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AMENDMENTS TO INDIRECT TAX RULES INCOMING

BILL C-31 NOW BEFORE FINANCE STANDING COMMITTEE & NEAR ENACTMENT

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As a follow up to our previous report on Canada’s Budget 2025 (the “Budget”), certain indirect tax measures proposed in the Budget are now being considered by Parliament, as the Budget 2025 Implementation Act, No. 2 (“Bill C-31”) received its second reading on June 3, 2026, and is currently at the House of Commons Standing Committee on Finance for consideration.

In this report, we highlight some of the proposed amendments to Canada’s indirect tax rules contained in Bill C-31

Tax Court Informal Procedure Thresholds

The key amendment in Bill C-31 is the increase in the threshold for the Tax Court’s informal procedure for GST appeals under the Excise Tax Act (“ETA”), and which will increase the informal procedure threshold from $50,000 to $100,000. From an “access to justice” perspective, this amendment should lower litigation costs for small businesses and encourage a more efficient allocation of Tax Court resources. Unfortunately, the threshold for Excise Act, 2001 appeals remains at a fairly low $25,000.

Compelled Testimony Off the Table

One of the most contentious items in the Budget is seemingly off the table for now, with Bill C-31 no longer containing proposed powers to compel testimony from taxpayers under oath or affirmation. That being said, Bill C-31 does contain amendments to the ETA that will allow the CRA to share information with International Tax Authorities with which Canada has information-sharing agreements!

Clarified Tax Treatment of Credit Unions

Bill C-31 amends the definition of “bank” under the ETA to exclude credit unions and also amends the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (the “SLFI Regulations”) to provide specific rules for credit unions, distinct from those applicable to insurers and trust/loan corporations for permanent establishment and percentage allocation rules for participating provinces.

Survival of GST/HST Reporting Elections

GST/HST reporting elections between a supplier and its agent under ss. 177(1.1)-(1.11) of the ETA may survive an amalgamation, merger or wind-up of either party as Bill C-31 contains an amendment including those provisions in the Amalgamations and Windings-Up Continuation (GST/HST) Regulations.

Imported Supply Rules & Insurance Polices / Loans

Bill C-31 contains amendments which seek to clarify the application of the imported supply rules to financial institutions with respect to insurance policies or loans related to persons resident in / located in Canada. In particular, the definition of “Canadian activity” under s. 217 of the ETA is set to include insurance policies covering Canadian property / residents and loans (i.e., debts) connected to Canada.

Takeaways

A number of changes may be coming to Canada’s indirect tax rules as Bill C-31 is now before the Standing Committee on Finance, and very near enactment – expected this Fall as Parliament resumes.

While there have been some positive developments since our previous report, most notably the increase threshold for the Tax Court’s informal procedure to $100,000 and the removal of powers to compel taxpayer testimony from the draft legislation, Bill C-31 may undergo further changes as it makes its way through Parliament before receiving royal assent.

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