Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the GST/HST registration and collection regime for short-term rental accommodation platforms (like AirBnb) and the underlying persons offering the accommodations to ensure GST/HST is properly collected on these supplies. This article gives a high-level overview of the proposed changes—which will be especially important to anyone who rents out their property on these platforms!
Tax & Trade Blog
Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the registration and collection regime for fulfillment warehouses (like Amazon) to ensure that vendors collect GST/HST on the final price paid for their goods when they are sold in Canada. This article gives a high-level overview of these specific changes.
When a supplier pays GSTH/HST on a property or service acquired for consumption, use or supply in the course of commercial activities, the supplier is entitled to claim an input tax credit (“ITC”) equal to the tax paid on expenses incurred: see section 169 of the Excise Tax Act (“ETA”).
“Commercial activity” excludes exempt supplies listed in Schedule V of the ETA. (Suppliers that make exempt supplies do not charge and collect GST on their outputs, and are thus also ineligible to claim ITCs on inputs.)
This area has been ripe for recent assessments, with the CRA often struggling to determine whether exempt or commercial (taxable) supplies are being made. In many instances, the CRA assesses suppliers making “exempt” supplies on the basis that their supplies are actually taxable, assessing large amounts for “GST not collect”: see, for example, Applewood Holdings Inc. v. The Queen and Zomaron Inc. v. The Queen, the suppliers challenged the CRA’s conclusion of “taxable” supplies in the Tax Court of Canada (“TCC”), arguing that their services were in fact exempt financial services. The suppliers won on “exempt” supplies argument at the court, thus, relieving them from any obligation to charge and collect GST/HST on their services. (Note the possible downside of the “winning” such an assessment, as that usually leads to a denial of ITCs that may have been inadvertently claimed by the exempt supplier, which was highlighted in our prior blog on Applewood.)
In other cases, the CRA makes a 180 degree-turn and takes the position that the suppliers providing “taxable supplies” (and collecting GST, and claiming ITCs) are in fact either not making supplies for consideration, or are making exempt supplies – in an attempt to deny the ITCs that have been historically claimed. Such is the case in Canadian Legal Information Institute v. The Queen, 2020 TCC 56 (CanLII).
Carousel Schemes & Scrap Gold Featured
One of the CRA’s latest projects appears to involve the scrap gold and telecommunications industries, which has been the subject of a number of recent CRA audits, culminating in a number of legal challenges in various contexts.
In the May 2020 case of Express Gold Refining Ltd. v. Canada, the taxpayer was in the business of buying scrap gold and other precious metals, and getting it refined for resale in a pure form. It paid the GST/HST on its purchases, but did not collect this tax on its sales on the basis that sales of refined precious metals are not subject to GST/HST. It generally filed credit returns, and the CRA began an audit – while delaying a GST refund of near $10 million. While not identifying this as a “GST carousel” audit, the CRA did admit that the taxpayer’s GST return had initially been flagged by an automatic system for further screening, and that the CRA had identified the scrap gold business as “a high risk industry”.
In Iris Technologies Inc. v. Canada, a more recent “GST carousel” case released over the summer months – albeit in the telecommunications sector – the CRA did appear to accuse the taxpayer of participating in a “carousel scheme”, all the while attempting to deny ITCs of over $62 million!
In a prior blog, we had suggested that rectification, rescission, and other equitable remedies would likely no longer be available to correct most tax mistakes. This conclusion stemmed from the Supreme Court of Canada (SCC) decision in Canada (Attorney General) v. Fairmont Hotels Inc. (2016 SCC 56) (“Fairmont”) and the subsequent Ontario Court of Appeal decision in Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018 ONCA 562) (“Canada Life”). Both of these decisions highlighted the Courts’ concerns with taxpayers using equitable remedies to effect what might be considered “retroactive tax planning”.
However, in a recent decision, the British Columbia Court of Appeal (BCCA) has kept a window open for rescission in tax matters!