Tax & Trade Blog

Section 165 of the ETA imposes GST in respect of supplies “made in Canada”.  The so-called “place of supply rules” in section 142 of the ETA serve to deem particular supplies to be made either inside or outside of Canada.  As a result of a legislative inconsistency these rules can conceivably deem a particular supply to be made both inside and outside of Canada.  This inconsistency was analyzed by the TCC in the recent decision of Club Intrawest (2016 TCC 149).  In doing so, the TCC arguably expanded the place of supply rules such that GST now applies to more supplies than even CRA had previously contemplated.

The TCC concluded in Rojas (2016 TCC 177) that the taxpayer’s mortgage-related services were exempt from HST as financial services under ETA subsection 123(1) and not taxable as administrative services provided to a brokerage firm.

The taxpayer was a real estate agent and also assisted clients in obtaining mortgages on the properties they wished to purchase. Because she provided mortgage services, Ontario required her to be licensed as a mortgage broker and also to obtain registration under a mortgage brokerage firm’s umbrella.

For years, the CRA has consistently assessed taxpayers for GST/HST and interest in circumstances where although there was technical non-compliance with the rules, there was no true financial impact to the government. Examples of such situations (e.g. so called “wash transactions”) would include the wrong person collecting and remitting the GST/HST in a closely related group, or GST/HST not being collected in circumstances where the recipient would have been entitled to a full Input Tax Credit (“ITC”) in any event.

The practice of demanding interest for monies that the CRA already had in its possession, albeit received from another person, is viewed as patently unfair by many of the taxpayers so assessed. In the recent GST/HST case Gordon v AGC (2016 FC 643), the Federal Court put into issue the fairness of the CRA’s approach, and found that the CRA must consider waiving interest in these circumstances on a case by case basis.

If your business ever provides a good or service in exchange for advertising, you should be aware of a recent CRA ruling (RITS 2015-158946), dated November 4, 2015), which sets out how GST/HST applies to barter transactions and includes an example of a person who exchanges advertising services for goods or services. Case law such as 9022-8891 Québec Inc. (2006 TCC 60)confirmed that a barter of goods or services for advertising may constitute two taxable transactions for GST/HST purposes. RITS 2015-158946, however, provides more details on the tax consequences of a barter exchange - consideration, place of supply, input tax credits, and zero-rating - and represents a blueprint for the GST/HST analysis of barter transactions.

Gail Baker v The Queen (2016 TCC 120), illustrates the extent to which s. 160 of the Income Tax Act can apply. The decision shows that a taxpayer’s debts may be imposed on his or her inheritors to the extent of any unpaid tax debts at the time of the transferor’s death, even though tax avoidance was not a motivating factor for a transfer of property and the inheritors were unaware of the potential tax liability involved.