potentially other sales taxes will apply to the final sale price, including the proposed tax. Further details will be announced once the proposal has received Royal Assent.
GST/HST for e-commerce sellers
The Budget proposes several amendments to the GST/HST rules for e-commerce sellers and digital platform operators (e.g., Air BNB) originally proposed in November’s Fall Economic Statement, to clarify certain provisions and help to ensure the rules operate effectively.
Safe harbour rules for remote sellers of all taxable supplies under simplified registration regime
Platform operators are required to register for, charge and report GST/HST on taxable supplies made on behalf of underlying vendors who are not registered for GST/HST and who sell through the operators’ platforms. Platform operators must rely on the seller (i.e., registered for GST/HST or not) to determine whether GST/HST is collectible on the sale.
The Budget proposes that the third-party seller and the platform operator be jointly and severally liable for the collection and remittance of tax, if the seller provides false information to the platform operator. However, the proposals will limit the liability of the platform operator for failing to collect and remit tax if the platform operator reasonably relied on information provided by the seller.
Under the original proposed rules, a simplified GST/HST registration framework is available for certain suppliers and platform operators who supply services or digital products. Generally, a person registered for GST/HST under the simplified framework will not be entitled to claim input tax credits (ITCs) to recover GST/HST paid on taxable inputs. The Budget now proposes an amendment to clarify that these suppliers will be entitled to deduct amounts for bad debts and certain provincial HST point-of-sale rebates offered to purchasers.
Threshold amount determination
Under the proposals for cross-border sales of services and digital products, non-resident suppliers or distribution platform operators are required to register for GST/HST if their sales or sales through their platforms exceed, or are expected to exceed, $30,000 over any rolling 12-month period. The Budget proposes amendments to clarify that zero-rated sales are not to be included in the threshold calculations.
Platform operator information returns
Platform operators will be required to file annual information returns if they facilitate supplies of short-term accommodations in Canada through the platform, or facilitate sales of tangible goods located in fulfillment warehouses in Canada by non-registered vendors. The Budget proposes to clarify that the filing of information returns by platform operators applies only to those that are registered, or are required to be registered, for GST/HST.
GST/HST on certain supplies made by billing agents
The Budget proposes to relieve GST/HST on the supply of services by billing agents to persons who are registered for GST/HST under the simplified framework. This proposal will ensure that businesses registered under the simplified framework are not paying unrecoverable GST/HST on services supplied by billing agents, given ITCs cannot be claimed under the simplified framework.
Authority for the Minister of National Revenue to register a person
The Budget proposes an amendment to provide the Minister of National Revenue (the Minister) with the authority to register any person for GST/HST under the simplified framework where the Minister believes the person should be registered for GST/HST. This mirrors the current rules for GST/HST under the normal registration framework and other jurisdictions that have adopted similar remote seller rules.
Administration and enforcement grace period
The Budget provides that the CRA will work with businesses, including platform operators affected by the proposed rules, to assist them in meeting their obligations. The CRA will take a practical approach to compliance and exercise discretion in administering the proposed rules during a 12-month transition period starting July 1, 2021, for businesses that show they have taken reasonable measures, but are unable to meet their obligations for operational reasons.
Enhancements to ITC documentary requirements rules
Currently, the ITC information rules require basic information on an invoice, receipt or other source document, to validate the refund claim on pretax purchases less than $30. Additional source document information must be obtained by a claimant where the purchase is $30 or more, but under $150. Further information is required for a purchase that is $150 or more.
The Budget proposes to increase these thresholds to $100 and $500 respectively, presumably to alleviate issues for ITC claimants and their vendors that provide the necessary information on source documents. This change is proposed to take effect for purchases on or after April 19, 2021.
A further change now allows a billing agent (i.e., a person that only bills customers for a principal’s taxable supply) to use its legal name and GST/HST registration number on source documentation provided to customers. Previously, the ITC information rules required a claimant to obtain the underlying principal’s business name and GST/HST registration to claim an ITC. This change is also proposed to take effect on April 19, 2021.
Improvements to GST/HST new housing rebate
Under the current GST/HST new housing rebate program, consumers buying new homes from a builder must pay GST or HST, which may be reduced by any eligible new home rebate available for the GST or federal part of the HST (i.e., 5%) up to a maximum of $6,300, where the home’s value is less than $450,000 (and subject to various other criteria). One of the key conditions to be met requires the purchaser(s) to intend to occupy the new home as their, or a relative’s, primary place of residence. The existing rules do not permit a rebate where two or more of the purchasers are unrelated to one another.
The Budget will remove this limitation and require only one purchaser to intend to use the new home as their, or a relative’s, primary place of residence to claim the rebate (subject to meeting the other existing conditions). The change will extend to new owner-built homes, new cooperative housing units, and new homes built on leased land—it will also include the provincial portion of HST where applicable, subject to any limitations on the maximum rebate.
The proposed rule is intended to take effect for new homes purchased through a purchase and sale agreement dated on or after April 19, 2021. For owner-built homes, the proposed change will take effect upon substantial completion (generally 90% complete) of construction or substantial renovation that occurs on or after April 19, 2021.
Rebate of excise tax for goods purchased by provinces
Currently, a rebate of excise tax (e.g., on fuels, etc.) can be claimed by either the vendor of the goods or an eligible province. The proposed change requires that a rebate can only be claimed by an eligible province (i.e., a province that has not agreed to pay federal indirect taxes) unless the province has made a joint election with the vendor to allow the vendor to claim the rebate. This clarifies who is entitled to claim the provincial-use rebate on excise tax paid for goods purchased by an eligible province for its own use.
For eligible provinces, there is a rebate of excise taxes on motive fuels, air conditioners in automobiles, and fuel inefficient vehicles. Ultimately, there is no difference to the province or the vendor; however, a province that makes an election with a vendor will not be required to pay the tax up front, allowing the vendor to claim it, compared to the existing rules where the province must file a refund.
Excise duty on tobacco
Effective April 20, 2021, the excise duty rate for cigarettes will increase by $4 per carton on 200 cigarettes. Vendors that have stock on hand at the start of the day after April 19, 2021, will have to file a return and pay the increased duty ($0.03 per cigarette) by June 30, 2021.
Excise duty on vaping products
Similar to the duty on tobacco, the Budget proposes to add an excise duty for vaping products under the Excise Act, 2001 (the Act). The duty applies to vaping liquids either produced in, or imported into, Canada for use in a vaping device, but will not apply to cannabis-based vaping products. The duty applies to all other products whether they contain nicotine or not.
Changes to customs duties and the importation process
The government proposes two changes to customs in the Budget titled “Improving Duty and Tax Collection on Imported Goods”. There was not much detail provided on the exact changes, and additional information on legislative and future regulatory changes are expected.
Changes to the “purchaser in Canada” concept
The Budget proposes amendments to the Customs Act with respect to the valuation of imported goods. These new amendments are expected to help promote fairness to all importers, and retain consistency with international rules. Finance Canada perceives that importers with foreign ties have an advantage to import goods at a lower value by using a previous sales price, thus allowing the importers to pay lower amounts of duties and taxes on imported goods. The amendments would ensure that all importers value goods based on the last sale for export to a purchaser in Canada.
Modernizing the customs duties payment process
The Budget also proposes to modernize payment processes for commercial importers that are subject to the Customs Act and regulations. These amendments will streamline and harmonize billing cycles for commercial importations, including flexibility for certain types of corrections without incurring penalties or interest. These amendments would correspond with the implementation of the CBSA Assessment and Revenue Management (CARM) system that will come into effect in spring 2022.