Tax & Trade Blog

A great new year’s resolution for Directors of a Canadian private corporations is to brush up on GST/HST and income tax compliance!  The reason is that where a corporation incurs a tax debt for GST, HST or income tax source withholdings, the directors of those corporations can be held personally liable.  For GST/HST purposes, this potential liability encompasses virtually all the net tax obligations of the corporation!  

A recent case demonstrates the high standard directors need to uphold, even when imposed with incredibly difficult situations in which the government has played a hand.

If there was such a thing as a “10-Alarm” fire, CRA’s public release of GST Interpretation RITS 202403 would seem to fit that bill.

In this April 2023 Interpretation – issued only a few weeks ago – CRA takes the view that Employers with pension funds invested in an insurer’s segregated funds, are NOT eligible to claim ITCs for the GST/HST payable on the investment management fees (“IM Fees”) paid directly out of those funds.

On one level of analysis, CRA has done an about-face and reversed a prior 2012 Ruling in this area (which seemed to have addressed the same situation).  While CRA may disagree with that statement, this does appear to be a potentially significant “reinterpretation”.

When our Firm sees a spike in Ontario Employer Health Tax (“EHT”) files, we know that something is up.  And this may not bode well for employers that have traditionally viewed Ontario’s relatively low-rate EHT as an unimportant tax, delegating its compliance to payroll providers, staff members, and others.

Background

Ontario’s EHT is an employer liability payroll tax imposed on total Ontario remuneration paid to current and former employees.  With the  employer’s “exemption amount” (recently raised to $1,000,000 for most “eligible employers” until 2029), the effective rate is exceedingly low.  For example, a payroll of $2,000,000 would give rise to less than $20,000 in annual EHT.  Not really enough to keep anyone up at night and definitely not enough to build a fabulous law practice out of!

One of the more notable differences between Income Tax and GST/HST is that for GST/HST purposes partnerships are expressly defined to be “persons” – separate from the partners of the partnership.  Most provincial sales tax statues take the same approach and define partnerships to be separate legal persons.  However, this is not the case in British Columbia (“BC”), which is the sole Canadian jurisdiction that does not treat partnerships as persons for Provincial Sales Tax (“PST”) purposes.

This could change as the BC Ministry of Finance (the “Ministry”) has released a Consultation Paper seeking feedback on proposed legislative changes to bring BC in line with the rest of Canada.  Subject to public support, the Ministry has identified four legislative or regulatory changes which would be required:

As we blogged about here, experienced indirect tax practitioners will know to always check section 154 of the Excise Tax Act (“ETA”) when dealing with provincial taxes and to think about whether the that provincial tax is excluded from the “consideration” for the supply. If the provincial tax is not excluded, it means that GST will be applied on top of the provincial tax — in effect meaning there will be tax (GST) on the tax (provincial sales tax).

The most recent issue of the CRA Excise and GST/HST News explained how the GST applies on top of British Columbia’s Major Events Municipal and Regional District Tax ( “Major Events Tax” or “MET”) and serves as another example of this principle in practice.