Vol. 150, No. 3 — February 10, 2016

Registration

SOR/2016-4 January 26, 2016

EXCISE TAX ACT

Regulations Amending Various GST/HST Regulations, No. 7 (Newfoundland and Labrador — Rebate for Municipalities)

P.C. 2016-24 January 26, 2016

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 277 (see footnote a) and 277.1 (see footnote b) of the Excise Tax Act (see footnote c), makes the annexed Regulations Amending Various GST/HST Regulations, No. 7 (Newfoundland and Labrador — Rebate for Municipalities).

Regulations Amending Various GST/HST Regulations, No. 7 (Newfoundland and Labrador — Rebate for Municipalities)

PART 1

Public Service Body Rebate (GST/HST) Regulations

1 (1) Subparagraph 5(c)(v) of the Public Service Body Rebate (GST/HST) Regulations (see footnote 1) is amended by adding the following after clause (C):

(2) Clause 5(c)(v)(D) of the Regulations, as enacted by subsection (1), is replaced by the following:

2 (1) Subparagraph (i) of the description of A in paragraph 5.4(2)(b) of the Regulations is amended by striking out “or” at the end of clause (A) and by adding the following after that clause:

(2) Subsection 5.4(2) of the Regulations is amended by striking out “and” at the end of paragraph (h) and by adding the following after paragraph (k):

A × B × C

where

D × E × F

where

A × B × C

where

D × E × F

where

(3) The description of A in subparagraph 5.4(2)(l)(i) of the Regulations, as enacted by subsection (2), is replaced by the following:

(4) The description of A in subparagraph 5.4(2)(m)(i) of the Regulations, as enacted by subsection (2), is replaced by the following:

(5) Section 5.4 of the Regulations is amended by adding the following after subsection (2):

(2.1) For the purposes of the new harmonized value-added tax system, subsection 259(4.3) of the Act does not apply in determining the amount of a rebate under section 259 of the Act payable to a person that is a municipality resident in Newfoundland and Labrador.

PART 2

Streamlined Accounting (GST/HST) Regulations

3 (1) Clauses 19(3)(e)(iv)(A) to (D) of the Streamlined Accounting (GST/HST) Regulations (see footnote 2) are replaced by the following:

(2) Clauses 19(3)(e)(iv)(A) to (D) of the Regulations, as enacted by subsection (1), are replaced by the following:

PART 3

New Harmonized Value-added Tax System Regulations

4 The New Harmonized Value-added Tax System Regulations (see footnote 3) are amended by adding the following after section 58.46:

PART 3.2

Newfoundland and Labrador — Rebate for Municipalities

Definitions

58.47 (1) The following definitions apply in this section.

initial supply of a property by a person means

rebate entitlement means the amount of a rebate that a person is entitled to claim under section 259 of the Act in respect of an acquisition of property or that the person would have been so entitled to claim if the property had been acquired for use exclusively in activities that are not commercial activities. (remboursement admissible)

specified portion of the basic tax content, at any time, of property of a person means the amount that would be the basic tax content of the property at that time if only amounts of tax under subsection 165(2), sections 212.1 and 218.1 and Division IV.1 of Part IX of the Act were included in determining that basic tax content. (fraction déterminée de teneur en taxe)

specified tax means an amount of tax payable under subsection 165(2), section 212.1 or 218.1 or Division IV.1 of Part IX of the Act. (taxe déterminée)

Limitation — Newfoundland and Labrador municipalities

(2) For the purposes of determining the rebate entitlement of a person for a claim period, as defined in subsection 259(1) of the Act, of the person that ends after 2015 in respect of all amounts of specified tax that are payable in respect of an acquisition of the property by the person after the person last made a supply of the property by way of sale and that are included in the provincial qualifying amount, as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations, in respect of the property for the claim period of the person, or would have been so included if the property had been acquired for use exclusively in activities that are not commercial activities, that rebate entitlement (in this section referred to as the “specified rebate entitlement”) is to be adjusted, as applicable, in accordance with the rules set out in subsection (3) if

Amount of reduction

(3) For the purposes of subsection (2), the adjustment rules are the following:

A − B

where

A − B

where

PART 4

Application

5 Subsections 1(1) and 2(1), (2) and (5) apply for the purpose of determining a rebate, under section 259 of the Excise Tax Act, of a person for any claim period ending after 2015, except that the rebate is to be determined as if those subsections had not come into force for the purpose of determining a rebate of a person for the claim period of the person that includes January 1, 2016 in respect of

6 Subsections 1(2) and 2(3) and (4) apply for the purpose of determining a rebate, under section 259 of the Excise Tax Act, of a person for any claim period ending after 2016, except that the rebate is to be determined as if those subsections had not come into force for the purpose of determining a rebate of a person for the claim period of the person that includes January 1, 2017 in respect of

7 Subsection 3(1) applies for the purpose of determining the net tax of a registrant for reporting periods ending after 2015, except that the special quick-method rate of the registrant for the reporting period of the registrant that includes January 1, 2016 and that applies in respect of a supply is, in respect of consideration for the supply that is paid or becomes due before January 1, 2016, the special quick-method rate of the registrant for that reporting period that would apply if that subsection had not come into force.

8 Subsection 3(2) applies for the purpose of determining the net tax of a registrant for reporting periods ending after 2016, except that the special quick-method rate of the registrant for the reporting period of the registrant that includes January 1, 2017 and that applies in respect of a supply is, in respect of consideration for the supply that is paid or becomes due before January 1, 2017, the special quick-method rate of the registrant for that reporting period that would apply if that subsection had not come into force.

9 Section 4 is deemed to have come into force on July 15, 2015.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

On April 30, 2015, the Government of Newfoundland and Labrador announced its intention to introduce a partial public service body (PSB) rebate of the provincial component of the Harmonized Sales Tax (HST) for municipalities in Newfoundland and Labrador.

In order to facilitate the introduction of a PSB rebate for municipalities, the Government of Newfoundland and Labrador announced transitional rules on July 15, 2015, and December 14, 2015. These rules specify the rebate eligibility of transactions that straddle the implementation date of January 1, 2016. With the passage of the Provincial Choice Tax Framework Act on December 15, 2009, Parliament approved mechanisms to facilitate the application of the harmonized value-added tax system by way of regulations. Amendments to existing Goods and Services Tax/Harmonized Sales Tax (GST/HST) regulations are therefore required in order to implement Newfoundland and Labrador’s decision to introduce a PSB rebate for municipalities.

Objectives

The Regulations Amending Various GST/HST Regulations, No. 7 (Newfoundland and Labrador — Rebate for Municipalities) [the Regulations] amend existing GST/HST regulations made under the Excise Tax Act to formalize and give legal effect to Newfoundland and Labrador’s decision to introduce a PSB rebate for municipalities.

Description

The Regulations contain rules relating to the harmonized value-added tax system. Specifically, the Regulations include amendments to the following regulations:

Public Service Body Rebate (GST/HST) Regulations

Under the GST/HST, PSBs such as hospitals, schools, universities, public colleges, municipalities, charities and substantially government-funded non-profit organizations are entitled to claim full or partial rebates of the GST/HST paid on their purchases of property and services for use in non-commercial activities. The Excise Tax Act sets out the rules relating to these rebates and provides the authority to prescribe the rebate rates applicable to the provincial component of the HST for each class of PSB, the property and services in respect of which rebates are disallowed, and rules for calculating the rebates. These Regulations contain these prescribed rates and rules.

Under the HST framework, participating provinces have the flexibility to determine the PSB sectors to which rebates of their provincial component of the HST are to be provided and the respective provincial rebates rates. Consequential to the different PSB rebates rates, these Regulations also provide rules for determining the appropriate PSB rebates of the provincial component of the HST for a PSB that carries on more than one PSB activity or that is resident in, and carries on activities in, more than one province.

These Regulations are amended to implement a PSB rebate of the provincial component of the HST in Newfoundland and Labrador. In particular, a rebate at a rate of 25% of the provincial component of the HST is generally available to municipalities, effective January 1, 2016, increasing to 57.14% effective January 1, 2017.

Streamlined Accounting (GST/HST) Regulations

These Regulations provide small businesses and eligible PSBs optional simplified methods (i.e. a Quick or Special Quick Method) of calculating their GST/HST remittances. These methods allow the business or PSB to remit an amount of tax that is a percentage (the “remittance rate”) of its eligible GST/HST-included sales. This allows the entity to avoid having to separately keep track of the GST/HST paid on purchases and collected on sales. Certain transactions are excluded from these rules (e.g. the sale or purchase of real property). In such cases, the tax must be accounted for separately under the normal GST/HST rules.

In the case of eligible PSBs, since a portion of the GST/HST paid on purchases will still be effectively recoverable through a PSB rebate, the remittance rates are determined by taking into account the level of the applicable PSB rebate.

These Regulations are amended to provide for new remittance rates under the streamlined accounting methods, consequential to the introduction of a PSB rebate for municipalities in Newfoundland and Labrador.

New Harmonized Value-added Tax System Regulations

These Regulations contain various rules that relate to the harmonized value-added tax system under the Excise Tax Act. To facilitate an orderly transition to the new partial PSB rebate of the provincial component of the HST in Newfoundland and Labrador for municipalities and to protect the integrity of the tax system, these Regulations are amended to include an anti-avoidance rule. This rule could reduce the amount of a new PSB rebate otherwise available in respect of certain specific transactions, such as a sale and buyback of property, which was originally acquired before the introduction of the new PSB rebate, where the transactions were entered into without a bona fide purpose other than benefiting from the new PSB rebate.

“One-for-One” Rule

The “One-for-One” Rule does not apply to these amendments, since there is no change in the administrative costs to business.

Small business lens

The small business lens does not apply, as these amendments impose no costs on small business.

Consultation

The Regulations are designed to reflect the rules announced by Newfoundland and Labrador on July 15 and December 14, 2015, which were developed in consultation with the Government of Newfoundland and Labrador.

Rationale

The Regulations are required as a result of the Government of Newfoundland and Labrador’s decision to introduce a PSB rebate for municipalities in Newfoundland and Labrador, effective January 1, 2016. The Regulations formalize and give legal effect to previously announced amendments.

Contacts

François Beaulieu
Sales Tax Division
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-3789

Patrick McKinnon
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
16th Floor, Place de Ville, Tower A
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613-954-7959