FEDERAL REG

SOR/2016-119: Regulations Amending Various GST/HST Regulations, No. 8

REGISTRATION OF FEDERAL REGULATION - VIA OIC DATABASE, PRIOR TO PART II OF THE GAZETTE

Registered
June 3, 2016


REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues On February 2, 2016, the Government of New Brunswick announced its intention to increase the rate of the New Brunswick component of the Harmonized Sales Tax (HST) from 8 per cent to 10 per cent, effective July 1, 2016. Also, on April 14, 2016, the Government of Newfoundland and Labrador announced its inte... (Click for more)


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Published on June 3, 2016

Bill Summary

SOR/2016-119: Regulations Amending Various GST/HST Regulations, No. 8

REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues On February 2, 2016, the Government of New Brunswick announced its intention to increase the rate of the New Brunswick component of the Harmonized Sales Tax (HST) from 8 per cent to 10 per cent, effective July 1, 2016. Also, on April 14, 2016, the Government of Newfoundland and Labrador announced its intention to increase the rate of the Newfoundland and Labrador component of the HST from 8 per cent to 10 per cent, effective July 1, 2016. Therefore, when combined with the 5 per cent federal component, the HST rate for New Brunswick and for Newfoundland and Labrador (including the Newfoundland offshore area) will increase to a rate of 15 per cent from the current rate of 13 per cent. Finally, on March 22, 2016, Budget 2016 announced simplification measures relating to the existing reporting requirements that apply to builders in respect of certain new housing sales (grandparented housing). These are sales that are subject to a special transitional relief under HST transitional rules when a province joins the HST or when the rate of the provincial component of the HST is increased. Also, in order to facilitate the implementation of the increases to the HST rate in New Brunswick and in Newfoundland and Labrador, transitional rules were announced in the form of a detailed notice by the Government of New Brunswick on March 30, 2016, and by the Government of Newfoundland and Labrador on May 3, 2016. These rules specify the tax rate applicable to transactions that straddle the implementation date of July 1, 2016. With the passage of the Provincial Choice Tax Framework Act on December 15, 2009, Parliament approved that the regulatory approach would serve as the mechanism to facilitate a change in the provincial component of the HST. Amendments to existing Goods and Services Tax/Harmonized Sales Tax (GST/HST) regulations are therefore required in order to implement the decisions of New Brunswick and Newfoundland and Labrador to increase the rate of the provincial component of the HST in their respective province and to implement the simplification measures relating to the existing reporting requirements in respect of sales of grandparented housing. Where necessary, the amendments described below that relate to Newfoundland and Labrador also apply to the Newfoundland offshore area. Background The HST is imposed in participating provinces under federal legislation and administration. 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. Under the CITCAs, each participating province may exercise some flexibility in certain areas covered by the agreement, such as establishing the rate of its provincial component of the HST. Objectives The Regulations Amending Various GST/HST Regulations, No. 8 (the Regulations) amend existing GST/HST regulations made under the Excise Tax Act (the Act) to formalize and give legal effect to the decisions of New Brunswick and Newfoundland and Labrador to increase the rate of the provincial component of the HST in their respective province and to the Budget 2016 announcement to simplify certain reporting rules related to the HST in respect of sales of grandparented housing. Description The Regulations contain rules relating to the harmonized value-added tax system. Specifically, the Regulations include amendments to the following regulations: — New Harmonized Value-added Tax System Regulations; — Games of Chance (GST/HST) Regulations; — Streamlined Accounting (GST/HST) Regulations; — Automobile Operating Expense Benefit (GST/HST) Regulations; — Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations; — Electronic Filing and Provision of Information (GST/HST) Regulations; and — New Harmonized Value-added Tax System Regulations, No. 2. New Harmonized Value-added Tax System Regulations These Regulations contain various rules that relate to the harmonized value-added tax system under the Act. These Regulations are amended to prescribe the provincial component of the tax rate of the HST for New Brunswick and for Newfoundland and Labrador at 10 per cent. The Regulations set out the complete details of the transitional rules for transactions that straddle the July 1, 2016, implementation date of the rate increase. The transitional rules that apply to the amendments to these Regulations vary depending on the type of property or service being supplied. Generally, under these transitional rules, businesses are required to charge and collect the provincial component of the HST at the rate of 10 per cent on any consideration that becomes due without having been paid, or is paid without having become due, on or after July 1, 2016, for supplies of services or property (other than real property). Additionally, the transitional rules stipulate what rate of HST is applicable to property and services that are brought into, or imported in, New Brunswick or Newfoundland and Labrador from another province or from outside Canada. With respect to supplies of real property, the new HST rate of 15 per cent generally applies to a supply of real property by way of sale (including sales of newly constructed or substantially renovated housing) if both ownership and possession of the property are transferred to the purchaser on or after July 1, 2016. Conversely, the HST rate of 13 per cent generally applies to a supply of real property by way of sale if either ownership or possession of the property is transferred to the purchaser before July 1, 2016. However, this general rule may not apply in respect of certain sales of new housing under agreements entered into on or before March 30, 2016, in the case of New Brunswick, or May 3, 2016, in the case of Newfoundland and Labrador, which are subject to certain relieving grandparenting rules. The transitional rules provide grandparenting of certain agreements for the purchase and sale of new housing. Subject to certain conditions and exceptions, a builder’s sale of a new or substantially renovated single-unit home, duplex, mobile home, floating home or residential condominium unit, in respect of which both ownership and possession are transferred on or after July 1, 2016, under a written agreement of purchase and sale, are grandparented (i.e. subject to HST at a rate of 13 per cent) if the agreement was entered into on or before March 30, 2016, in the case of housing in New Brunswick, or May 3, 2016, in the case of housing in Newfoundland and Labrador. Additionally, these amendments provide special transitional rules that apply to participating employers and pension entities of pension plans for periods that begin before July 1, 2016, and end on or after that date. Generally, for these periods, tax liabilities in respect of the New Brunswick or Newfoundland and Labrador component of the HST would apply at a rate of 10 per cent based upon the number of days in the period that are on or after July 1, 2016, and at a rate of 8 per cent based upon the number of days in the period that are before that date. Games of Chance (GST/HST) Regulations These Regulations set out special rules under which provincial gaming authorities (e.g. provincial lottery and casino corporations) calculate their GST/HST remittances. These calculations are based upon the 5 per cent federal component and the various respective provincial components of the HST. These Regulations are amended so that the GST/HST remittances of provincial gaming authorities take into account the change in the automobile operating expense benefit rates consequential to the increase in the HST rate in New Brunswick and Newfoundland and Labrador [see the description of the amendments to the Automobile Operating Expense Benefit (GST/HST) Regulations below]. Also, consequential to these rate increases of the provincial component of the HST, effective July 1, 2016, the Regulations provide a transitional rule for 2016, relating to the increased HST rates, in respect of other employment benefits (e.g. parking paid by the employer). Streamlined Accounting (GST/HST) Regulations These Regulations provide small businesses and eligible public service bodies with optional simplified methods (i.e. Quick Method and Special Quick Method) of calculating their GST/HST remittances. These methods allow the business or public service body 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. These Regulations are amended to provide for new remittance rates under the streamlined accounting methods, consequential to the increase in the HST rate in New Brunswick and Newfoundland and Labrador. Automobile Operating Expense Benefit (GST/HST) Regulations These Regulations prescribe the rates of GST/HST applicable to the value of an automobile operating expense benefit, which is the personal portion of automobile operating expenses paid by employers or corporations and reported as income for income tax purposes by an employee or shareholder. The GST/HST is applicable to the benefit and the employer or corporation must account for and remit the GST/HST at a prescribed rate. These Regulations are amended to account for the new 15 per cent HST rate applicable in New Brunswick and Newfoundland and Labrador. The prescribed rate applicable to automobile operating expense benefits is lower than the new 15 per cent HST rate in New Brunswick and Newfoundland and Labrador to reflect the fact that a portion of the total automobile operating expense benefit reported for income tax purposes relates to GST/HST-exempt expenses, such as insurance. Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations These Regulations, along with certain sections of the Act, set out special rules by which certain financial institutions are required to calculate the amount of the provincial component of the HST remittable by them, or refundable to them, for each of their reporting periods. The financial institutions to which these rules apply are referred to as “selected listed financial institutions” or “SLFIs” (generally speaking, these are financial institutions operating in an HST-participating province and at least one other province). Under these rules, SLFIs make adjustments to take into account the provincial component of the HST in respect of the SLFI’s purchases of goods and services for use in activities carried out within both the HST-participating provinces and the non-participating provinces. These Regulations are amended to provide transitional rules applicable to SLFIs for the increase to the HST rate in New Brunswick and Newfoundland and Labrador. Generally, these transitional rules provide that if a reporting period of an SLFI straddles July 1, 2016, the SLFI’s liability for the provincial component of the HST for New Brunswick and for Newfoundland and Labrador is determined on an apportionment basis based on the number of days in the reporting period before July 1, 2016, and the numbers of days in that period that are on or after July 1, 2016, or, in the case of a distributed investment plan, based on the amount of GST/HST that becomes payable, or is paid without having become payable, before July 1, 2016, and on or after July 1, 2016. Electronic Filing and Provision of Information (GST/HST) Regulations These Regulations provide for mandatory filing of GST/HST returns under the Act, electronically, for certain registrants, and penalties for failing to file electronically or failing to report certain amounts specified by way of these Regulations. The specified amounts include information related to certain provincial transitional housing measures. These Regulations also provide rules and enforcement mechanisms to ensure that sufficient and accurate information is provided by GST/HST registrants to enable the federal government to administer the GST/HST and to allocate revenues between the federal government and the participating provinces under the HST. These Regulations are amended consequential to the transitional rules with respect to the increase in the HST rate in New Brunswick and Newfoundland and Labrador. These Regulations set out which registrants are required to file GST/HST returns electronically and are amended to include builders that are affected by the transitional measures related to grandparented housing that were announced by New Brunswick on March 30, 2016, and by Newfoundland and Labrador on May 3, 2016 (see the description of the amendments to the New Harmonized Value-added Tax System Regulations above). These Regulations are also amended to provide the penalties for failing to accurately report certain amounts related to these transitional housing measures in New Brunswick and in Newfoundland and Labrador. Additionally, these Regulations are amended to implement the simplification measures, announced on March 22, 2016, in Budget 2016, relating to the reporting of grandparented housing sales by builders. In particular, these Regulations are amended to limit the reporting requirement to those grandparented housing sales for which the consideration is equal to or greater than $450,000 and to provide builders with an opportunity to correct past misreporting (i.e. under-reporting, over-reporting or failing to report) and avoid potential penalties by allowing them to elect to report all past grandparented housing sales for which the consideration was equal to or greater than $450,000. New Harmonized Value-added Tax System Regulations, No. 2 These Regulations contain various rules with respect to the harmonized value-added tax system under the Act. These Regulations include, in particular, rules that modify certain amounts and rates contained in the Act in respect of some new housing rebates related to property situated in participating provinces to take into account the provincial component of the HST. These modified amounts and rates are based on the level of embedded tax in the value of the property to which these rebates apply. For example, these Regulations currently provide that the maximum home value to qualify for a federal GST New Housing Rebate for the purchase of a new home situated on leased land in New Brunswick or in Newfoundland and Labrador is an amount determined by taking into account that HST applies at a rate of 13 per cent in these provinces. These amounts are different in provinces with a different provincial component of the HST to reflect embedded tax at a different rate. These Regulations are amended to adjust the applicable amounts and rates to reflect the new HST rate of 15 per cent for New Brunswick and Newfoundland and Labrador. “One-for-One” Rule Overall, the HST framework minimizes the compliance and administrative burden imposed on businesses by eliminating ongoing substantial duplicative provincial requirements. The Regulations implement decisions of New Brunswick and Newfoundland and Labrador under the HST framework to increase the rate of the provincial component of the HST in their respective province and related HST amendments. Accordingly, the Regulations do not increase or decrease the level of administrative burden imposed on business; therefore the “One-for-One” Rule does not apply. Small business lens As per the Treasury Board of Canada Secretariat’s Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, taxes, fees, levies and other charges, because they constitute transfers from one group to another, are not considered to be compliance or administrative costs, whether they are intended as incentives to foster compliance and change behaviour or whether their purpose is to recover the costs of providing a service. Accordingly, the small business lens does not apply, because the Regulations do not result in new incremental compliance or administrative costs for small businesses. Consultation The Regulations are designed to reflect the decisions to increase the rate of the provincial component of the HST announced by New Brunswick on February 2, 2016, and by Newfoundland and Labrador on April 14, 2016. The Regulations also reflect the transitional rules announced by the Government of New Brunswick on March 30, 2016, and by the Government of Newfoundland and Labrador on May 3, 2016, which were developed in consultation with these provinces. Rationale The Regulations are required as a result of the decisions of the Government of New Brunswick and the Government of Newfoundland and Labrador to increase their rate of the provincial component of the HST effective July 1, 2016, and as a result of the simplification measures relating to the reporting requirements in respect of grandparented housing sales announced on March 22, 2016, in Budget 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 Place de Ville, Tower A, 15th Floor, 320 Queen Street Ottawa, Ontario K1A 0L5 Telephone: 613-954-7959 Footnote a S.C. 1993, c. 27, s. 125(1) Footnote b S.C. 2009, c. 32, s. 37(1) Footnote c R.S., c. E-15 Footnote 1 SOR/2010-117 Footnote 2 SOR/91-28; SOR/98-440, s. 1; SOR/2011-56, s. 7 Footnote 3 SOR/91-51; SOR/2006-162, s. 5 Footnote 4 SOR/99-176 Footnote 5 SOR/2001-171 Footnote 6 SOR/2010-150 Footnote 7 SOR/2010-151 Footnote 8 SOR/2016-4

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