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Indirect Tax Highlights from the Federal Budget 2016

It’s that time of year again. The federal budget 2016 has been announced.  I watched it…I thought for sure that the Liberal government would actually want to increase government revenues to help pay for the all the things that they promised.  And I thought, a GST rate increase was the way that they would do it.  Is it really okay that the government can spend in excess of $18 billion without actually having those funds?

So, no GST rate increase; however, the government did sneak in some indirect tax changes that that you should be aware of:


Purchases of Insulin Pens , Insulin Pen needles and Intermittent Urinary Catheters  are zero-rated after March 22, 2016.

Cosmetic Procedures

Supplies of cosmetic procedures are subject to GST/HST regardless of the status of the supplier.   Budget 2016 clarified that the taxability applies all suppliers, including registered charities.

Exported Call Centre Services

Budget 2016 proposes to modify the zero-rating rules for exported supplies of call centre services, effective March 23, 2016.  The CRA had been interpreting supplies made to a non-resident person not registered for GST purposes of these types of services to be taxable where any part of the services was rendered to an individual in Canada.  The modification will provide that call centre services will generally be zero-rated if:

  1. The service is supplied to a non-resident not registered for GST/HST purposes, AND
  2. It can reasonably be expected that at the time the supply is made, the technical or customer support is to be rendered primarily to individuals who are outside Canada at the time the support is rendered to those individuals.

Reporting Grandfathered Housing Sales

Builder’s that are required to report to the CRA sales of homes that fell into the HST transitional provisions, are only required to report on those sales of homes that were equal or greater than $450,000.  In addition, builders may elect to report on relevant past home sales without potential penalty.  This opportunity will generally exist between May 1, 2016 and December 31, 2016.

GST/HST on Donations to Charities

Changes will be made to bring the GST/HST treatment of donations made in exchange for property and services in line with the Income Tax treatment.  The changes will apply to supplies made after Budget Day.

De Minimus Financial Institutions

Special rules exist in the Excise Tax Act for financial institutions.  These rules include a deeming provision that are tied to interest and dividend income.    A person that earns more than $1 million in interest income  from bank deposits may be considered to be  a financial institution.  The budget proposes to remove interest earned from demand deposits, term deposits and guaranteed investment certificates with a maturity date of less than a year not be included in determining the $1 million threshold.

GST/HST to Cross-Border Reinsurance

Budget 2016 proposes to clarify that ceding commissions and margins for risk transfer do not form part of the tax base subject to self-assessment on imported reinsurance services.

Closely Related Test

Budget 2016 proposes to change the rules relevant for sections 150 and 156 of the Excise Tax Act to ensure that the closely related test applies only in situations where nearly complete voting control exists.

Restricting Relief of Excise Tax on Diesel and Aviation Fuel

The Excise Tax Act imposes tax on diesel and aviation fuel.  The Act also includes exemptions for diesel fuel used as heating oil or to generate electricity.  The budget proposes to define heating oil as “fuel oil that is consumed exclusively for providing heat to a home, building or similar structure, and is not consumed for generating heat in an industrial process”.

The budget also proposes to remove the exemption for diesel fuel used in or by a vehicle of any mode of transportation for the generation of electricity.