Tax Expenditures 2000:
Notes to the Estimates/Projections:  4
- Table of Contents - Previous -

Chapter 4 - Description of Goods and Services Tax/Harmonized Sales Tax Provisions

Since the Goods and Services Tax/Harmonized Sales Tax (GST/HST) is levied at all points in the production and distribution chain, the value-added nature of the tax makes it equivalent to a retail sales tax levied on the sale of goods and services to the final consumer. Based on this equivalency, the GST/HST base can be estimated from a Sales Tax Model constructed using data obtained from Statistics Canada's Input-Output Tables and the National Income and Expenditure Accounts.

The data from the Input-Output Tables are used to derive detailed expenditures by commodity for households, public sector bodies and exempt businesses. The personal expenditure categories of the Input-Output Tables, along with the investment categories for residential construction, are used to derive commodity expenditures for households. The commodity expenditures of public sector bodies are derived from current government expenditure categories, in conjunction with relevant data obtained from the use matrix and appropriate investment categories contained in the Input-Output Tables. (Public sector bodies include the federal government, provincial governments, municipalities, universities, school boards, public colleges, public hospitals, charities and non-profit organizations.) The commodity expenditures of exempt businesses are derived from the input matrix of the Input-Output Tables in conjunction with data obtained from the appropriate investment categories.

The commodity data described above are used to identify the impact of the GST/HST provisions that either zero-rate or exempt certain goods and services. In some cases, modifications had to be made to the data derived from the Input-Output Tables and the National Income and Expenditure Accounts to account for the structure of the GST/HST. Since final Input-Output Tables for a given year are available only three years after the fact, National Income and Expenditure Accounts data are used to project the impact of each GST/HST provision to the relevant historical year. Expenditure data contained in the Department of Finance's Canadian Economic and Fiscal Model (CEFM) are used to project the impact of most of the GST/HST provisions over the forecast period.

It should be noted that the Sales Tax Model has been significantly revamped and is now based on Statistics Canada's historically revised 1996 national Input-Output Tables and the latest National Income and Expenditure Accounts. Previous estimates of tax expenditures were based upon 1990 Input-Output Tables released prior to Statistics Canada's historical revision. The historically revised structure of the National Accounts provides a superior framework for the derivation of tax expenditure estimates because of the additional level of detail.

Certain tax expenditure estimates have been significantly revised as a result of the latest model update. These revisions can be attributed to changes in the mix of commodities within expenditure categories as well as enhancements in the level of detail of the data found in the input-output structure.

The Sales Tax Model is not the sole source of the estimated tax expenditures associated with the GST/HST. In some cases, actual data from the Canada Customs and Revenue Agency (CCRA) were used for the tax expenditure estimates. In other cases, estimates were derived from entirely different sources. This chapter describes the various GST/HST expenditure estimates and how they were derived.

It should be noted that public sector body rebates are now being measured on an activity basis rather than on an entity basis. On an entity basis, if a hospital, for example, claimed a charity rebate as well as a hospital rebate the entire amount would have been recorded as a hospital rebate. On an activity basis, the rebates are recorded based on the activity regardless of the institution that claimed them. This change does not affect the total cost of public sector body rebates but results in a small reallocation among the rebate categories.

Zero-Rated Goods and Services

Basic Groceries

Objective: The zero-rating of basic groceries reflects the widely held view of Canadians that, as a general principle, basic foodstuffs should not be taxed. (Goods and Services Tax Technical Paper, August 1989.)

Basic groceries, which include the majority of foodstuffs for preparation and consumption at home, are zero-rated under the GST/HST. However, the tax is charged on certain goods such as soft drinks, candies and confections, and alcoholic beverages.

The cost of the tax expenditure can be estimated using the Sales Tax Model by identifying commodities purchased by final consumers and public sector bodies that are currently not subject to tax.

Prescription Drugs

Objective: Drugs that are prescribed by a physician or dentist are zero-rated. As with basic groceries, this tax treatment is intended to ensure that prescription drugs remain free of tax. (Goods and Services Tax Technical Paper, August 1989.)

Drugs that are controlled substances for which a prescription is required are zero-rated. This provision also includes other drugs that have been prescribed by a recognized health care practitioner. The associated dispensing fee is also zero-rated. However, this provision excludes those items labelled or supplied for veterinary use.

The estimate is derived using the Sales Tax Model.

Medical Devices

Objective: A broad range of medical devices that are required to treat or cope with a chronic disease or illness or a physical disability are zero-rated. This is intended to ensure that these medical devices remain free of tax. (Goods and Services Tax Technical Paper, August 1989.)

A wide range of medical devices are zero-rated under the GST/HST. This includes canes, crutches, wheelchairs, medical and surgical prostheses, ileostomy and colostomy devices, artificial breathing apparatus, hearing and speaking aids, prescription eyeglasses and contact lenses, various diabetic supplies, and selected devices for the blind and for the hearing or speech impaired. In some instances, a device qualifies for tax-free status only if prescribed by a recognized health care practitioner.

The estimate is obtained using the Sales Tax Model.

Agricultural and Fish Products and Purchases

Objective: Many agricultural and fish products are for human consumption and are therefore zero-rated as basic groceries. In addition, a large range of generally high-cost agricultural and fishing equipment is zero-rated to reduce cash-flow problems for farmers and fishers. (Goods and Services Tax Technical Paper, December 1989.)

Instead of taxing sales and providing input tax credits at early stages in the food production-distribution chain, certain agricultural and fish products are zero-rated all through the chain. A prescribed list of such supplies includes farm livestock, poultry, bees, grains and seeds for planting or feed, hops, barley, flax seed, straw, sugar cane or beets. In addition, prescribed sales and purchases of major types of agricultural and fishing equipment are zero-rated.

The main effect of this provision is on the cash-flow position of taxpayers. For example, in the normal operation of the GST/HST, farmers would pay the GST/HST on taxable purchases and would claim a corresponding input tax credit at the end of their tax period. However, in the case of prescribed zero-rated supplies, the farmer does not pay the GST/HST and so does not have to wait to claim an input tax credit. Consequently, the cash-flow position of the farmer is improved. At the same time, however, the suppliers lose the benefit of holding the GST/HST on these purchases until the end of their tax period. Since the aggregate tax liability of these taxpayers remains unchanged, the revenue implications of this measure are small.

Certain Zero-Rated Purchases Made by Exporters

Objective: Exports are destined for consumption outside Canada and, consequently, are not subject to GST/HST, which is a tax on consumption in Canada. The zero-rating provisions for exports are designed to ensure that goods and services acquired in Canada for export are totally relieved of tax. (Goods and Services Tax Technical Paper, August 1989.)

Certain supplies of goods and services delivered in Canada but subsequently exported are zero-rated. These include:

• the supply of goods to Export Distribution Centres (proposed for January 1, 2001);
• the supply of goods to a recipient who intends to export them, provided they are not excisable goods (spirits, beer or tobacco) and the goods are not further processed or modified in Canada by the recipient;
• the supply of excisable goods to a recipient who, in turn, exports the goods in bond;
• supplies of natural gas made to a person who is exporting the gas by pipeline and not further processing or using the gas in Canada before its exportation other than as fuel or compressor gas to transport the gas; and
• goods sold to duty-free shops licensed as such under the Customs Act.

As with agricultural and fish products, this provision has only cash-flow implications. Again, the impact of this measure on tax revenues is small.

Non-Taxable Importations

Objective: Goods imported into Canada are generally taxable. However, the legislation enumerates a short list of goods of different classes – such as basic groceries and prescription drugs – that, upon importation, do not attract the GST/HST. This ensures that imports are treated fairly vis-à-vis domestic-sourced goods that are zero-rated. (News Release, September 4, 1990.)

Certain importations are tax-free under the GST/HST. These importations include:

• goods imported by Export Distribution Centres (proposed for January 1, 2001);
• goods, other than books and periodicals, valued at not more than $20 and mailed to residents of Canada from other countries;
• duty-free personal importations such as goods valued at not more than $750 and imported by Canadians who have been outside the country for more than seven days (the limit was $500 prior to July 1999); and
• goods imported by foreign diplomats.

No data are available.

Zero-Rated Financial Services

Objective: Financial services provided to non-residents for use outside Canada are zero-rated, consistent with the tax treatment of other exports. This ensures that Canadian institutions providing financial services remain competitive in global markets. (Goods and Services Tax Technical Paper, August 1989.)

Financial services provided to non-residents are generally zero-rated. However, there are certain exceptions (e.g., financial services that relate to debt arising from deposits in Canada, real property situated in Canada, goods purchased for use primarily in Canada, services performed primarily in Canada).

The zero-rating provisions enable Canadian financial institutions that generate significant amounts of revenue through international activities to remain competitive in global markets.

No data are available.

Tax-Exempt Goods and Services

Residential Rent

Objective: The objective of the housing rebates and exemptions for used homes and residential rents is to preserve the affordability of housing while ensuring that the tax regime is not overly complex. (Goods and Services Tax Technical Paper, August 1989).

Rentals of a residential complex (such as a house) or a residential unit (such as an apartment) for a period of at least a month are tax-exempt. Short-term accommodation is also exempt where the charge for the accommodation is not more than $20 per day.

The estimate is derived using the Sales Tax Model.

Health Care Services

Objective: Basic health care services are generally exempt of GST/HST. (Goods and Services Tax Technical Paper, August 1989.)

Health care services are exempt under the GST/HST. These services include the following categories:

• institutional health care services provided in a health care facility. These include accommodation, meals provided with accommodation, and rentals of medical equipment to patients or residents of the facility. However, it excludes meals served in a cafeteria, parking charges, or haircuts for which a separate fee is charged;
• services provided by certain health care practitioners whose profession is regulated by the governments of at least five provinces. This category includes nursing, dental, optometric, chiropractic, physiotherapy, occupational therapy, speech therapy, chiropodic, podiatric, osteopathic, audiological and psychological services; and
• services covered by a provincial health insurance plan. Most of these services are already covered by the previous two provisions.

All exempt services that are covered by provincial health insurance plans are included in the benchmark because, under the Constitution, the GST/HST does not apply to purchases made by provincial governments. Thus, the only cost from this provision involves health services purchased by final consumers.

The estimates for this provision are derived from the Sales Tax Model.

Education Services (Tuition)

Objective: Basic education is generally exempt of GST/HST. (Goods and Services Tax Technical Paper, August 1989.)

The GST/HST provides an exemption for most educational services. The exemption includes tuition fees paid for courses provided primarily for elementary or secondary school students; courses leading to credits towards a diploma or degree awarded by a recognized school authority, university or college; and certain other types of training for a trade or vocation. In addition, the exemption covers meals supplied to elementary or secondary students as well as most meal plans at a university or college.

The estimate is derived from the revenues that would be collected if tuition fees were taxed and input tax credits were allowed for taxable purchases. The estimate takes into account the fact that universities and public colleges currently receive a rebate of 67 per cent of the tax that they pay on their purchases.

The estimate is derived from the Sales Tax Model.

Child Care and Personal Services

Objective: Under the GST/HST, no tax is charged on eligible child and personal care services provided to individuals who are underprivileged or suffer from an infirmity or disability. (Goods and Services Tax Technical Paper, August 1989.)

Certain child and personal care services are exempt under the GST/HST. The exemption covers the following:

• child care services provided for periods of less than 24 hours to children under 14 years of age; and
• certain personal care services including supplies of care and supervision to residents of an institution, as well as accommodation where it is provided for children or disabled or underprivileged persons.

The estimate is derived using the Sales Tax Model. The estimate reported here does not account for day care that might be paid by governments, or day care provided by a non-profit organization. However, the impact of these exclusions on the overall estimate is unclear since provincial expenditures would not be subject to tax and the remaining expenditures would be eligible for partial rebates if taxed.

Legal Aid Services

Objective: Sales tax did not apply to legal aid services provided to a province's legal aid society under the former federal sales tax (FST). Under the GST/HST, a province's legal aid society is permitted to elect to treat contracts with private lawyers as taxable. This ensures that legal aid societies are able to obtain the same net benefit that existed under the former FST. (Goods and Services Tax Technical Paper, December 1989.)

Legal services provided under a provincially authorized legal aid program are exempt under the GST/HST. This includes payments by the client in respect of the legal aid services and payments by a legal aid society to a private lawyer for legal services.

There are two ways in which the tax is relieved:

• legal aid services delivered directly by the Crown or a Crown agency (as is the case in Nova Scotia, Newfoundland, Prince Edward Island, Quebec, Manitoba and Saskatchewan) are exempt; and
• legal aid services provided by private practitioners to a legal aid plan administrator are taxable. However, the person responsible for the legal aid plan is entitled to a rebate of 100 per cent of any tax paid on the supply.

The CCRA supplied the data related to the rebates provided to legal aid plans in the provinces of New Brunswick, Ontario, Alberta and British Columbia. To account for the other provinces where the service is explicitly exempt, provincial economic accounts data are used. Specifically, it is assumed that the value of legal aid services relative to the total expenditures contained in the provincial economic account category "Personal Business" in the tax-exempt provinces would be the same as in those provinces where a rebate is provided.

The projected expenditure estimate is based on the growth in consumption obtained from the CEFM.

Ferry, Road and Bridge Tolls

Objective: Ferry, road and bridge tolls are generally exempt of GST/HST. This is consistent with the fact that the use of Canada's highway systems and related infrastructure is not subject to tax. (Goods and Services Tax Technical Paper, August 1989.)

International ferry services are treated as zero-rated like other international transportation services. Other ferry, road and bridge tolls are GST/HST-exempt.

The estimate is derived using the Sales Tax Model.

Municipal Transit

Objective: Consistent with the treatment of standard municipal services, municipal transit services provided on a not-for-profit basis are exempt. Specifically, no tax applies on fares charged by transit systems operated by, on behalf of, a local authority or provincial government where all, substantially all, of its service is to provide transportation within a municipality and surrounding areas. (Goods and Services Tax Technical Paper, August 1989.)

A municipal transit service is defined as a public passenger transportation service provided by a transit authority whose services are at least 90 per cent within a particular municipality and its surrounding areas. These municipal transit services are exempt under the GST/HST.

The estimate is derived using the Sales Tax Model.

Exemption for Small Businesses

Objective: Small suppliers, that is, persons whose total taxable supplies in the preceding year are $30,000 or less ($50,000 or less in the case of public sector bodies), are not required to register. Those who choose not to register do not have to charge and remit GST/HST, and they are not entitled to input tax credits. The objective of the small suppliers' threshold is to ensure that very small businesses do not face an excessive administration burden under the GST/HST. (Goods and Services Tax Technical Paper, August 1989.)

Businesses or individuals with annual revenues of $30,000 or less from taxable and zero-rated transactions may elect to be exempt under the GST/HST. Such firms would not have to charge tax on their sales and would not be able to claim input tax credits on their business purchases.

The starting point in deriving the estimate is gross sales data for 1990 obtained from personal and corporate income tax information. From this data, one can estimate that the total sales from firms with annual sales of less than $30,000 accounts for approximately 0.5 per cent of all sales in the Canadian economy. This ratio can then be applied to the total gross GST/HST collections to approximate the revenues that would arise from eliminating the small business threshold.

The projected expenditure estimate is based on the growth in nominal gross domestic product (GDP) obtained from the CEFM.

Quick Method Accounting

Objective: Registrants using the quick method remit a prescribed percentage of GST/HST collected based on their total tax-included taxable supplies for the period. The objective of the quick method is to simplify the operation of the tax for small businesses. (Goods and Services Tax Technical Paper, August 1989.)

Small businesses registered under the GST/HST are eligible to elect to account for GST/HST using quick method accounting. Under the scheme, businesses do not have to keep track of the tax paid on most of their inputs. Instead, these firms remit a prescribed percentage of the GST/HST that they collect on their sales. The remaining GST/HST collected is kept by the firm in lieu of the unaccounted input tax credits. The firm is eligible to claim an input tax credit for the tax paid on capital goods.

The estimate is derived from micro-statistical data for 1991 supplied by Statistics Canada. The take-up rate of this provision for eligible small businesses is about 22 per cent. The estimate for subsequent historical years is derived by projecting the 1991 estimate based on information on the growth in total input tax credits claimed, which is obtained from the CCRA.

The projected expenditure estimate is based on the growth in nominal GDP obtained from the CEFM.

Water and Basic Garbage Collection Services

Objective: Consistent with the treatment of standard municipal services, charges for water and garbage collection services are exempt of GST/HST where the property owner has no option but to take the service. (Goods and Services Tax Technical Paper, August 1989)

Water and basic garbage collection services are exempt under the GST/HST. The estimate is derived from the Sales Tax Model.

Domestic Financial Services

Objective: Although in some cases, the price of a financial service may be easily identified, in many others, the price is implicit and difficult to isolate. Therefore, for the sake of consistency and equity, all financial services are exempt under the GST/HST. (Goods and Services Tax Technical Paper, August 1989.)

Financial services are defined to include services relating to financial intermediation, market intermediation and risk pooling. However, in many cases, the price of a financial service is implicit. For example, when banks provide lending and deposit-taking services, the banks' fees for these services are the spread between interest rates received from borrowers and the interest paid to depositors. The exact price associated with each financial transaction is difficult to determine and, therefore, it is difficult to apply the GST/HST to the sale of the service. As a result, most financial services provided to residents of Canada are exempt under the GST/HST.

Members of a "closely related group" (if there is at least 90-per-cent cross-ownership of voting shares between them) where one of the members is a "listed financial institution" could jointly elect to treat most supplies between them as tax-exempt financial services. The purpose of this election is to recognize that a closely related corporate group can be viewed as a single entity with respect to intragroup transactions.

No data are available.

Certain Supplies Made by Non-Profit Organizations

Objective: Public sector bodies, which include charities and non-profit organizations, are organizations that perform essentially a public service function, relying heavily on financial support from governments and the voluntary efforts and contributions of the general public to pursue their efforts. The exemption of supplies made by non-profit organizations recognizes the important role they play in Canadian society. (Goods and Services Tax Technical Paper, December 1989.)

Supplies that are GST/HST-exempt when made by non-profit organizations include recreational services provided primarily to children age 14 and under and individuals who are underprivileged or have a disability; supplies of food, beverages and lodging to relieve poverty or distress; and certain amateur performances.

No data are available.

Tax Rebates

Housing Rebate

Objective: The new housing rebate program was designed to ensure that the tax does not pose a barrier to the affordability of new homes. Before the GST was introduced, the federal sales tax component of the total price of a new home amounted to approximately 4.1 per cent. With the new housing rebate, new homes are taxed at roughly the same level as they were prior to the GST. (Goods and Services Tax Consolidated Explanatory Notes, April 1997.)

Purchasers of newly constructed residential dwellings and substantially renovated houses are eligible for a rebate of the GST/HST paid if the purchaser is acquiring the dwelling as a primary place of residence. For houses priced at or below $350,000, the rebate is 36 per cent of the total GST/HST paid to a maximum of $8,750. The rebate is phased out for houses priced between $350,000 and $450,000.

The estimate for historical years is obtained from Statistics Canada. The projected expenditure estimate is based on the growth in investment in new residential construction obtained from the CEFM.

New Residential Property Rebate

Objective: The GST/HST rental rebate program was designed to alleviate some of the upfront tax liability faced by builders and purchasers of new residential rental property. Introduction of the new rental rebate ensures that builders and purchasers of new residential rental property face the same effective rate faced by purchasers of owner-occupied homes. (Budget, February 28, 2000).

Builders or purchasers of newly constructed or substantially renovated residential rental property are eligible for a rebate of the GST/HST paid if it can reasonably be expected that the first use of the individual residential units within the property will be for the purpose of renting it for periods of continuous occupancy of at least 12 months as a primary place of residence. The rebate also applies to the construction of new additions to residential rental property and to the leasing of land that is used for residential purposes.

For residential units priced at or below $350,000, the rebate is 36 per cent of the total GST/HST paid to a maximum of $8,750. The rebate is phased out for residential units priced between $350,000 and $450,000.

The rebate will apply to construction, substantial renovation or conversions commencing after February 27, 2000. In the case of leased land, the rebate will apply where the lease agreement is entered into after February 27, 2000.

The initial estimate is derived from two sources: data provided by the Canada Mortgage and Housing Corporation related to the number of units constructed for rental purposes, and data underlying the national accounts provided by Statistics Canada. Moreover, the estimate reflects an allowance for the expected lag between the commencement of construction of a residential rental unit and its completion. In order to determine the forecasted values, the initial estimate was projected using both national accounts and CEFM data.

Rebate for Book Purchases Made by Qualifying Institutions

Objective: The 100-per-cent rebate on books is available to public libraries, schools, universities, public colleges, municipalities, and qualifying charities and non-profit organizations. The special rebate recognizes the important role played by public libraries, educational institutions and other groups in improving literacy levels in their communities. (News Release, October 23, 1996.)

On October 23, 1996, the Minister of Finance announced that a 100-per-cent rebate would be provided on all book purchases made by public libraries, schools, universities, public colleges, municipalities, public hospitals and qualifying charities and non-profit organizations.

The initial expenditure estimate for 1997 is the estimated annual cost of implementing this provision. The projected expenditure estimate is based on appropriate expenditure data obtained from the CEFM.

Rebate for Foreign Visitors on Accommodation

Objective: The Visitors' Rebate Program provides a rebate to non-residents visiting Canada for GST/HST paid on most goods and short-term accommodation. It also provides rebates for conference-related expenses for conferences attended by non-residents. Its objective is to maintain the attractiveness of Canada as a destination for foreign tourists and conventions. (Goods and Services Tax Technical Paper, December 1989. Press Releases, December 18, 1990 and May 15, 1991.)

Non-residents visiting Canada are entitled to a rebate for the GST/HST paid on most goods and short-term accommodation. Specifically, the rebate covers the following where the tax paid is at least $20:

• goods for use primarily outside Canada, excluding excisable goods such as alcoholic beverages and tobacco products, provided the goods are exported within 60 days of purchase; and
• the tax paid on short-term lodging, but not including meals, where the period of stay is less than one month.

However, goods for use outside Canada are essentially the same as other exported goods and should be considered as part of the benchmark. Thus, the cost of this provision is only the rebate associated with short-term accommodation.

The CCRA has some administrative data related to rebates paid on short-term accommodation to foreign visitors. However, this data only partially captures the provision's associated tax expenditure, since it is not possible to identify the value of rebates that are conferred to travel operators and which are included in the business's input tax credit. Hence, the estimate of the tax expenditure for short-term accommodation is based on CCRA administrative data, supplemented with additional data on foreign visitors provided by Statistics Canada.

MUSH Sector Rebates

Objective: Since municipalities, universities and public colleges, schools and hospitals (MUSH) provide primarily tax-exempt services, they are unable to claim input tax credits for GST/HST paid on most of their purchases. However, these organizations are entitled to partial GST/HST rebates.

The MUSH rebate system was established to ensure that the sales tax burden of these entities did not increase as a result of moving to the GST from the previous federal sales tax. (Goods and Services Tax Technical Paper, August 1989.)

Rebates for Municipalities

Recognized municipalities are entitled to a rebate of 57.14 per cent of the GST/HST paid on their purchases used in the course of supplying exempt municipal services.

Rebates for Hospitals

Public hospitals are eligible for a rebate of 83 per cent of the GST/HST paid on purchases related to their supply of exempt services.

Rebates for Schools

Elementary and secondary schools operating on a not-for-profit basis are eligible for a rebate of 68 per cent of the GST/HST paid on purchases related to their supply of exempt services.

Rebates for Universities

Recognized degree-granting universities operating on a not-for-profit basis are eligible for a rebate of 67 per cent of the GST/HST paid on purchases related to their supply of exempt services.

Rebates for Colleges

Public colleges that are funded by a government or municipality and whose primary purpose is to provide vocational, technical or general education are eligible for a rebate of 67 per cent of the GST/HST paid on purchases related to their supply of exempt services.

The estimate of MUSH rebates for historical years is based on data from the CCRA. Since the value of the tax expenditure is influenced by provincial budgetary decisions, the projected value of the tax expenditure for the relevant years is simply the value estimated for 1998.

Rebates for Charities and Non-Profit Organizations

Objective: Registered charities are eligible to claim a 50-per-cent rebate of the non-creditable GST/HST paid on purchases relating to their non-commercial activities. Other non-profit organizations may also claim the rebate, provided they receive at least 40 per cent of their funding from government. The objective of the rebate is to effectively reduce GST/HST costs for these groups, in recognition of the important role they play in Canadian society. (Goods and Services Tax Technical Paper, December 1989.)

Charities

Charities registered under the Income Tax Act are eligible for a rebate of 50 per cent of the GST/HST paid on purchases related to their supplies of exempt services.

Non-Profit Organizations

The organizations eligible for the non-profit organizations rebate are government-funded non-profit organizations. They include registered amateur athletic associations and organizations operating a facility or part thereof to provide nursing home intermediate care or residential care, and which receive at least 40 per cent of their funding from governments, municipalities or Indian bands. These organizations are eligible for a rebate of 50 per cent of the GST/HST paid on purchases related to their supplies of exempt services.

The estimate of GST/HST rebates for charities and non-profit organizations for historical years is based on data from the CCRA. Since the expenditures of non-profit organizations are captured in Statistics Canada's definition of personal expenditures, the projected estimate is based on the growth in consumer expenditures obtained from the CEFM.

Tax Credits

Special Credit for Certified Institutions

Objective: Under the former federal sales tax, certain organizations certified by Revenue Canada (now the CCRA) that employed people with mental or physical disabilities were exempt from paying or charging sales tax on materials and manufactured goods, respectively. Under the GST, a transitional GST credit was introduced to allow certified institutions time to adapt to the new GST environment. Under the transitional measure, certified institutions were to retain a proportion of the tax collected on their sales. The deductible portion was 100 per cent for 1991, 75 per cent for 1992, 50 per cent for 1993, and 25 per cent for 1994 and 1995, the last year of the transitional program. (Goods and Services Tax Consolidated Explanatory Notes, April 1997.)

A special credit was provided for the period January 1, 1991 to the end of 1995 to certified institutions that employed mentally or physically disabled individuals in the manufacturing of goods. These institutions were treated in the same manner as other businesses under the GST. However, they received a special credit calculated on the basis of 100 per cent of the GST collected from sales on manufactured goods in 1991, 75 per cent in 1992, 50 per cent in 1993 and 25 per cent in both 1994 and 1995.

No data are available.

GST/HST Credit

Objective: The refundable GST/HST low-income credit was established to replace the former sales tax credit in place under the previous federal sales tax and to offset the introduction of the GST. At the time of its introduction, the credit was enhanced for single parents and single individuals and the threshold at which benefits begin to be reduced was increased. The objective of the credit is to improve the fairness of the sales tax system. (Goods and Services Tax Technical Paper, August 1989.)

When the GST was first introduced, a credit was established to ensure that families with annual incomes below $30,000 would be better off under the new sales tax regime. The amount of the GST/HST credit depends on family size and income. Currently, the basic adult credit is $199. Families with children aged 18 and under receive a basic child credit of $105 for each child. However, single parents can claim a full adult credit of $199 for one dependent child. In addition to their basic credit, single adults (including single parents) are eligible for an additional credit of up to $105. The value of the credit is reduced for families with incomes over $25,921. As a result of the 2000 federal budget, both the credit amounts and the income threshold are adjusted annually to increases in the consumer price index.

The estimate for historical years is based on data from the CCRA. The projected expenditure estimate is obtained from the Department of Finance Canada's fiscal forecast.

Memorandum Items

Meals and Entertainment Expenses

Objective: As is the case for income taxation, meals and entertainment expenses involve an element of personal consumption and therefore some part of their cost can properly be characterized as a personal expense that should not result in input tax credits.

In the normal operation of the GST/HST, registrants are allowed to claim full input tax credits for the tax paid on their purchases. However, in the case of the tax paid on meals, beverages and entertainment expenses, the registrant is allowed to recover only 50 per cent of the GST/HST paid as an input tax credit. (Prior to February 1994, the input tax credit for business meals and expenses was 80 per cent.) There is no input tax credit allowed for the GST/HST paid on membership fees or dues in any club whose main purpose is to provide dining, recreational or sporting facilities.

The estimate is based on the cost of the meals and entertainment tax expenditures contained in the personal and corporate income tax expenditure tables. These figures are first grossed up to arrive at the total meals and entertainment expenses in the entire economy using the marginal federal income tax rates by sector. Then, 15 per cent is removed to account for expenses incurred in GST/HST-exempt activities since they are ineligible for any input tax credits. The cost of this provision is equal to the above net expenses multiplied by 7 per cent.

Rebate to Employees and Partners

Objective: Many employees and partners who are not registrants incur expenses in the course of carrying out their duties that may not be directly reimbursed by their employers and partnerships. Instead, compensation is usually provided through salaries, commissions, profits and other means that would not be subject to tax. Consequently, employers and partnerships cannot recover the GST/HST paid by the employees and partners. The employee and partner rebates recognize these existing business practices and attempt to reduce the possible tax cascading effect that otherwise would occur in the absence of the rebates. (Goods and Services Tax Technical Paper, August 1989.)

A rebate is available to certain employees of a GST/HST registrant for the GST/HST paid on those expenses that are deductible in computing the employee's income from employment for income tax purposes. For example, an employee is allowed to claim a rebate equal to 7/107ths (or 7/115ths in a participating HST province) of the capital cost allowance on an automobile, aircraft or musical instrument that is used in his or her employment and on which GST/HST is payable. Also, the GST/HST rebate is available to an individual who is a member of a GST/HST-registered partnership in respect of expenses incurred outside the partnership that are deducted in computing the member's income from the partnership for the purposes of the Income Tax Act.

The estimate for historical years is based on data from the CCRA. The projected expenditure estimate is based on the growth in nominal GDP obtained from the CEFM.

Residential and Other Personal-Use Real Property

Objective: The objective of the housing rebates and exemptions for used homes and redidental rents is to preserve the affordability of housing while ensuring that the tax regime is not overly complex. (Goods and Services Tax Technical Paper, August 1989.)

Generally, the GST/HST applies to residential property when it is first purchased or leased and occupied by an individual. All subsequent sales of used homes are tax-exempt. The exemption for personal-use real property is consistent with the tax treatment of personal property and services not supplied in the course of commercial activities.

Real property transactions exempt under the GST/HST include sales of used residential property, sales of personal-use real property by an individual or a personal trust, and the sale of farmland to a family member who is acquiring the property for personal use.

No data are available.

- Table of Contents - Previous -