A Review of this Year’s Legislative Changes to the Goods and Service Tax/Harmonized Sales Tax (GST/HST)
This has been a year filled with change for the GST/HST, starting with the Federal Budget 2023 (Budget 2023) announced on March 28, 2023. Budget 2023 included amendments to the Excise Tax Act (ETA) intended to impact Payment Card Network Operators and Canadian Credit Unions as well as provide an increased GST/HST rebate to counter the rising cost of groceries for low- to moderate-income Canadians. Later in the year, on September 14, 2023 the Prime Minister of Canada announced significant changes to the GST/HST rebate available to builders of qualifying purpose-built residential rental housing. These measures are intended to combat the rising cost of residential rents in a market where there is seemingly not enough supply to meet demand for reasonably priced accommodations.
Federal Budget 2023
On March 28, 2023, Canada’s Minister of Finance tabled Budget 2023. Budget 2023 proposed amendments to the ETA (the GST/HST legislation), and confirmed the government’s intention to proceed with certain previously announced measures relating to the GST/HST. Bill C-47, an Act to implement certain provisions of the Federal Budget 2023 received royal assent on June 22, 2023. While the scope of those changes is narrow, the changes are significant to the affected taxpayers.
Change to the Definition of Credit Union
For GST/HST purposes, the definition of the term ‘Credit Union’ references back to the definition of the same term found in the Income Tax Act. Where a person is a Credit Union for Income Tax purposes, they are also a Credit Union for purposes of the GST/HST. Credit Unions, like other financial institutions, are subject to unique and often complex GST/HST rules that are not often easy to navigate.
Prior to the changes included in Budget 2023, a person that otherwise met the definition of a ‘Credit Union’ would be excluded from the definition if the person earned more than 10 percent of its revenue from sources other than certain ‘specified sources’. Specified sources included traditional banking income streams such as earning interest income from lending activities.
Practically speaking, a number of organizations that were, for all other intents and purposes, a Credit Union, would be excluded due to this revenue test not being met. Recognizing that Credit Unions have become full-service financial institutions, the 2023 Federal Budget included amendments to the Income Tax Act, which eliminated the revenue test from the definition of Credit Union. The result of this change is also applicable to the GST/HST legislation. This amended definition is applicable for taxation years ending after 2016.
Payment Card Network Operator Services
The Federal Court of Appeal in Canadian Imperial Bank of Commerce v. The Queen, 2021 FCA 10, ruled that GST/HST does not apply to certain supplies of payment card clearing services provided by payment card network operators. The seven major payment card network operators in Canada are American Express Canada, Discover, THE EXCHANGE, Interac, Mastercard Canada, VISA Canada, and UnionPay.
In response to this court decision, Budget 2023 included measures intended to clarify the government’s position that the services provided by these payment card network operations were always intended to be included in the definition of ‘Financial Service’ and therefore exempt from GST/HST.
In order to enact this clarification, Budget 2023 included provisions that added an additional paragraph to the definition of Financial Service for GST/HST purposes – ensuring application to the service provided by the payment card network operators. Not surprisingly, the amendments to the definition were made on a retroactive basis, effectively overruling the decision in the CIBC case.
GST/HST Grocery Rebate for Individuals
As background, the federal government has provided a GST/HST credit to individuals and families with low and modest incomes. This payment, issued quarterly, is intended to offset the GST/HST incurred on living costs by qualifying recipients. The GST/HST credit is traditionally income-tested and indexed to inflation. Given rising food prices, the 2023 Federal Budget included an increase to this credit – intended to be known as the ‘Grocery Rebate.’
The Grocery Rebate is in addition to the current GST/HST credit received and is intended to be a one-time payment to aid in offsetting the rising cost of groceries. The maximum Grocery Rebate amounts are:
- $153 per adult
- $81 per child
- $81 for the single supplement
Interestingly, this was perhaps an early indicator of the government’s willingness to provide time-sensitive increased GST/HST rebates as a means to combat inflationary pressures on consumers. Another such measure was announced later in the year (see below).
Changes Relating to Purpose-built Residential Rental Housing as Announced by the Prime Minister on September 14, 2023
GST/HST Impacts on Construction of New Purpose-Build Multi-Unit Residential Complexes
On the heels of passing legislation implementing most of the 2023 Federal Budget, the government of Canada announced substantial GST/HST relief for builders of NEW qualifying purpose-built residential rental properties. On September 21, 2023 the government tabled Bill C-56, the Affordable Housing and Groceries Act. Bill C-56 most notably includes measures that would increase the GST rebate on new purpose-built rental housing from the current 36% to a full 100%. Moreover, the legislation would remove the rebate phase-out for residential units valued in excess of $350,000. Clearly, the government aims to encourage the immediate construction of residential housing units.
While Bill-C56 has not yet passed, and the related regulations have not been released, the background notes indicate that this increased rebate will be available for qualifying new residential unit construction, which begins on or after September 14, 2023.
Qualifying new residential units are intended to be buildings with at least four private apartments, or at least ten private rooms or suites. In addition, 90% of apartment units or suites must be designated for long-term rental use.
This increased rebate is intended to be available for a limited period of time to encourage construction in the near term. It is currently intended that the rebate will not be available for projects commencing after December 31, 2030. To qualify, projects will need to be substantially completed by December 31, 2035.
In addition, the proposed changes will impact Public Service Bodies (PSBs). Previously, PSBs, such as municipalities, charities, universities, and qualifying not-for-profit organizations may not have qualified for new residential housing rebates. Bill C-56 includes provisions that will allow PSBs the option to claim the new enhanced residential rental housing rebate in scenarios where it is of benefit to them.
While Bill C-56 relates only to the federal 5% GST, several of the HST provinces have already committed to similar rebates of the provincial portion of the HST, and we expect those rebates will be included in future legislative amendments. Interestingly, the announcements by the HST provinces have not always completely aligned with the federal announcement, which could result in projects qualifying for the federal, but not the provincial, enhanced rebate.
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