Regulations Amending Various GST/HST Regulations, No. 12: SOR/2023-161

Canada Gazette, Part II, Volume 157, Number 16

Registration
SOR/2023-161 July 13, 2023

EXCISE TAX ACT

P.C. 2023-738 July 13, 2023

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending Various GST/HST Regulations, No. 12 under sections 277^{footnote a} and 277.1^{footnote b} of the Excise Tax Act ^{footnote c}.

Regulations Amending Various GST/HST Regulations, No. 12

Public Service Body Rebate (GST/HST) Regulations

1 Clause 5(c)(i)(D.1) of the Public Service Body Rebate (GST/HST) Regulations ^{footnote 1} is replaced by the following:

(D.1) Prince Edward Island, 50%, and

2 The description of A in paragraph 5.4(2)(k) of the Regulations is replaced by the following:

A is 50%,

Streamlined Accounting (GST/HST) Regulations

3 (1) The portion of subparagraph 19(3)(a)(ii) of the Streamlined Accounting (GST/HST) Regulations ^{footnote 2} before clause (A) is replaced by the following:

(ii) if the registrant makes the particular supply through a permanent establishment of the registrant in Nova Scotia, New Brunswick, Prince Edward Island or Newfoundland and Labrador,

(2) Paragraph 19(3)(a) of the Regulations is amended by adding “and” at the end of subparagraph (ii) and by repealing subparagraph (iii).

(3) The portion of subparagraph 19(3)(a)(iv) of the Regulations before clause (A) is replaced by the following:

(iv) if subparagraphs (i) and (ii) do not apply,

Federal Book Rebate (GST/HST) Regulations

4 The schedule to the Federal Book Rebate (GST/HST) Regulations ^{footnote 3} is amended by adding the following in alphabetical order:

Twice Upon a Time/Il était deux fois

New Harmonized Value-added Tax System Regulations

5 The New Harmonized Value-added Tax System Regulations ^{footnote 4} are amended by adding the following after section 58.62:

PART 3.6

Prince Edward Island — 2023 Rebate Rate Change for Charities and Qualifying Non-Profit Organizations

Definitions

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

initial supply

of property by a person means

(a) if any supply by way of sale of the property was made by the person after February 24, 2022 but before 2023, the last supply by way of sale of the property made by the person before 2023; and
(b) in any other case, the first supply by way of sale of the property made by the person after 2022. (fourniture initiale)

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 — Prince Edward Island

(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 2022 in respect of all amounts of specified tax that are payable in respect of an acquisition of 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

(a) the property is property of the person at any time before 2023;
(b) the person makes a particular taxable supply by way of sale of the property after February 24, 2022;
(c) the person is the recipient of another taxable supply of the property (in this section referred to as the “reacquisition”) after the time at which the particular taxable supply was made and an amount of specified tax in respect of the reacquisition becomes payable, or is paid without having become payable, on a particular day that is after 2022;
(d) on the last day of the claim period of the person that includes the particular day, or on the last day of the person’s fiscal year that includes that claim period, the person is a charity, as defined in subsection 259(1) of the Act, or a qualifying non-profit organization within the meaning of subsection 259(2) of the Act; and
(e) the particular taxable supply and the reacquisition of the property are part of a transaction or series of transactions that may not reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to, directly or indirectly, benefit in any manner from a change made to the specified provincial percentage, as defined in subsection 259(1) of the Act, applicable to the person in relation to Prince Edward Island as a result of the Regulations Amending Various GST/HST Regulations, No. 12 being made.

Amount of reduction

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

(a) if the reacquisition is a supply by way of sale, the specified rebate entitlement is reduced by the amount determined by the formula

A − B

where

A

is the specified portion of the basic tax content of the property at the time at which the initial supply of the property was made, and

B

is the amount that would be, if no improvements had been made by the person to the property since the last acquisition of the property by the person and in the absence of this paragraph, the specified portion of the basic tax content of the property at the end of the claim period; and
(b) if the reacquisition is a supply made otherwise than by way of sale,
- (i) if the total (in this paragraph referred to as the “total tax”) of all amounts — each of which is an amount of specified tax 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 that becomes payable, or is paid without having become payable, during the claim period — is less than the specified portion of the basic tax content of the property at the time at which the initial supply of the property was made, the specified rebate entitlement is nil, or
- (ii) if subparagraph (i) does not apply and the total tax minus the amount that would be the specified rebate entitlement in the absence of this subparagraph is less than the specified portion of the basic tax content of the property at the time at which the initial supply of the property was made, the specified rebate entitlement is the amount determined by the formula
  
  A − B
  
  where
  
  A
  
  is the total tax, and
  
  B
  
  is the specified portion of the basic tax content of the property at the time at which the initial supply of the property was made.

New Harmonized Value-added Tax System Regulations, No. 2

6 The adapted version of paragraphs 259.1(2)(a) and (b) of the Excise Tax Act, in section 47.1 of the New Harmonized Value-added Tax System Regulations, No. 2 ^{footnote 5}, is replaced by the following:

(a) in the case of a specified person described in paragraph (f) of the definition specified person in subsection (1), the person does not acquire, import or bring in the specified property for any of the following purposes:
- (i) the purpose of making a supply by way of sale of the specified property for consideration, and
- (ii) the purpose of transferring ownership of the specified property to another person in the course of supplying another property or a service for consideration; and
(b) in any other case, the person does not acquire, import or bring in the specified property for any of the following purposes:
- (i) the purpose of making a supply by way of sale of the specified property, and
- (ii) the purpose of transferring ownership of the specified property to another person in the course of supplying another property or a service.

Application

7 Sections 1 and 2 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 2022, except that the rebate is to be determined as if those sections 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, 2023 in respect of

(a) an amount of tax that became payable by the person before 2023;
(b) an amount that is deemed to have been paid or collected by the person before 2023; or
(c) an amount that is required to be added in determining the person’s net tax as a result of
- (i) a branch or division of the person becoming a small supplier division before 2023, or
- (ii) the person ceasing to be a registrant before 2023.

8 Section 3 applies for the purpose of determining the net tax of a registrant for reporting periods ending after 2022, except that the special quick-method rate of the registrant for the reporting period of the registrant that includes January 1, 2023 and that applies in respect of a supply is, in respect of consideration for the supply that is paid or becomes due before 2023, the special quick-method rate of the registrant for that reporting period that would apply if that section had not come into force.

9 Section 4 is deemed to have come into force on the day that is four years before the day on which these Regulations are published in the Canada Gazette.

10 Section 5 is deemed to have come into force on February 24, 2022.

11 Section 6 applies to any acquisition, importation or bringing into a participating province of property in respect of which tax

(a) becomes payable after July 27, 2018 without having been paid on or before that day; or
(b) is paid after July 27, 2018 without having become payable on or before that day.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The regulations consist of measures relating to the Goods and Services Tax/Harmonized Sales Tax (GST/HST) that deal with the following subjects:

Prince Edward Island (P.E.I.) HST Rebate for Charities; and
GST/HST Printed Book Rebate.

P.E.I. HST Rebate for Charities

On February 24, 2022, the Government of P.E.I. announced its intention to increase the partial public service body rebate of the provincial component of the HST for charities and qualifying non-profit organizations in P.E.I., from 35% to 50%.

In accordance with the Comprehensive Integrated Tax Coordination Agreement between Canada and P.E.I., the Government of Canada has a commitment to amend the HST Regulations to implement the decision by P.E.I. to increase rate of the partial rebate.

GST/HST Printed Book Rebate

As a result of recent amendments to the Excise Tax Act to clarify the application of the GST/HST printed book rebate, consequential regulatory amendments are required to maintain consistency between the wording of the Excise Tax Act and the regulations under that Act.

With respect to the Federal Book Rebate (GST/HST) Regulations, the amendment would add the charity, Twice Upon a Time/Il était deux fois, to the list of not-for-profit literacy institutions eligible for the GST/HST federal printed book rebate to enable that charity to claim that rebate.

Background

P.E.I. HST Rebate for Charities

The HST is imposed in participating provinces, including P.E.I., under federal legislation and administration. Under the GST/HST, public service bodies (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 Governor in Council with 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. The Public Service Body Rebate (GST/HST) Regulations contain these prescribed rates and rules.

The Comprehensive Integrated Tax Coordination Agreements (CITCAs) between the Government of Canada and each of the participating provinces detail the parameters that govern the imposition of the HST in those provinces. By entering into a CITCA, P.E.I. is a participating province in the HST framework and has the flexibility to determine which PSB sectors are to be provided rebates of the provincial component of the HST and the respective provincial rebates rates. In turn, the Government of Canada is required to implement such decisions by P.E.I. 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.

The Streamlined Accounting (GST/HST) 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.

The New Harmonized Value-added Tax System Regulations contain various special rules that relate to the HST. For example, these regulations contain HST place of supply rules that are used to determine whether a supply that is made in Canada is made in an HST participating province. These regulations also set out anti-avoidance rules to prevent persons from improperly taking advantage of a change in the new harmonized value-added tax system under the Excise Tax Act. Such changes include the addition of a province to the system, a change to the tax rate of a participating province or a change to a rebate of the provincial component of the HST. Generally speaking, where a person enters into a transaction to obtain a tax benefit as a result of the change to the system, and not primarily for bona fide purposes other than to obtain the tax benefit, the anti-avoidance rules may allow the Minister of National Revenue to assess the person to deny the tax benefit.

GST/HST Printed Book Rebate

Under the GST/HST, specified persons (e.g. public libraries, educational institutions, as well as certain literacy organizations prescribed by regulations) may be eligible for rebates equal to the GST or the federal component of the HST payable in respect of their acquisition or importations of printed books and other specified property (e.g. audio recordings of printed books).

The HST regulations, including the New Harmonized Value-added Tax System Regulations, No. 2, contain various special rules that relate to the HST. In particular, the New Harmonized Value-added Tax System Regulations, No. 2 provide that, in general, the provincial component of the HST may also be included in determining such a rebate (currently, this regulatory provision is inoperative because the HST provinces already offer relief of the provincial component of the HST by way of a separate point-of-sale rebate). Recent amendments were made to the Excise Tax Act to clarify the application of the GST/HST printed book rebate; specifically, the amendments clarified that the exception to the rebate applies whether specified property is acquired or imported for the purpose of making a supply by way of sale of the specified property or for the purpose of transferring ownership of the specified property in the course of supplying another property or a service.

A charity or a qualifying non-profit organization whose primary purpose is the promotion of literacy is eligible to be prescribed under the Federal Book Rebate (GST/HST) Regulations for purposes of claiming the printed book rebate. Such entities may make a request to the Canada Revenue Agency to be added to the list of charities and qualifying non-profit organizations that are prescribed for the purposes of the rebate. Twice Upon a Time/Il était deux fois is a charity whose primary purpose is the promotion of literacy and that has made such a request.

Objective

P.E.I. HST Rebate for Charities

The overall objective of the regulations is to amend existing GST/HST regulations made under the Excise Tax Act to formalize and give legal effect to P.E.I.’s decision to increase the rate of the partial rebate of the provincial component of the HST for charities and qualifying non-profit organizations. The regulatory amendments are necessary for Canada to fulfill its obligations under the Canada-P.E.I. Comprehensive Integrated Tax Coordination Agreement in respect of the implementation of P.E.I.’s tax policy flexibility.

GST/HST Printed Book Rebate

With respect to the Federal Book Rebate (GST/HST) Regulations, the amendment would add the charity, Twice Upon a Time/Il était deux fois, to the list of literacy institutions eligible for the GST/HST federal printed book rebate and help to promote literacy.

Description

The regulations include amendments to the following regulations:

P.E.I. HST Rebate for Charities

Public Service Body Rebate (GST/HST) Regulations: These regulations are amended to put into effect an increase to the rate of the partial rebate of the provincial component of the HST in P.E.I. for charities and qualifying non-profit organizations (QNPOs) from 35% to 50% , effective retroactively as of January 1, 2023.
Streamlined Accounting (GST/HST) Regulations: Amendments provide for new remittance rates under the streamlined accounting methods effective as of January 1, 2023, consequential to the increased PSB rebate for charities and qualifying non-profit organizations in P.E.I.
New Harmonized Value-added Tax System Regulations: These regulations contain various rules that relate to the HST. To facilitate an orderly transition to the increase of the partial rebate for charities and QNPOs, these regulations are amended to enact an anti-avoidance transitional rule related to the increase. This rule could reduce the amount of a 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 increased rebate, where the transactions were entered into without a bona fide purpose other than benefiting from the increased rebate. These amendments are deemed to have come into force retroactively on February 24, 2022, the date on which the increased rebate rate was announced by P.E.I.

GST/HST Printed Book Rebate

New Harmonized Value-added Tax System Regulations, No. 2: These regulations contain various rules that relate to the HST, including a rule that adapts the Excise Tax Act to provide that, in general, the provincial component of the HST may be included in determining a GST/HST printed book rebate for qualifying public service bodies under that Act. As a result of recent amendments to the Excise Tax Act to clarify the application of the GST/HST printed book rebate, these regulations are amended to make consequential amendments to maintain consistency between the wording of the Excise Tax Act and these regulations. This amendment generally applies in respect of tax paid or payable after July 27, 2018, the date on which both the legislative and the regulatory amendments were announced.
Federal Book Rebate (GST/HST) Regulations: These Regulations list the literacy charities and qualifying non-profit organizations that are eligible for a 100% rebate of the GST or federal portion of the HST paid on printed books, audio recordings of printed books, and printed versions of religious scriptures. The amendment would add the charity, Twice Upon a Time/Il était deux fois, to the list of literacy institutions that are prescribed for the purposes of the rebate. This amendment is deemed to have come into force on the day that is four years before the day on which these Regulations are published in the Canada Gazette.

Regulatory development

Consultation

Key stakeholders:

Government of Prince Edward Island;
Prince Edward Island charities and qualifying non-profit organizations (QNPOs); and
Public libraries, educational institutions and literacy organizations.

The measures in the regulations have been the subject of previous announcements/consultations, which did not result in comments, or respond to a request by a single taxpayer, as described below.

P.E.I. HST Rebate for Charities

The regulations amend existing GST/HST regulations made under the Excise Tax Act to formalize and give legal effect to P.E.I.’s decision to increase the rate of the partial rebate of the provincial component of the HST for charities and QNPOs. The increased rebate is a matter of provincial tax policy. P.E.I. publicly announced the increase on February 24, 2022.

GST/HST Printed Book Rebate

The amendments to the New Harmonized Value-added Tax System Regulations, No. 2 were previously announced by way of a July 27, 2018, Department of Finance news release. The addition to the list of literacy entities eligible for the GST/HST printed book rebate is being made following a request by the entity in question.

Modern treaty obligations and Indigenous engagement and consultation

In respect of the Regulations, no impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

Under Part IX of the Excise Tax Act, the Governor in Council has the authority to determine rules relevant to the application of the GST/HST. In order to provide certainty to stakeholders, the measures contained in the amending regulations must be made into law and regulatory amendments are an appropriate mechanism by which to implement such rules.

Regulatory analysis

Benefits and costs

By codifying previously announced rules, the regulations would provide certainty about the legal application of the rules to taxpayers and tax practitioners who are awaiting their publication. No impacts on business are anticipated.

P.E.I. HST Rebate for Charities

The part of the regulations that formalizes and gives legal effect to P.E.I.’s decision to increase the partial rebate of the provincial component of the HST for charities and qualifying non-profit organizations relates to an exercise of provincial tax policy flexibility under the HST framework and any benefits and costs of the increased rebate are attributable to P.E.I. Implementing the rebate rate change will enable the federal government to meet its commitment under the Comprehensive Integrated Tax Coordination Agreement between Canada and P.E.I.

GST/HST Printed Book Rebate

Similar to other literacy organizations that are already listed in the Federal Book Rebate (GST/HST) Regulations, the addition of the charity, Twice Upon a Time/Il était deux fois, will enable it to access GST/HST relief in relation to tax paid on eligible property such as printed books and help to promote literacy.

Small business lens

Analysis under the small business lens concluded that the proposed regulation will not impact Canadian small businesses.

One-for-one rule

The one-for-one rule does not apply, as there is no impact on businesses.

Regulatory cooperation and alignment

The Regulations are not linked to an international agreement. Nevertheless, changes to the HST rebate for charities and qualifying non-profit organizations in P.E.I. are linked to the Comprehensive Integrated Tax Coordination Agreement entered into between Canada and P.E.I. Under that agreement the Province is entitled to some elements of provincial tax policy flexibility for which a federal regulatory amendment is required to implement a change.

The other measures outlined in the Regulations do not have a jurisdictional alignment or cooperation aspect.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for these proposals.

Implementation, compliance and enforcement, and service standards

The amendments will be administered by the Canada Revenue Agency. The provisions contained in the amending regulations come into force as outlined above in the description section.