Over the past few years, Canada’s sales tax landscape has remained stable and unchanged. In addition to the federal GST/HST which applies throughout Canada, the provinces of British Columbia, Saskatchewan, Manitoba, and Quebec all have specific provincial sales taxes which apply in those taxing jurisdictions.

However, after many years of sales tax rate stability, 2025 will be a year of change. On October 23, 2024, the Nova Scotia government announced that the provincial portion of the HST (applicable in the province of Nova Scotia only) would be reduced from 10% to 9%—meaning that the overall HST rate in Nova Scotia would be reduced from 15% to 14%. This change will be made effective April 1, 2025, and will require amendments to the legislation that creates the GST/HST Excise Tax Act (ETA).

Although Newfoundland & Labrador, New Brunswick, Prince Edward Island, and Ontario also have HST, none of those provinces are reducing their rates. In addition, none of the PST provinces have announced rate changes for 2025.

Transitional Rules for Nova Scotia HST Rate Reduction

The GST/HST rules are complex, and as a result, a change in the Nova Scotia HST rate is accompanied by transitional rules. On December 20, 2024 the Nova Scotia Department of Finance released the first set of transitional rules.

These transitional rules will be crucial in determining whether a supply in Nova Scotia is subject to HST at the old 15% rate or the new 14% rate.

The General Transitional Rule

The general transition rule will govern the determination of which rate of tax applies. The general rule is that the tax rate will be determined based on the time at which the HST in respect of a transaction becomes payable:

  • The HST at a rate of 15% applies if HST becomes payable before April 1, 2025
  • The HST at a rate of 14% applies if HST becomes payable on or after April 1, 2025

There are rules in the ETA which also explain when tax becomes payable. Essentially, any applicable HST is payable on the earlier of the day consideration is actually paid or the day the consideration becomes due (the consideration generally becomes due on the earliest day the amount is invoiced to a customer or the day payment is required pursuant to a contract). The Canada Revenue Agency outlines additional information regarding the timing of when GST/HST becomes payable.

Specific Transitional Rules for the Sale of Real Property

Sales of real property are governed by a specific transitional rule which states:

  • HST at a rate of 15% will apply to a sale of real property if either ownership or possession of the property is transferred to the purchaser before April 1, 2025
  • HST at a rate of 14% will apply to a sale of real property if both ownership and possession of the property are transferred to the purchaser on or after April 1, 2025

Property and Services Imported into Nova Scotia

In commercial transactions where property or services are imported into Nova Scotia, the provincial component of the HST may need to be self-assessed (for instance, where a purchaser is not entitled to full input tax credits). Goods and services imported prior to April 1, 2025 will require self-assessment at 10%, while goods and services imported on or after April 1, 2025 will generally require self-assessment at 9%. The Federal component of the HST at a rate of 5% may also apply.

Specific Sectors Will Have Their Own Transitional Rules

Special rules will apply to financial institutions (FIs), as well as pension plans (both the participating employers and pension entities themselves) for periods that begin before April 1, 2025 and end on or after April 1, 2025.

Learn more about DMA’s Canada Sales Tax expertise.

Determining the HST Consequences of Taxable Benefits

Organizations must calculate an amount of tax on taxable benefits provided to employees and shareholders. Those benefits are taxable for income tax purposes and also have a GST/HST component. Typically, the HST on those benefits is calculated in accordance with rules set out in the ETA using an amount determined for income tax purposes and a rate specified in the ETA. However, given that the HST rate reduction is happening part way through a calendar year, there will need to be taxable benefit rules that apply in both the transitional year (2025) and different rules for subsequent years (2026 and onward). These rates would be adjusted to reflect the decreased rate of HST in Nova Scotia.

Calendar Year HST on Automobile Operating Benefits HST on Other Employee and Shareholder Benefits
2024 11% 14%
2025 10.25% 13.25%
2026 (and onwards) 10% 13%

The Province of Nova Scotia’s website provides further details on these transitional rules.

Impact on Operations

Organizations will need to review billing and accounts payable processes to ensure HST is properly accounted for on transactions, particularly those that straddle the April 1, 2025 date. Working papers such as expense reports will also need to be reviewed and updated to reflect the new tax rates.

Final Comment

It is anticipated that additional guidance will be provided as we approach the April 1, 2025 transition date. That information will likely be provided by the Canada Revenue Agency, which administers the HST, and may include additional anti-avoidance rules intended to ensure the integrity and fairness to all taxpayers.

Businesses and consumers will need to monitor transactions that occur close to April 1, 2025 to ensure that the appropriate rate of HST is applied on transactions in the province of Nova Scotia.

Effective Tax Rates as of April 1, 2025:

Province/Territory Federal GST/HST Rate Provincial Sales Tax Rate
Alberta 5% n / a
British Columbia 5% 7%
Manitoba 5% 7%
New Brunswick 15% n / a
Newfoundland & Labrador 15% n / a
Northwest Territories 5% n / a
Nova Scotia 14% n / a
Nunavut 5% n / a
Ontario 13% n / a
Prince Edward Island 15% n / a
Quebec 5% 9.975%
Saskatchewan 5% 6%
Yukon Territory 5% n / a

 


This newsletter content should be used for general informational purposes only and not as a substitute for consultation with professional tax, legal, or other competent advisors. Before making any decision or taking any action based upon the information contained on this website, you should consult with a DMA professional.

If you need further information about anything in the newsletter, please get in touch with your DMA advisor, and we will be pleased to assist you. If you are not a current DMA client, please click here to contact us.

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