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NEW BUDGET TWEAKS INDIRECT TAX RULES

BUDGET 2025 HARD TO CELEBRATE BUT PROPOSES SOME GOOD INDIRECT TAX CHANGES

Canada's Budget 2025 was launched on November 4^th with the energy of a lead balloon. Yes, despite the doom and gloom focus on the continuing deficit financing by the Liberal Government – off-loading our current woes on the backs of our children and grandchildren – there were some (largely) positive changes from an Indirect Tax perspective.

The highlights, in our view, are as follows.

Reverse-Charge (Purchaser Self Account) Rules to Deal with Fraud - Some industries (like telecommunications) have been susceptible to GST fraud (e.g., vendors charging GST/HST, collecting GST/HST from unsuspecting purchasers, and going missing with the money). Budget 2025 proposes rules that will create a self-reporting non-collection regime (often called the "reverse-charge" in the European VAT context) specifically for telecommunications. This is a welcomed change, and one called for by us in our Recent Jurisprudence presentation at the 2024 CPA Symposium – among others. Other industries can also benefit from this sort of system. Examples include the construction industry and the scrap gold industry. Finance has indicated that it is currently consulting on these possible expansions.

Under-Utilized House Tax (UHT) – The Under-Utilized House Tax has been yanked. This is good news. It was overly broad, which led to confusion, bureaucracy, and poor compliance. Many taxpayers who were never the intended targets had to file a UHT return while also claiming exemption. The whole framework was widely viewed as unworkable, and few will miss it.

Luxury Tax ("LT") – The equally disdainful Luxury Tax on high-priced aircraft, vessels and automobiles is also being tweaked – although it is difficult to understand the tax policy in the changes. The LT on aircraft and vessels will be eliminated. The LT on luxury vehicles over $100,000 remains. The "exemption" for RVs will thankfully remain.

Joint Venture Changes – For some time, qualifying joint ventures ("JV") had been allowed to elect the operator of the JV to report on everyone else's behalf for GST purposes. Traditionally, the rules have worked well but been criticized being too restrictive in application. Prior to Budget 2025, Finance had proposed an unnecessary overcorrection: to entirely replace the rules with a misguided and cumbersome new regime. This was met with wide-spread opposition. Budget 2025 does NOT make those changes, and many suggest that they have stalled, and may not proceed. This is good news. Hopefully the existing rules will just be expanded.

Customs & Trade Changes – Not much changed on the customs and trade front, but one welcomed absence was that a proposed change to implement Customs Value for Duty changes did NOT make the Budget Announcements.

Audit & Investigation Powers – Budget 2025 also confirmed that a host of measures related to non-compliance with audit and information requests set out in an August 2025 Finance announcement will be moving forward. Notices of Non-Compliance will therefore soon be coming, along with attendant penalties for non-response ($50 per day up to a $50,000 maximum).

Tax Court Changes – Budget 2025 has indicated that the current $50,000 per determination rules, limiting access to the "Informal Procedure", need to be updated and soon will be. This will be an important change from an "Access to Justice" perspective.

Takeaways

Budget 2025 had some good changes from an Indirect Tax perspective.  Time will tell whether the Budget will pass, and how the CRA will begin administering these changes.

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