Archived - Explanatory Notes Relating to the Budget and Economic Statement Implementation Act, 2007 and Draft Regulations Relating to Tax Information Exchange Agreements : 2

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Subsection 146.4(12)

Subsection 146.4(12) of the Act provides authority for the Minister of National Revenue to modify the application of paragraphs 146.4(11)(a) and (b). In some cases, the effect is that deregistration is avoided; in others, deregistration is deferred.

Under paragraph 146.4(12)(a), if a plan does not comply with the conditions in subsection 146.4(4) or is not administered in accordance with its terms, the Minister may, if it is just and equitable to do so, waive the application of the paragraph in subsection 146.4(11) that would otherwise result in the plan being considered to be non-compliant. If the Minister waives the application of the relevant paragraph, the plan is not considered to be non-compliant and, accordingly, is not deregistered.

Under paragraph 146.4(12)(b), the Minister may deem the failure that causes a plan to be non-compliant to have occurred at a later time. This will have the effect of deferring the effective date of deregistration.

Paragraph 146.4(12)(c) deals with contributions made to a registered disability savings plan that are prohibited under any of paragraphs 146.4(4)(f) to (h). In general terms, those paragraphs prohibit contributions made after the beneficiary has died, ceased to be DTC-eligible, turned 60 years of age or ceased to be resident, as well as contributions in excess of a $200,000 lifetime limit and non-holder contributions made without consent.

Paragraph 146.4(12)(c) provides the Minister with the authority to waive the application of the provisions of subsection 146.4(11) that would otherwise cause the plan to become non-compliant when a non-permissible contribution has been made, if the contribution is withdrawn from the plan within such period of time as specified by the Minister.

Where the withdrawal condition is satisfied and the Minister agrees to the application of paragraph 146.4(12)(c), the prohibited contribution is deemed never to have been made, thus ensuring that it does not cause the plan to be considered non-compliant under subsection 146.4(11). In addition, the withdrawal is deemed not to be a disability assistance payment, thus ensuring that no portion of the payment is taxable under new subsection 146.4(6). Finally, the withdrawal is deemed not to be in contravention of paragraph 146.4(4)(i), thus ensuring that the plan is not deregistered for having made a non-permissible payment.

Paragraph 146.4(12)(d) deals with situations in which the beneficiary of a registered disability savings plan dies or ceases to be a DTC-eligible individual, and the plan is not terminated by the end of the following year, as required under paragraph 146.4(4)(p). Under normal circumstances, the plan would become non-compliant immediately after the deadline set out in paragraph 146.4(4)(p).

However, if the failure to terminate was due either to the issuer not being aware of the beneficiary having died or having ceased to be DTC-eligible or to there being some uncertainty with respect to the beneficiary’s DTC status, paragraph 146.4(10)(d) allows the Minister to specify a later date as of which the plan must be terminated. (The date so chosen must, in the Minister’s opinion, be sufficient to allow for the plan to be terminated in an orderly manner.) This later date is then considered to be the date as of which the Act and the plan required the plan to be terminated. If the plan is not subsequently terminated by that date, it becomes non-compliant at that time.

This provision will allow a registered disability savings plan in respect of which the beneficiary’s DTC status is uncertain or in dispute to continue until such time as the issue is resolved. The practical effect of the provision is that, where the Minister is of the opinion that the beneficiary is no longer a DTC-eligible individual but the holders or the beneficiary disagree, the Minister can indicate that there is no requirement to terminate the plan until a definitive determination of the beneficiary’s DTC status has been made. If DTC eligibility is subsequently confirmed, then no termination is (or was ever) required. If, on the other hand, it is determined that the beneficiary is no longer DTC-eligible, the Minister will set a new deadline as of which the plan has to be terminated.

Obligations of issuer

ITA
146.4(13)

New subsection 146.4(13) of the Act imposes obligations on the issuer of a registered disability savings plan. Where the issuer of a registered disability savings plan fails to comply with an obligation imposed under this subsection, the issuer will be subject to a penalty, under subsection 162(7) of the Act, equal to $25 per day of default (subject to a $100 minimum and a $2,500 maximum).

If an entity becomes a holder of a registered disability savings plan after the plan is entered into, paragraph 146.4(13)(a) requires that the issuer so notify the specified Minister (i.e., the Minister of Human Resources and Social Development). It requires that the notification be provided in prescribed form containing prescribed information, and that it be provided no later than 60 days after the later of (i) the day on which the issuer is so notified and (ii) the day on which the issuer is provided with the new holder’s Social Insurance Number or business number, as the case may be. (The registration condition in new paragraph 146.4(4)(e) prohibits a new holder from exercising their rights as a holder before the issuer is provided with this information.)

Paragraph 146.4(13)(b) requires that the issuer of a registered disability savings plan not amend the plan without prior written notification from the Minister of National Revenue that, in the Minister’s opinion, a plan with terms identical to the terms of the amended plan would comply with the conditions in subsection 146.4(4).

If the issuer of a registered disability savings plan becomes aware that the plan is (or is likely to become) non-compliant as described in paragraph 146.4(11)(a) or (b) – i.e., it does not comply with the conditions in subsection 146.4(4) or is not being administered in accordance with its terms – paragraph 146.4(13)(c) requires that the issuer notify the Minister of National Revenue and the Minister of Human Resources and Social Development of this fact within 30 days of becoming so aware. For this purpose, non-compliance is determined without regard for the discretionary provisions of subsection 146.4(12).

Paragraph 146.4(13)(d) requires that the issuer of a registered disability savings plan exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a holder of the plan may become liable to pay tax, in connection with the plan, under new Part XI of the Act. That Part imposes taxes on registered disability savings plan holders in connection with various transactions relating to the plan, such as the acquisition of non-qualifying investments and the disposition of assets for inadequate consideration.

Clause 118

Joint and several liability – Registered disability savings plans

ITA
160.2 of the October 2, 2007 release or
160.21 of the Bill

The references to subsections 160.2(2.3), (2.4) and (6) in the explanatory notes to section 160.2 of the October 2, 2007 release should be read as subsections 160.21(1), (2) and (3) respectively.

The references to the word "director" in the explanatory notes to these subsections should be replaced by the word "holder".

The explanatory notes to section 160.21 of the Bill should be revised by adding the following after the explanatory note to subsection 160.21(3):

Assessment

ITA
160.21(4)

New subsection 160.21(4) of the Act provides that the Minister may assess a taxpayer in respect of an amount payable because of new section 160.21. New subsection 160.21(1) makes a holder of a registered disability savings plan jointly liable with a taxpayer for taxes arising in connection with the deregistration of the plan.

This amendment applies to the 2008 and subsequent taxation years.

Clause 120

Taxes in respect of registered disability savings plans

ITA
Part XI

The references to the word "director" in the explanatory notes to Part XI should be replaced by the word "holder".

Tax payable on non-qualified investment

ITA
206.1

The reference to the words "registered disability savings" in the first sentence of the explanatory note to section 206.1 should be read as "registered disability savings plan".

Income Tax Regulations

Clauses 126 and 127

Qualified investments

ITR
Part XLIX

The references to the word "director" in the explanatory notes to Part XLIX should be replaced by the word "holder".

Old Age Security Act

Clause 129

Definitions

OASA
2

"income"

The second paragraph of the explanatory note to OASA section 2 should be replaced by the following:

The definition of "income" is amended to exclude payments from a registered disability savings plan from the income base upon which certain benefits payable under that Act are calculated. This ensures that such payments are not included in income for purposes of the Guaranteed Income Supplement (GIS).


Part 14 
Tax Amendments to Implement the 2007 Economic Statement

Amendments Relating to Income Tax

Income Tax Act

Clause 179

Tax rates applicable to individuals

ITA
117(2)

Subsection 117(2) of the Act provides the marginal rates of federal personal income tax.

Paragraph 117(2)(a) is amended to adjust the lowest rate of personal income tax for the 2007 and subsequent taxation years from 15.5% to 15%

This amendment applies to the 2007 and subsequent taxation years

The "appropriate percentage" used in computing the individual’s non-refundable personal tax credits and alternative minimum tax will also reflect these rates, as adjusted for the 2007 and subsequent taxation years.

Clause 180

Personal credits

ITA
118(3.1) and (3.2)

Section 118 of the Act provides for the calculation of various personal tax credits. These include the basic personal credit, the credit in respect of a spouse or common-law partner and the credit that a single individual can claim for a wholly dependent relative. These credits are calculated by reference to the lowest personal tax rate (15% for the 2007 and subsequent taxation years) of the amount used in section 118 to compute the particular credit.

Subsection 118(3.1) provides, in addition to the annual increases provided under the indexing provisions, for annual increases to the amount used to compute an individual’s basic personal credit (for 2006 to 2009 inclusive). Subsection 118(3.1) is amended to provide that the basic personal amount for 2007 and 2008 will be $9,600. In addition, this subsection is amended to provide that the basic personal amount for 2009 will be $10,100 and that for the 2010 and subsequent taxation years, the basic personal amount will be $10,100 plus the increase under the indexing provisions.

Subsection 118(3.2) provides, in addition to the annual increases provided under the indexing provisions, for annual increases to the amount used to compute the credit in respect of a spouse or common-law partner and the credit that a single individual may claim for a wholly dependent relative (for 2006 to 2009 inclusive). Subsection 118(3.2) is amended to provide that the credit in respect of a spouse or common-law partner and the credit that a single individual may claim for a wholly dependent relative for 2007 and 2008 will be based on an amount of $10,000. In addition, this subsection is amended to provide that the amount upon which these credits are based for 2009 will be $9,600 and that for the 2010 and subsequent taxation years, the amount will $10,100 plus the increase under the indexing provisions.

These amendments apply to the 2007 and subsequent taxation years.

Clause 181

"general rate reduction percentage"

ITA
123.4(1)

The amount of tax that a corporation pays under Part I of the Act on its taxable income – meaning, in the case of a non-resident corporation, its taxable income earned in Canada – for a taxation year is determined through a series of adjustments to the basic calculation of tax as 38 percent of the corporation’s taxable income. These calculations provide for the special tax rate on small-business income, the abatement of tax in recognition of provincial income tax, and so on.

One important adjustment is found in section 123.4 of the Act. This section significantly reduces the effective rate of corporate tax on what it calls a corporation’s "full-rate taxable income" for the taxation year. In broad terms, a corporation’s full-rate taxable income for a taxation year is that amount of its taxable income that does not otherwise qualify for a lower tax rate or other favourable tax treatment. The section 123.4 reduction in tax payable is equal to that amount times the corporation’s "general rate reduction percentage" for the taxation year.

A corporation’s general rate reduction percentage for a taxation year is calculated according to the number of days in the taxation year that fall into a given calendar year, with each calendar year having an assigned percentage reduction.

This amendment increases those calendar year percentages, as shown in the following table:


Calendar year

2007 2008 2009 2010 2011 2012 and
later

General rate reduction percentage
(before amendment)

7% 7.5% 8% 9% 9.5% 9.5%

General rate reduction percentage
(after amendment)

7% 8.5% 9% 10% 11.5% 13%

The effect of the amendment, which applies to the 2008 and subsequent taxation years, is to reduce the general corporate income tax rate to 15% in 2012 (taking into account the abatement for provincial tax and the elimination of the corporate surtax).

Clause 182

Small business deduction rate

ITA
125(1.1)

Section 125 of the Act in effect provides a lower tax rate under Part I of the Act for the first $400,000 of active business income of a Canadian-controlled private corporation (CCPC) for a taxation year than the rate that would otherwise apply. The special rate takes the form of a deduction, from tax otherwise payable, equal to the qualifying income of the CCPC times its "small business deduction rate" for the taxation year.

This amendment accelerates an already-legislated increase in the small business deduction rate that reduces the rate of tax that applies to this portion of a CCPC’s business income. Specifically, the amendment provides that the small business deduction rate will increase to 17% for the 2008 and subsequent calendar years – one year earlier than under the existing rules. If a CCPC’s taxation year begins before 2008, it will apply the changed rate in proportion to the number of days in the taxation year that are after 2007.

This amendment applies to the 2008 and subsequent taxation years.


Amendments to Implement the GST / HST Rate Reduction 

Excise Tax Act

Clause 183

Definition "basic tax content"

ETA
123(1)

Subsection 123(1) of the Excise Tax Act (the "Act") contains definitions used in Part IX of the Act relating to the goods and services tax and the harmonized sales tax (GST/HST). The "basic tax content" of a person’s property is generally the amount of tax under Part IX that the person was required to pay on the property and improvements thereto, after deducting any amounts (other than input tax credits) that the person was entitled to recover by rebate, remission or otherwise and after taking into account any depreciation in the value of the property. The basic tax content is generally used for the purposes of determining a person’s liability for tax or eligibility for input tax credits in a number of cases where the person is deemed under Part IX to have supplied or acquired property.

Special rules apply to determine the basic tax content of selected listed financial institutions (as defined in subsection 225.2(1) of the Act) given the special rules applicable to those entities under Part IX of the Act. The description of G in subparagraph (a)(v) of the definition "basic tax content" in subsection 123(1) and the description of P in paragraph (b) of the definition "basic tax content" in subsection 123(1) that apply to selected listed financial institutions are amended. The amendment adds a reference to 5 per cent in respect of any amount of tax that the selected listed financial institution reports for the purposes of subsection 225.2(2) in reporting periods that end on or after January 1, 2008. The amendments to the definition "basic tax content" are consequential to the reduction of the GST rate and the federal component of the HST in participating provinces, from 6 per cent to 5 per cent.

These amendments come into force on January 1, 2008.

Clause 184

Imposition of goods and services tax

ETA
165(1)

Subsection 165(1) of the Act is the basic charging provision that imposes GST, or the federal component of the HST in participating provinces, on the recipient of a taxable supply made in Canada.

Subclause 184(1)

Imposition of goods and services tax

ETA
165(1)

Existing subsection 165(1) of the Act imposes the GST, or the federal component of the HST in participating provinces, on recipients of taxable supplies made in Canada at the rate of 6 per cent on the value of the consideration for the supply.

This subsection is amended to reduce the rate at which tax is imposed under it from 6 per cent to 5 per cent.

Subclause (2) provides the rules for determining whether, and the extent to which, tax imposed under subsection 165(1) applies at the rate of 5 per cent in respect of a particular taxable supply.

Paragraph 184(2)(a)

Supplies made on or after January 1, 2008

ETA
165(1)

Tax imposed under subsection 165(1) of the Act applies at the rate of 5 per cent for taxable supplies that are made on or after January 1, 2008. This rule does not apply to a supply by way of sale of real property that is deemed to be made under section 191 of the Act. Specific transitional rules, which are outlined below, apply to determine the application of amended subsection 165(1) to these deemed supplies and to supplies made before January 1, 2008 in certain circumstances. It is important to consider that in the case of deemed supplies the specific transitional rules in respect of the first reduction, from 7 per cent to 6 per cent on July 1, 2006, in the rate at which tax is calculated under subsection 165(1) may still apply and should be reviewed when determining the rate of tax that may apply to a particular deemed supply. Reference should also be made to the provisions of the Act, such as section 133, that apply in determining when a supply is made, to establish whether a supply is made on or after January 1, 2008, and thus is subject to this transitional rule.

Paragraph 184(2)(b)

Supplies made before January 1, 2008

ETA
165(1)

This transitional rule provides for the application of the 5 per cent rate of tax imposed under subsection 165(1) of the Act to supplies that are made before January 1, 2008, but only in respect of that portion of the tax that either becomes payable on or after January 1, 2008, and is not paid before that day, or is paid, without having become payable, on or after that day. This rule does not apply in respect of a supply by way of sale of real property. It is important to consider that in the case of supplies made before January 1, 2008, the specific transitional rules in respect of the first reduction, from 7 per cent to 6 per cent on July 1, 2006, in the rate at which tax is calculated under subsection 165(1) may still apply and should be reviewed when determining the rate of tax that may apply to a particular supply. Reference should be made to the provisions of the Act, such as section 133, that apply in determining when a supply is made, to establish whether a supply is made before January 1, 2008, and thus is subject to this transitional rule.

Paragraph 184(2)(c)

Sales of real property

ETA
165(1)

With respect to taxable supplies by way of sale of real property, the transitional rule does not depend upon the time at which tax becomes payable or is paid.

This transitional rule provides for the application of the 5 per cent rate of tax imposed under subsection 165(1) of the Act to any supply by way of sale of real property made before January 1, 2008, if ownership and possession of the property are both transferred on or after January 1, 2008, other than any of the following:

It should be noted that other transitional rules may apply to impose tax at the rate of 5 per cent even if this rule does not. For example, a supply by way of sale of real property made on or after January 1, 2008, other than a supply deemed under section 191 of the Act to have been made, is subject to the transitional rule in paragraph 184(2)(a).

An example of the application of this transitional rule is a purchaser who signs an agreement to purchase a new home on November 15, 2007, with transfer of ownership and possession of the complex under the agreement taking place on January 2, 2008. Since transfer of ownership and possession take place on or after January 1, 2008, tax is imposed on the value of the consideration for the supply at the rate of 5 per cent. If instead, transfer of ownership had taken place on December 30, 2007, with transfer of possession still taking place on January 2, 2008, tax would be imposed on the value of the consideration for the supply at the rate of 6 per cent.

A purchaser of a residential complex who enters into an agreement of purchase and sale, evidenced in writing, of the complex on or before October 30, 2007, but after May 2, 2006, and does not acquire ownership and possession of the complex until on or after January 1, 2008, is required to pay tax imposed under subsection 165(1) at the rate of 6 per cent on the value of the consideration for the supply, but may be eligible to claim a transitional rebate in respect of the purchase under new section 256.74 of the Act. A purchaser of a residential complex who entered into an agreement of purchase and sale, evidenced in writing, of the complex on or before May 2, 2006, and to which ownership and possession of the complex is not transferred until on or after January 1, 2008, is required to pay tax imposed under subsection 165(1) at the rate of 7 per cent, but may be eligible to claim a transitional rebate in respect of the purchase under existing section 256.3 of the Act and an additional transitional rebate under new section 256.7 of the Act.

Paragraph 184(2)(d)

Rebates

ETA
165(1)

Section 181.1 of the Act deals with rebates offered directly to a customer acquiring the goods or services from the manufacturer or another vendor (e.g., manufacturers’ rebates). Presently, where the issuer of the rebate is a registrant and notifies the customer that the rebate includes GST, the rebate is deemed to include tax equal to the appropriate tax fraction (e.g., 6/106, or 14/114 for participating provinces), which the issuer may claim as an input tax credit (ITC). Conversely, certain registrant customers are deemed to have made a taxable supply equal to the amount of the rebate and to have collected tax on that amount to the extent that the tax was claimed as an ITC. The tax fractions used in paragraphs 181.1(a) and (b) of the French version of the Act and 181.1(e) and (f) of the English version are based on the rate set out in subsection 165(1) of the Act. This rule ensures that a new tax fraction (e.g., 5/105, or 13/113 for participating provinces) applies for the purposes of determining, under subsection 181.1, tax or an input tax credit in respect of a supply of property or a service in respect of which tax becomes payable on or after January 1, 2008.

Paragraph 184(2)(e) and subclause 184(3)

Performance bonds

ETA
165(1)

Subsection 184.1(2) of the Act applies when a surety provides taxable supplies of construction services relating to the construction of real property situated in Canada if the construction services are carried on in full or partial satisfaction of the surety’s obligation under a performance bond. A performance bond is a three-party agreement between a surety who issues a bond, an obligee who enters into a contract with a contractor, and a contractor who carries on construction. The surety, under the bond, agrees to remedy the contractor’s default under the contract with the obligee. In some cases, the surety may step into the shoes of the defaulting contractor and carry on the construction. If the surety is at any time entitled to receive contract payments (within the meaning of paragraph 184.1(2)(a)) from the obligee by reason of the surety’s agreeing to carry on the construction, the surety is deemed to be engaged in that construction. Presently, the input tax credits a surety may claim with respect to direct inputs (within the meaning of paragraph 184.1(2)(c)) that are consumed, used, or supplied exclusively and directly in the course of carrying on the particular construction are capped at 6 per cent or 14 per cent of the total of all contract payments.

This transitional rule ensures that the rate of 5 per cent applies to the references to subsection 165(1) in subsection 184.1(2). The result is that where all of the contract payments to a surety in respect of a particular construction of real property become due, or are paid without having become due, on or after January 1, 2008, the surety may calculate input tax credits capped at 13 per cent of the total of those contract payments in respect of its supply of construction services if the supply is made in a participating province or, in any other case, 5 per cent of the total of those contract payments. Subclause 184(3) provides a transitional rule to also ensure the appropriate result where a surety receives contract payments, or contract payments become due, before and after January 1, 2008, in respect of a particular construction of real property. As a result, contract payments (within the meaning of paragraph 184.1(2)(a)) that become due or are paid to the surety without becoming due before July 1, 2006 are subject to a rate of 7 per cent or 15 per cent in participating provinces. Contract payments that become due on or after July 1, 2006, but before January 1, 2008, without having been paid before July 1, 2006, or are paid without having become due, to the surety on or after that day but before January 1, 2008, are subject to a rate of 6 per cent or 14 per cent in participating provinces. Contract payments that become due on or after January 1, 2008, without having been paid before that day, or are paid, without having become due, to the surety on or after that day are subject to a rate of 5 per cent or 13 per cent in participating provinces.

Paragraph 184(2)(f)

Self-supply of single unit residential complex or residential condominium unit

ETA
165(1)

Where subsection 191(1) of the Act applies, builders of newly constructed or substantially renovated single unit residential complexes (for example, detached and semi-detached houses) and residential condominium units must self-assess tax calculated on the fair market value of the residential complex or condominium unit. To trigger this self-assessment, subsection 191(1) treats the builder as having made and received a taxable supply of the complex or unit at a time specified in the subsection when certain conditions in respect of the complex or unit are first met and to have collected and paid tax at that time calculated on the fair market value of the complex or unit.

If the specified time at which the supply is deemed to have been made and received under subsection 191(1) is on or after January 1, 2008, tax imposed under subsection 165(1) of the Act applies at the rate of 5 per cent on the fair market value of the complex or unit. For example, a person who substantially completes construction of a detached home for rental purposes and first gives possession of the home to a tenant on January 1, 2008, is deemed to have paid and collected tax imposed under subsection 165(1) at the rate of 5 per cent on the fair market value of the home on that date. If possession of the complex were instead given on December 30, 2007, tax would be imposed under subsection 165(1) at the rate of 6 per cent (unless an exception similar to the one described below applied when the rate at which tax is calculated under subsection 165(1) was reduced from 7 per cent to 6 per cent).

An exception to this rule applies when a person purchases a house and leases the land on which it is situated from the builder of the house under an agreement entered into on or before October 30, 2007 and acquires possession of the house under the agreement on or after January 1, 2008. If this exception to the transitional rule applies, tax on the deemed supply under subsection 191(1) is imposed under subsection 165(1) at the rate of 6 per cent. The purchaser of the building, or part of the building, in which the complex or unit is situated may be eligible to claim a rebate in respect of the purchase under new section 256.75 of the Act.

If the agreement was entered into on or before May 2, 2006 and the possession of the complex under the agreement is transferred on or after January 1, 2008, tax on the deemed supply under subsection 191(1) would be imposed under subsection 165(1) at the rate of 7 per cent since it would also constitute an exception to the application of a similar transitional rule introduced when the rate at which tax is calculated under subsection 165(1) was reduced from 7 per cent to 6 per cent. In these cases, purchasers may be eligible to claim a rebate in respect of the purchase under existing section 256.4 of the Act and an additional transitional rebate under new section 256.71 of the Act.

Paragraph 184(2)(g)

Self-supply of residential condominium unit

ETA
165(1)

Subsection 191(2) of the Act applies when the builder of a substantially completed residential condominium unit has given possession of the unit, before registration of the condominium complex in which it is situated, to a purchaser under an agreement of purchase and sale, the purchaser has occupied or rented out the unit and the agreement is terminated (otherwise than by performance of the agreement) without entering into a new agreement. Under these circumstances, subsection 191(2) treats the builder of the unit as having made and received a taxable supply of the unit at the time the agreement is terminated and as having collected and paid tax at that time calculated on the fair market value of the unit.

Under this transitional rule, if the agreement is terminated on or after January 1, 2008, then tax imposed under subsection 165(1) of the Act applies at the rate of 5 per cent, unless possession of the unit is transferred to the purchaser before that day. Where possession of the unit was transferred to the purchaser before January 1, 2008, but after July 1, 2006, the tax imposed under subsection 165(1) would apply at the rate of 6 per cent.

Finally, where possession of the unit was transferred to the purchaser before July 1, 2006, the tax imposed under subsection 165(1) would apply at the rate of 7 per cent since it would also constitute an exception to the application of a previous similar transitional rule introduced when the rate at which tax is calculated under subsection 165(1) was reduced from 7 per cent to 6 per cent.

Paragraph 184(2)(h)

Self-supply of multiple unit residential complex

ETA
165(1)

Where subsection 191(3) of the Act applies, builders of newly constructed or substantially renovated multiple unit residential complexes, such as apartment buildings, are treated as having made and received a taxable supply of the complex at a time specified in the subsection. Further, the builder is deemed to have collected and paid tax at that time calculated on the fair market value of the complex.

If the specified time at which the supply is deemed to have been made and received under subsection 191(3) is on or after January 1, 2008, then tax imposed under subsection 165(1) of the Act applies at the rate of 5 per cent on the fair market value of the complex. For example, a builder who completes construction of an apartment building and triggers a deemed supply on January 1, 2008, on first giving possession of an apartment in the building to a tenant would be deemed to have paid and collected tax imposed at the rate of 5 per cent on the fair market value of the building on that day. If first possession of an apartment in the building had instead been given on December 30, 2007, tax would have been imposed under subsection 165(1) at the rate of 6 per cent.

An exception to the application of this transitional rule applies if the triggering event causing a deemed supply on or after January 1, 2008, is the builder giving possession of a residential unit in the complex to a person under an agreement for the supply by way of sale of the building or part of the building forming part of the complex and for the supply by way of lease, or assignment of a lease, of the land forming part of the complex. The exception applies in this case, if the agreement was entered into on or before October 30, 2007, or another similar agreement entered into with another person was either entered into on or before May 2, 2006, and was not terminated before July 1, 2006, or entered into on or before October 30, 2007, and was not terminated before January 1, 2008. If this exception to the transitional rule applies, tax on the deemed supply under subsection 191(3) is imposed under subsection 165(1) at the rate of 7 per cent or 6 per cent depending on the circumstances. Where no agreement was entered into on or before May 2, 2006, tax would be imposed at the rate of 6 per cent in this exception.

In cases where the 6 per cent rate applies, a purchaser of the building or part of the building that forms part of a multiple unit residential complex to which the exception to the transitional rule applies may, however, be eligible to claim a rebate in respect of the purchase under new section 256.76 of the Act and the builder who is required to self-assess under subsection 191(3) may be eligible to claim a rebate under new section 256.77 of the Act.

Where at least one agreement was entered into on or before May 2, 2006, and was not terminated before July 1, 2006, the tax imposed under subsection 165(1) would apply at the rate of 7 per cent since it would also constitute an exception to the application of a previous transitional rule introduced when the rate at which tax is calculated under subsection 165(1) was reduced from 7 per cent to 6 per cent. In this case, in addition to the transitional rebates that a purchaser and the builder may be eligible to claim under existing sections 256.5 and 256.6 of the Act, a purchaser and the builder may respectively be eligible to claim a transitional rebate under new sections 256.72 and 256.73 of the Act.

Paragraph 184(2)(i)

Self-supply of addition to multiple unit residential complex

ETA
165(1)

When subsection 191(4) of the Act applies, a builder of a newly constructed addition to an existing multiple unit residential complex, such as an additional floor added to an apartment building, is treated as having made and received a taxable supply of the addition at a time specified in the subsection. Further, the builder is deemed have collected and paid tax at that time calculated on the fair market value of the addition.

If the specified time at which the supply is deemed to have been made and received under subsection 191(4) is on or after January 1, 2008, then tax is imposed under subsection 165(1) of the Act at the rate of 5 per cent on the fair market value of the addition. For example, a builder who substantially completes construction of an addition and triggers a deemed supply on January 1, 2008, on first giving possession of an apartment in the addition to a tenant, would be deemed to have paid and collected tax imposed under subsection 165(1) at the rate of 5 per cent on the fair market value of the addition on that date. If first possession of an apartment in the addition had instead been given on December 30, 2007, tax would have been imposed under subsection 165(1) at the rate of 6 per cent.

An exception to the application of this transitional rule applies if the triggering event causing a deemed supply on or after January 1, 2008, is the builder giving possession of a residential unit in the addition to a person under an agreement for the supply by way of sale of the building or part of the building forming part of the complex and for the supply by way of lease, or assignment of a lease, of the land forming part of the complex, and either that agreement was entered into on or before October 30, 2007, or another similar agreement entered into with another person was either entered into on or before May 2, 2006, and was not terminated before July 1, 2006, or entered into on or before October 30, 2007, and was not terminated before January 1, 2008.

If this exception to the transitional rule applies, tax on the deemed supply under subsection 191(4) is imposed at the rate of 7 or 6 per cent depending on the circumstances. Where no agreement was entered into on or before May 2, 2006, tax would be imposed at the rate of 6 per cent.

Where the 6 per cent rate applies, the purchaser of the building portion of a residential unit in an addition to a multiple unit residential complex to which the exception to the transitional rule applies may, however, be eligible to claim a rebate in respect of the purchase under new section 256.76 of the Act and the builder who is required to self-assess under subsection 191(4) may be eligible to claim a rebate under new section 256.77 of the Act.

Where at least one agreement was entered into on or before May 2, 2006, and was not terminated before July 1, 2006, the tax imposed under subsection 165(1) would apply at the rate of 7 per cent since it would also constitute an exception to the application of a similar transitional rule introduced when the rate at which tax is calculated under subsection 165(1) was reduced from 7 per cent to 6 per cent. In this case, in addition to the transitional rebates that the purchaser and the builder may be eligible to claim under existing sections 256.5 and 256.6 of the Act, the purchaser and the builder may respectively be eligible to claim a transitional rebate under new sections 256.72 and 256.73 of the Act.

Paragraphs 184(2)(j) and (k)

Selected listed financial institutions

ETA
165(1)

Section 225.2 of the Act provides for adjustments to net tax that are required to be made by selected listed financial institutions in determining net tax for a reporting period. One of these adjustments requires the calculation of amounts of tax in respect of supplies received by the financial institution from another person with whom the financial institution has made an election under section 150 of the Act, which election allows those supplies to be treated as exempt. The selected listed financial institution and the other person can elect under subsection 225.2(4) for the financial institution to calculate tax in respect of these supplies using a method, provided for under paragraph (c) of element A in subsection 225.2(2), based upon a calculation of tax on certain costs to the other person of making the exempt supplies.

Under the transitional rule in paragraph 184(2)(j), selected listed financial institutions calculating tax on costs under paragraph (c) of the description of A in subsection 225.2(2) for reporting periods that end on or after January 1, 2008, will use the rate of 5 per cent for calculating tax under subsection 165(1) of the Act regardless of when the costs of the other person were actually incurred.

As well, in determining the overall adjustment to net tax required under section 225.2, reference is made to the rate set out in subsection 165(1). Paragraph 184(2)(k) ensures that in calculating this adjustment for reporting periods that end on or after January 1, 2008, the reference to this rate is a reference to 5 per cent.

Paragraph 184(2)(l)

Employee and partner rebates

ETA
165(1)

Section 253 of the Act provides for the payment of rebates to employees and partners in respect of tax paid by them on certain property or services acquired or imported on their personal account and for which they can deduct an amount for income tax purposes for a calendar year. The formula in subsection 253(1) currently applies the factor 6/106, 8/108 or 14/114 to determine a rebate in respect of tax paid on property or services acquired or imported by an employee or partner, depending on whether the tax in question paid by the partner or employee was calculated at the rate of 6 per cent, 8 per cent or 14 per cent, respectively. Under subsection 253(2), the rebate payable under subsection 253(1) to an individual who is a member of a partnership may not exceed the amount that would be an input tax credit of the partnership if the expenses had been incurred and the taxes had been paid by the partnership.

The amendment ensures that for the purposes of the description of A in subsection 253(1) and subparagraphs 253(2)(a)(i) and (c)(ii) in determining the amount of a rebate payable under subsection 253(1) for a calendar year after 2007, the references to the rate in subsection 165(1) of the Act is a reference to 5 per cent.

Paragraphs 184(2)(m) and (n)

Streamlined Accounting (GST/HST) Regulations

ETA
165(1)

The Streamlined Accounting (GST/HST) Regulations (the "Regulations") provide small businesses and public service bodies optional simplified methods of calculating their GST/HST remittances. One such method is the Streamlined Input Tax Credit Method that is available to businesses, charities, qualifying non-profit organizations and selected public service bodies that have filed an election, make less than $500,000 in annual taxable supplies (other than certain real property supplies) and make less than $2 million in annual taxable purchases (other than zero-rated purchases). Generally, the method permits registrants to calculate their input tax credits by reference to the total amount payable on an invoice. This relieves registrants of the need to separately identify the amount of GST or HST payable on each invoice, thus simplifying the bookkeeping requirements for small businesses.

Presently, subsection 21.3(2) of the Regulations generally allows a registrant to determine an input tax credit by multiplying the factor 6/106 (or 14/114 in the case of an input taxed at the HST rate) by the tax and duty-included cost of the input. The factor is therefore applied to an amount that includes not only consideration for the supplies, but also GST or HST, duties payable on importation, applicable provincial taxes, gratuities, interest and penalties for late payment.

The amendment ensures that a factor of 5/105 applies for the GST and 13/113 applies for the HST to inputs in this calculation. The transitional rule applies for the purpose of determining tax that became payable or was paid, without having become payable, by a registrant during reporting periods ending after 2007. A special transitional rule applies to reporting periods that include January 1, 2008. The rule ensures that the factors 6/106 and 14/114 apply to the consideration, tax, duties, gratuities, interest and penalties that become due, or are paid without having become due, during that period but before January 1, 2008. The factors of 5/105 and 13/113 apply to other consideration, tax, duties, gratuities, interest and penalties that become due, or are paid without having become due, during that reporting period.

Subsection 21.3(4) of the Regulations excludes the portion of an input tax credit that a registrant claims under subsection 21.3(2) in respect of the acquisition or importation of a passenger vehicle to which paragraph 13(7)(g) or (h) of the Income Tax Act applies. The effect is that a factor of 6/106 or 14/114 is applied to the amount deemed under paragraph 13(7)(g) or (h) to be the capital cost of the vehicle. That amount is the maximum allowable input tax credit, while the excess is excluded.

The amendment ensures that a factor of 5/105 or 13/113 applies to the determination of an input tax credit in respect of a passenger vehicle for which tax on the acquisition or importation first became payable, or was first paid without having become payable, after 2007.

Paragraph 184(2)(o)

Determining and calculating other amounts

ETA
165(1)

This transitional rule applies only if none of the other transitional rules for amended subsection 165(1) of the Act in paragraphs 184(2)(a) to (n) apply. An example of its application is the case of a registrant who acquires capital property in respect of which an election under section 167 of the Act applies. As a result of the election, no tax is actually payable in respect of the consideration for the supply of the property; however, in calculating the basic tax content of the property (within the meaning assigned by subsection 123(1) of the Act) the registrant is required to determine an amount equal to the tax that would have been payable in respect of the supply, but for the operation of section 167. If the tax that would have been payable under subsection 165(1) in respect of the supply would have been payable on or after January 1, 2008, then this transitional rule provides that the rate of 5 per cent applies in making that determination.

Clause 185

Employee and shareholder benefits

ETA
173(1)

Section 173 of the Act sets out the rules for determining the amount of tax to be remitted on a supply by a registrant to an employee or shareholder of the registrant when that supply gives rise to a taxable benefit for income tax purposes for a taxation year of an individual. In particular, the formula in clause 173(1)(d)(vi)(B) provides the manner for calculating tax to be remitted on a taxable employee or shareholder benefit, other than an automobile operating expense benefit to which a prescribed percentage applies.

Currently, clause 173(1)(d)(vi)(B) provides that where the recipient is a shareholder who is resident in a participating province at the end of the taxation year or where the recipient is an employee and the last establishment of the employer at which the employee ordinarily worked or to which the employee ordinarily reported in the year was located in a participating province, the tax remittance is to be calculated by multiplying the total consideration for the benefit by the factor 13/113. In any other case, the total consideration is multiplied by the factor 5/105.

Clause 173(1)(d)(vi)(B) is amended to adjust the base percentage to 4 per cent for determining the factors that are used for calculating the tax on a taxable employee or shareholder benefit. This amendment is consequential to the amendment to subsection 165(1) of the Act that reduces the rate of tax imposed under that subsection from 6 per cent to 5 per cent. As a result, the new factors will be 4/104 and 12/112 for the GST and HST respectively.

The amendment applies to the 2008 and subsequent taxation years of an individual.

Clause 186

Imposition of goods and services tax on imported goods

ETA
212

Existing section 212 of the Act imposes GST at the rate of 6 per cent on most goods imported into Canada by a person who is liable under the Customs Act to pay duty on the goods, or would be so liable if the goods were subject to duty.

Section 212 is amended to implement the rate reduction of the GST and the federal component of the HST from 6 per cent to 5 per cent.

The amendment to section 212 applies to goods imported into Canada, or released (as defined in the Customs Act), on or after January 1, 2008.

Clause 187

Imposition of goods and services tax on imported taxable supplies

ETA
218

Section 218 of the Act imposes a liability on every recipient of an imported taxable supply (within the meaning of section 217 of the Act) to pay tax at the rate of 6 per cent calculated on the value of the consideration for the supply. Imported taxable supplies include supplies of intangible personal property and services that are supplied outside Canada and certain supplies of tangible personal property by unregistered non-resident persons where the supply of the property is deemed to be made outside Canada but the property is delivered or possession of it is transferred in Canada without tax under Division II or III applying to it.

Section 218 is amended to implement the rate reduction of the GST and the federal component of the HST from 6 per cent to 5 per cent.

The amendment applies to any imported taxable supply made on or after January 1, 2008. The amendment also applies for the purposes of calculating tax in respect of any imported taxable supply made before January 1, 2008, but only in respect of consideration that becomes due on or after that day without having been paid before that day or that is paid, without having become due, on or after January 1, 2008. Finally, the amendment applies in situations not covered above for the purposes of determining or calculating tax that is not payable but would have been payable on or after January 1, 2008, in the absence of certain circumstances described in the Act, such as the fact that a person acquired property for consumption, use or supply exclusively in the course of commercial activities of the person.

Clause 188

New housing rebate

ETA
254(2)(h) and (i)

Section 254 of the Act provides for a partial rebate of the tax paid by an individual acquiring from a builder a single-unit residential complex or a residential condominium unit that has been newly constructed or substantially renovated for use as a primary place of residence of the individual, a related individual or a former spouse of the individual.

Existing paragraphs 254(2)(h) and (i) include a reference to $7,560, which is the current maximum rebate available and is equivalent to 36 per cent of the total tax paid under subsection 165(1) of the Act, currently calculated at 6 per cent, on a house priced at $350,000. As a result of the amendment to subsection 165(1), which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, these paragraphs are amended to reduce the maximum rebate available to $6,300, which is equivalent to 36 per cent of the tax paid at the rate of 5 per cent on a house priced at $350,000.

The amendments to paragraphs 254(2)(h) and (i) apply to rebates in respect of residential complexes, the ownership of which is transferred on or after January 1, 2008, unless the tax under subsection 165(1) in respect of the supply of the complex applied at the rate of 7 per cent or 6 per cent.

Clause 189

New housing rebate for building only

ETA
254.1(2)(c), (h), (i) and (2.1)(a)

Section 254.1 of the Act provides for a rebate to an individual who purchases a building that forms part of a single unit residential complex or a residential condominium unit located on leased land. Subsection 254.1(2) provides for a partial rebate of an amount equivalent to the tax under subsection 165(1) of the Act embedded in the price of the building. Subsection 254.1(2.1) provides for a partial rebate of the provincial component of the HST embedded in the price of the building where the complex or unit is situated in Nova Scotia and is acquired by a qualifying purchaser who also qualifies for the rebate under subsection (2).

Existing paragraphs 254.1(2)(c), (h) and (i) have references to amounts that parallel the ones found in section 254 of the Act, which provides for a rebate where a residential complex, including the land that forms part of the complex, is purchased from a builder. Existing paragraph 254.1(2.1)(a) also refers to the value of the complex at or above which a purchaser ceases to qualify for the rebate under subsection (2).

As a result of the amendment to subsection 165(1), which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, paragraphs 254.1(2)(h) and (i) are amended to reduce the maximum rebate available from $7,560 to $6,300, which corresponds to the maximum rebate available under amended subsection 254(2). Paragraphs 254.1(2)(c), (h) and (i), as well as paragraph 254.1(2.1)(a), are also amended to reduce amounts referred to in those paragraphs from $371,000, $477,000 and $106,000 to $367,500, $472,500 and $105,000 respectively to correspond to similar tax-embedded amounts consequential to the amendment to subsection 165(1). Finally, amendments are made to the reference in paragraphs 254.1(2)(h) and (i) to 2.04 per cent, which corresponds to the rebate, expressed as a percentage, available under subsection 254(2) if that rebate were to be expressed as a rebate applicable on the 6 per cent GST-included price of a residential complex. These paragraphs are amended to refer to 1.71 per cent instead of 2.04 per cent to reflect the reduction in the rate at which tax is calculated under amended subsection 165(1).

These amendments apply in respect of a residential complex in which a residential unit is situated if the possession of the unit is transferred on or after January 1, 2008, unless the tax under subsection 165(1) in respect of the deemed supply of the complex referred to in paragraph 254.1(2)(d) applied at the rate of 7 per cent or 6 per cent.

Clause 190

Cooperative housing rebate

ETA
255(2)(d), (g), (h) and (2.1)(c)

Section 255 of the Act provides for a rebate to an individual in respect of the purchase of a share in a co-operative housing corporation for the purpose of using a new residential unit of the corporation as a primary place of residence of the individual, a related individual or a former spouse of the individual. Subsection 255(2) provides for a partial rebate of an amount equivalent to the tax under subsection 165(1) of the Act embedded in the cost of the share. Subsection 255(2.1) provides for a partial rebate of the provincial component of the HST embedded in the cost of the share where the unit is situated in Nova Scotia and the share is acquired by a qualifying purchaser who also qualifies for the rebate under subsection (2).

Existing paragraphs 255(2)(d), (g) and (h) have references to amounts that parallel the ones found in section 254 of the Act, which provides for a rebate where a residential complex, including the land that forms part of the complex, is purchased from a builder. Existing paragraph 255(2.1)(c) also refers to the value at which a purchaser ceases to qualify for the rebate under subsection (2).

As a result of the amendment to subsection 165(1), which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, paragraphs 255(2)(g) and (h) are amended to reduce the maximum rebate available from $7,560 to $6,300, which corresponds to the maximum rebate available under amended subsection 254(2). Paragraphs 255(2)(d), (g) and (h), as well as paragraph 255(2.1)(c), are also amended to reduce the amounts referred to in those paragraphs from $371,000, $477,000 and $106,000 to $367,500, $472,500 and $105,000 respectively to correspond to similar tax-embedded amounts consequential to the amendment to subsection 165(1). Finally, amendments are made to the reference in paragraphs 255(2)(g) and (h) to 2.04 per cent, which corresponds to the rebate, expressed as a percentage, under subsection 254(2) if that rebate were to be expressed as a rebate applicable on the 6 per cent GST-included price of a residential complex. These paragraphs are amended to refer to 1.71 per cent instead of 2.04 per cent to reflect the reduction in the rate at which tax is calculated under amended subsection 165(1).

These amendments apply in respect of a rebate application filed on or after January 1, 2008, unless the cooperative housing corporation paid tax under subsection 165(1) in respect of the supply to the corporation of the complex in which the residential unit is situated calculated at the rate of 7 per cent or 6 per cent.

Clause 191

Rebate for owner-built homes

ETA
256(2)

Section 256 of the Act provides a partial rebate of the GST paid by an individual who builds or substantially renovates his or her own primary place of residence or hires another person to do so.

Existing subparagraph (i) of the description of A in subsection 256(2) includes a reference to $7,560, which parallels the current maximum rebate available under subsection 254(2) of the Act in the case of a new home purchased from a builder. Currently the rebate under section 256 is applicable where all or substantially all of the "total tax paid by the particular individual" (as defined in paragraph 256(2)(c)) before an application for the rebate is filed with the Minister of National Revenue (the "rebatable tax") was paid at the rate of 6 per cent. Existing subparagraph (i) is renumbered as subparagraph (ii), so that where all or substantially all of the rebatable tax was paid at the rate of 6 per cent, the current maximum rebate of $7,560 will continue to apply. New subparagraph (i) includes a reference to $6,300, which parallels the amended maximum rebate available under subsection 254(2), and will apply where all or substantially all of the rebatable tax was paid at the rate of 5 per cent. As a result, where all or substantially all of the rebatable tax was paid at the rate of 5 per cent, a maximum rebate of $6,300 will apply. New subparagraph (iii) of the description of A in subsection 256(2) contains a formula to calculate the appropriate maximum rebate where all or substantially all of the rebatable tax was neither paid at the rate of 5 per cent nor 6 per cent.

Depending on the percentage of the rebatable tax that was paid at the rate of 7 per cent or 6 per cent, the maximum rebate under the formula will vary between $6,300 and $8,750. Where this formula applies, the result is necessarily higher than $6,300 since it only applies if subparagraphs (i) and (ii) do not apply.

This amendment applies for the purpose of determining a rebate in respect of a residential complex for which an application is filed with the Minister on or after January 1, 2008.

Clause 192

New residential rental property rebate

ETA
256.2(3) to (5)

Section 256.2 of the Act provides for a 36 per cent rebate of the tax imposed under subsection 165(1) of the Act in respect of newly-constructed or substantially-renovated residential rental accommodation, including multiple-unit residential complexes. Consistent with the rebate under subsection 254(2) of the Act, which provides for a partial rebate of the tax paid by an individual purchasing from a builder a single-unit residential complex or a residential condominium unit, the maximum rebate available under subsections 256.2(3) to (5) in respect of a "qualifying residential unit" (as defined in subsection 256.2(1)) is $7,560.

As a result of the amendment to subsection 165(1), which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, subsections 256.2(3) to (5) are amended to reduce the maximum rebate used in the formulas contained in these subsections from $7,560 to $6,300. This maximum corresponds to the maximum rebate available under amended subsection 254(2).

These amendments apply, in the case of purchaser-landlords, to residential complexes in respect of which ownership and possession under the agreement for the supply are transferred on or after January 1, 2008, unless the agreement was entered into on or before October 30, 2007. In the case of builder-landlords, these amendments generally apply to residential complexes in respect of which the tax is deemed to have been paid under section 191 of the Act on or after January 1, 2008. However, in the case of an exempt sale of a building or part of a building, forming part of a residential complex, to a person who leases the land on which the building is located, the amendment to subsection 165(1) that reduces the rate of tax to 5 per cent might not be applicable even if the tax is deemed to have been paid under section 191 on or after January 1, 2008 (see paragraphs 184(2)(f), (h) and (i)). If it is the case, the amendment to subsection 256.2(3) to (4) will also not apply.

Clause 193

Transitional rebate for builder

ETA
256.6

As a result of an amendment to subsection 165(1) of the Act in 2006 that reduced the rate at which tax is calculated under that subsection from 7 per cent to 6 per cent, section 256.6 was added to the Act to provide, in certain cases, for a transitional rebate to a builder that is required to pay tax under subsection 165(1) as a result of the application of the self-supply rules under subsection 191(3) or (4) of the Act. In addition to applying to cases where a traditional new multiple unit residential complex is first rented to tenants, subsection 191(3) also applies where a builder first makes an exempt supply by way of lease of land forming part of a new residential complex, other than a single unit residential complex (as defined in subsection 123(1) of the Act) or a residential condominium unit, or an exempt supply of such a lease by way of assignment, and an exempt supply by way of sale of the building or part of the building that forms part of the complex. Subsection 191(4) applies to similar situations involving an addition to an existing multiple unit residential complex. In addition to the transitional rebate to which a purchaser of a part of the building forming part of the complex or the addition to the complex might be entitled to claim under section 256.5 of the Act, the builder might, in these cases, be entitled to claim a rebate under section 256.6 of the Act.

Where all the conditions are met, the availability and calculation of a transitional rebate that a builder would be eligible to claim depends on the adjusted consideration payable by purchasers for parts of the building and the fair market value of the complex on which the builder was deemed to have paid and collected GST under subsection 191(3). In the case of an addition to a complex, it is intended that the availability and calculation of a transitional rebate depend on the adjusted consideration payable by purchasers for parts of the building that forms part of the addition and the fair market value of the addition on which the builder was deemed to have paid and collected GST under subsection 191(4). However, the existing description of C in subsection 256.6(1) does not currently include a reference to an addition to a residential complex. As a result, a strict reading of 256.6 could potentially create difficulties in arriving at the appropriate amount. For example, if the fair market value of the existing complex is less than the fair market value of the addition, the calculation could result in a reduced transitional rebate or no transitional rebate at all. To ensure the proper application of section 256.6 in the case of an addition to a multiple unit residential complex, the description of C in subsection 256.6(1) is amended to include a reference to an addition in the case where a builder is required to remit tax under subsection 191(4).

This amendment is deemed to have come into force on July 1, 2006, the day section 256.6 came into force.

Clause 194

Transitional rebate – 2008 rate reduction

ETA
256.7 to 256.73

As a general rule, the amendment to subsection 165(1) of the Act, which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, is applicable in the case of a supply of real property by way of sale if the transfer of ownership and possession under the agreement of purchase and sale occur on or after January 1, 2008. However, certain exceptions are provided in the application rules to that amendment (see subclause 184(2)) so that the tax under subsection 165(1) might not apply at the rate of 5 per cent in certain cases involving residential units. In addition, similar exceptions are provided in the application rules to a previous amendment that reduced the rate at which tax is calculated from 7 per cent to 6 per cent. As a result, tax under subsection 165(1) might apply at the rate of 7 per cent even in cases where ownership and/or possession of certain residential units are transferred on or after January 1, 2008. The latter will generally be the case where a transaction involving a residential unit situated in a residential complex is made pursuant to an agreement entered into on or before May 2, 2006.

The reason for these exceptions to the general application rules is that there are circumstances where a builder and a purchaser have entered into an agreement of purchase and sale for a new residential complex prior to being aware of when the rate under subsection 165(1) would be changed to 6 per cent and then 5 per cent and, therefore, the agreement might reflect a 7 per cent or 6 per cent tax rate under subsection 165(1). In some situations, the price agreed upon might also be an all inclusive price determined on the basis of a 7 per cent or 6 per cent tax rate under subsection 165(1) and, where applicable, of a GST New Housing Rebate credited by the builder, despite the fact that the closing date falls on or after January 1, 2008. In addition, there are also cases where, even though the supply is exempt from GST/HST, there is a strong link between the tax payable by the builder and the consideration paid by the purchaser. For example, a sale of a new home built on leased land could be exempt from GST/HST and the builder might be required to pay tax on the fair market value of the residential complex. However, the purchaser might be entitled to a GST New Housing Rebate under subsection 254.1(2) of the Act and the price agreed upon might reflect the fact that the rebate was credited by the builder.

In those cases, tax under subsection 165(1) will continue to apply at 7 per cent or 6 per cent, as the case may be, but the purchaser and, depending on the circumstances, the builder are allowed to claim a transitional rebate for the difference between tax under subsection 165(1) at 7 per cent and 6 per cent (including adjustments, where necessary, for the GST New Housing Rebate or other rebates allowed under the existing provisions) under existing sections 256.3 to 256.6 of the Act.

New sections 256.7 to 256.73 of the Act provide for transitional rebates that, together with the transitional rebates already available under existing sections 256.3 and 256.6, to generally place the parties involved in these transactions in the same situation as if the general application rules with respect to the amendments to subsection 165(1) were known at the time the agreement was entered into.

New section 256.7 provides for a transitional rebate in the case where, pursuant to an agreement of purchase and sale, evidenced in writing, entered into on or before May 2, 2006, a person acquires from another person a new or substantially renovated residential complex in respect of which ownership and possession under the agreement are transferred to the person on or after January 1, 2008. Since the complex must be acquired from another person, this new section does not apply where the self-supply rules under section 191 of the Act are applicable. Transitional rebates under new section 256.7 are in addition to the transitional rebates available under existing section 256.3. As is the case with the transitional rebates under section 256.3, the transitional rebates available under new section 256.7 are equivalent to 1 per cent of the consideration paid minus, where applicable, an adjustment to take into account the fact that other benefits, such as the amount of GST/HST New Housing Rebate available, remained unchanged. As a result of the application of existing section 256.3 and new section 256.7, the total amount of transitional rebates available in these cases is equivalent to 2 per cent of the consideration paid minus applicable adjustments.

New sections 256.71 to 256.73 generally provide for a transitional rebate where a person is the recipient, pursuant to an agreement entered into on or before May 2, 2006, of an exempt supply by way of lease of land forming part of a new residential complex, or an exempt supply of such a lease by way of assignment, and of an exempt supply by way of sale of the building or part of the building that forms part of the complex if possession of the complex is given to the person under the agreement on or after January 1, 2008.

In addition, sections 256.72 and 256.73 also address the situation where part of a building, forming part of a residential complex, is sold to a person who leases the land on which the building is located. In that case, the builder might be required under section 191 to pay tax before January 1, 2008, at the rate of 7 per cent under subsection 165(1), in respect of the entire residential complex even if ownership and possession of that part of the building were not transferred to the purchaser before January 1, 2008.

Transitional rebates under new sections 256.71 to 256.73 are in addition to the transitional rebates available under sections 256.4 to 256.6 of the Act. Also, the amount of a transitional rebate under new sections 256.71 to 256.73 should be equal to the amount also available under existing sections 256.4 to 256.6 as the formulas used to calculate the amount of a transitional rebate in both cases are essentially the same.

The Act does not provide for the possibility of assigning the transitional rebate under section 256.7 to 256.73. In addition, section 67 of the Financial Administration Act (the "FAA") provides that, except as provided in the FAA or any other Act of Parliament, a Crown debt is not assignable and no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt. It should be noted that, while theAct does not provide for the possibility of assigning new housing rebates under section 254 of the Act or 254.1, these sections include mechanisms to allow builders to pay or credit the amount of a new housing rebate to a purchaser. To the extent that an amount was paid or credited to a purchaser on account of a rebate to which the purchaser is entitled under sections 254 and 254.1, and provided that the builder transmits the application of the purchaser for the rebate to the Minister of National Revenue in accordance with these sections, section 234 of the Act allows the builder to deduct that amount in determining the builder’s net tax. Section 256.7 (as well as sections 256.71 and 256.72) does not include such a mechanism. As a result, it would not be possible for a builder to pay or credit a transitional rebate to the purchaser and be allowed to deduct the amount of the rebate in determining the builder’s net tax.

Consequently, a rebate application under section 256.7 in respect of a residential complex must be filed directly with the Minister by the purchaser within two years after the day that the ownership of the complex is transferred to the purchaser. In cases where a GST/HST New Housing Rebate is also available, the rebate application must be filed by the same person that applied for the GST/HST New Housing Rebate. It should be noted that, in the case of a GST/HST New Housing Rebate submitted to a builder and forwarded by the builder to the Minister, it is still the purchaser that applied for the GST/HST New Housing Rebate. The purchaser must still file the application for the transitional rebate directly with the Minister.

A rebate application under sections 256.71 and 256.72 in respect of an exempt supply by way of sale of the building or part of the building that forms part of the complex must be filed directly with the Minister of National Revenue by the purchaser within two years after the day possession of the unit forming part of the complex is transferred to the purchaser.

With respect to builders, a rebate application under sections 256.71 and 256.73 in respect of a residential complex or of an addition to it must be filed by the builder within two years after the end of the month in which tax under section 191 in respect of the complex or addition is deemed to have been paid by the builder.

Transitional rebate – 2008 rate reduction

ETA
256.74 to 256.77

As a general rule, the amendment to subsection 165(1) of the Act, which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, is applicable in the case of a supply of real property by way of sale if transfer of ownership and possession under the agreement of purchase and sale occur on or after January 1, 2008. However, certain exceptions are provided in the application rules to that amendment (see subclause 184(2)) so that the tax under subsection 165(1) might continue to apply at the rate of 6 per cent even in cases where ownership and/or possession of residential units are transferred on or after January 1, 2008. This will generally be the case where a transaction involving a residential unit situated in a residential complex is made pursuant to an agreement entered into after May 2, 2006, and on or before October 30, 2007. In the case of a transaction involving a residential unit situated in a residential complex that is made pursuant to an agreement entered into on or before May 2, 2006, the tax under subsection 165(1) might continue to apply at the rate of 7 per cent and transitional rebates might be available under existing sections 256.3 to 256.6 of the Act and, in addition to a rebate available under these sections, under new sections 256.7 to 256.73 of the Act.

The reason for this exception to the general application rule is that there are circumstances where a builder and a purchaser have entered into an agreement of purchase and sale for a new residential complex prior to being aware of when the rate under subsection 165(1) would be changed from 6 per cent to 5 per cent and, therefore, the agreement might reflect a 6 per cent tax rate under subsection 165(1). In some situations, the price agreed upon might also be an all inclusive price determined on the basis of a 6 per cent tax rate under subsection 165(1) and, where applicable, of a GST New Housing Rebate credited by the builder, despite the fact that the closing date falls on or after January 1, 2008. In addition, there are also cases where, even though the supply is exempt from GST/HST, there is a strong link between the tax payable by the builder and the consideration paid by the purchaser. For example, a sale of a new home built on leased land could be exempt from GST/HST and the builder might be required to pay tax on the fair market value of the residential complex. However, the purchaser might be entitled to a GST New Housing Rebate under subsection 254.1(2) of the Act and the price agreed upon might reflect the fact that the rebate was credited by the builder. In those cases, tax under subsection 165(1) will continue to apply at 6 per cent but the purchaser and, depending on the circumstances, the builder will be allowed to claim a transitional rebate for the difference between tax under subsection 165(1) at 6 per cent and 5 per cent (including adjustments, where necessary, for the GST New Housing Rebate or other rebates allowed under the existing provisions).

New sections 256.74 to 256.77 of the Act provide for transitional rebates that are introduced to generally place the parties involved in these transactions in the same situation as if the general application rule with respect to the amendment to subsection 165(1) were known at the time the agreement was entered into. In addition, sections 256.76 and 256.77 also address the situation where part of a building, forming part of a residential complex, is sold to a person who leases the land on which the building is located. In those cases, the builder might be required under section 191 of the Act to pay tax before January 1, 2008, at the rate of 6 per cent under subsection 165(1), in respect of the entire residential complex even if ownership and possession of that part of the building were not transferred to the purchaser before January 1, 2008.

It should be noted that, even though the transitional rebates under new sections 256.74 to 256.77 include references to other rebate programs, the transitional rebates are also available in situations where purchasers do not qualify for the existing GST/HST New Housing Rebate or the existing GST New Residential Rental Property Rebate.

New section 256.74 provides for transitional rebates in the case where, pursuant to an agreement of purchase and sale, evidenced in writing, entered into after May 2, 2006, and on or before October 30, 2007, a person acquires from another person a new or substantially renovated residential complex in respect of which ownership and possession under the agreement are transferred to the person on or after January 1, 2008. Since the complex must be acquired from another person, this new section does not apply where the self-supply rules under section 191 of the Act are applicable.

The transitional rebate available under new section 256.74 is equivalent to 1 per cent of the consideration paid minus, where applicable, an adjustment to take into account the fact that other benefits, such as an amount of GST/HST New Housing Rebate available. For example, in the case of a purchaser of a new residential complex, priced at $200,000 (tax not included), that is to be used as the primary place of residence of the purchaser, the GST under subsection 165(1) will remain at 6 per cent even if ownership and possession under the agreement of purchase and sale, entered into after May 2, 2006, and before October 30, 2007, are transferred on or after January 1, 2008. However, the purchaser will remain entitled to claim a GST New Housing Rebate equivalent to 36 per cent of the tax calculated at 6 per cent. As a result, 36 per cent of the 1-per-cent reduction under subsection 165(1) is already refunded under the rebate available under subsection 254(2) of the Act.

New subsection 256.74(1) provides for a transitional rebate to purchasers, other than a cooperative housing corporation, that are not otherwise entitled to recover all or a portion of the tax paid under subsection 165(1). In these cases, the adjustment for rebates otherwise available is not necessary and the transitional rebate is equal to 1 per cent of the consideration paid. New subsection 256.74(2) provides for a transitional rebate to purchasers, other than a cooperative housing corporation, that qualify for the GST New Residential Rental Property Rebate. New subsection 256.74(3) provides for a transitional rebate to purchasers, other than a cooperative housing corporation, that qualify for the Public Service Body Rebate. New subsection 256.74(4) provides for a transitional rebate to purchasers that are cooperative housing corporations and addresses the situation where the corporation does not qualify for another rebate as well as situations where the corporation, or the purchaser of a share of the corporation, is entitled or can reasonably expect to be entitled to another rebate. Finally, subsection 256.74(5) provides for a transitional rebate to individuals that are entitled to claim a GST New Housing Rebate under subsection 254(2) of the Act. In this particular case, subsection 256.74(6) contains a rule similar to the one found in existing subsection 262(3) of the Act, which provides rules for applying the New Housing Rebate provisions under sections 254 to 256 when more than one individual is liable for consideration and tax in respect of the same residential complex.

The Act does not provide for the possibility of assigning the transitional rebate under section 256.74 to 256.77. In addition, section 67 of the Financial Administration Act (the "FAA") provides that, except as provided in the FAA or any other Act of Parliament, a Crown debt is not assignable and no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt. It should be noted that, while the Act does not provide for the possibility of assigning new housing rebates under section 254 of the Act or 254.1, these sections include mechanisms to allow builders to pay or credit the amount of a new housing rebate to a purchaser. To the extent that an amount was paid or credited to a purchaser on account of a rebate to which the purchaser is entitled under sections 254 and 254.1, and provided that the builder transmits the application of the purchaser for the rebate to the Minister of National Revenue in accordance with these sections, section 234 of the Act allows the builder to deduct that amount in determining the builder’s net tax. Section 256.74 (as well as sections 256.75 and 256.76) does not include such a mechanism. As a result, it would not be possible for a builder to pay or credit a transitional rebate to the purchaser and be allowed to deduct the amount of the rebate in determining the builder’s net tax.

Therefore, the rebate applications for the transitional rebate under new section 256.74 must be filed, in every cases, by the purchaser directly with the Minister of National Revenue. In cases where a GST/HST New Housing Rebate is also available, the rebate application must be filed by the same person that applied for the GST/HST New Housing Rebate. It should be noted that, in the case of a GST/HST New Housing Rebate submitted to a builder and forwarded by the builder to the Minister, it is still the purchaser that applied for the GST/HST New Housing Rebate. The purchaser must still file the application for the transitional rebate directly with the Minister of National Revenue. The transitional rebate application must be filed with the Minister of National Revenue within two years after the day that the ownership of the complex is transferred to the purchaser.

New sections 256.75 to 256.77 generally provide for a transitional rebate where a person is the recipient, pursuant to an agreement entered into after May 2, 2006, and on or before October 30, 2007, of an exempt supply by way of lease of land forming part of a new residential complex, or an exempt supply of such a lease by way of assignment, and of an exempt supply by way of sale of the building or part of the building that forms part of the complex.

New section 256.75 provides for a transitional rebate where the building or part of the building forms part of a single unit residential complex (as defined in subsection 123(1) of the Act) or of a residential condominium unit. In such a case, new section 256.75 provides for a transitional rebate to the purchaser and, depending on the adjusted consideration payable by the purchaser for the building or part of the building and the fair market value of the complex on which the builder was deemed to have paid and collected GST under section 191, a transitional rebate to the builder as well. For example, where the fair market value of the complex at the time the builder is required to pay GST under section 191 is $300,000 and the consideration for the building forming part of the complex is $275,000, which would include an amount that reflects the GST payable by the builder on the portion of the fair market value that relates to the building that the builder cannot otherwise recover, both the purchaser and the builder would be entitled to claim a transitional rebate. Similar to the transitional rebate under new section 256.74, the formulas in new section 256.75 contain an appropriate adjustment to take into account other benefits, such as the rebates available under subsections 254.1(2) and 256.2(4) of the Act.

New sections 256.76 and 256.77 provide for a transitional rebate where the building or part of the building forms part of a residential complex that is not a single unit residential complex (as defined in subsection 123(1)) or a residential condominium unit. In these cases, several purchasers could be involved and the builder is required to pay tax under subsection 165(1) in respect of the residential complex, as a result of the application of the self-supply rules under section 191, at a particular time that might not be the particular time at which a particular purchaser is given possession of a residential unit forming part of the new residential complex. As a result, a particular purchaser might be entitled to a transitional rebate under section 256.76 even if the builder was required to pay tax in respect of the residential complex before January 1, 2008, provided that possession of the residential unit forming part of the complex or of the addition is given to the particular purchaser, under the agreement for the supply by way of sale of the building or part of the building forming part of the complex and by way of lease of the land forming part of the complex, on or after January 1, 2008.

In addition, under the application rules to the amendment to subsection 165(1), which reduces the rate at which tax is calculated from 6 per cent to 5 per cent, the builder might be required to pay tax under subsection 165(1) at the rate of 6 per cent even if the self-supply rules under section 191 applies on or after January 1, 2008. It would be the case if any agreement that provides for an exempt supply by way of lease of land forming part of the new residential complex, or an exempt supply of such a lease by way of assignment, and an exempt supply by way of sale of the building or part of the building that forms part of the complex was entered into after May 2, 2006, and on or before October 30, 2007, and that agreement was not terminated before January 1, 2008. In such a case, in addition to a rebate under section 256.76 that the purchasers may be entitled to claim, the builder may also be entitled to claim a transitional rebate under section 256.77.

As for other transitional rebates, the transitional rebates under sections 256.76 and 256.77 also include an adjustment to take into account other benefits, such as the rebates available under subsections 254.1(2) and 256.2(4).

A rebate application under sections 256.75 and 256.76 in respect of an exempt supply by way of sale of the building or part of the building that forms part of the complex must be filed directly with the Minister of National Revenue by the purchaser within two years after the day possession of the unit forming part of the complex is transferred to the person.

With respect to builders, a rebate application under section 256.75 or 256.77 in respect of a residential complex or of an addition to it must be filed by the builder within two years after the end of the month in which tax under section 191 in respect of the complex or addition is deemed to have been paid by the builder.

Clause 195

Variation of agreement – 2008 rate reduction

ETA
274.11

New section 274.11 of the Act provides an anti-avoidance rule in the case where an agreement for a taxable supply of property or a service, entered into before January 1, 2008, between a supplier and a recipient not dealing at arm’s length is subsequently varied, altered or terminated and re-entered into to benefit from the rate reduction. The provision applies if it may not reasonably be considered for both the supplier and the recipient that the variation, alteration or termination and the entering into of a new agreement has been undertaken or arranged for bona fide purposes other than to benefit in any manner from the reduction of the GST from 7 per cent or 6 per cent to 5 per cent. The provision operates to impose tax at the original rate of tax (i.e., 7 per cent or 6 per cent as the case may be) on any part of the value of the consideration for a supply, attributable to any part of the property or service, on which tax would, but for this new section, be calculated at 5 per cent. Section 274.11 applies whether one or more than one new agreements are entered into between the supplier and the recipient or with other persons if the supplier supplies and the recipient receives all or substantially all the same property or service.

New section 274.11 applies to any agreement varied, altered, terminated, or entered into on or after October 30, 2007.


Related Amendments as a Result of the GST/HST Rate Reduction 

Air Travellers Security Charge Act

Clause 196

Amount of charge if service acquired in Canada

ATSCA
12(1)(a), (b) and (d)

Existing subsection 12(1) establishes the amount of the Air Travellers Security Charge (ATSC or the charge) that is payable on an air transportation service acquired in Canada. This includes air transportation services deemed under section 13 to have been acquired in Canada.

Paragraph 12(1)(a) establishes the amount of the charge at $4.67 per chargeable emplanement to a maximum of $9.34 per ticket for domestic air travel, where tax under subsection 165(1) of the Excise Tax Act (i.e., the GST or the federal component of the HST) is required to be paid. With the application of tax under subsection 165(1) of the Excise Tax Act at a rate of 6 per cent, the total cost of the ATSC is $4.95 per chargeable emplanement to a maximum of $9.90 per ticket for domestic air travel.

Paragraph 12(1)(b) establishes the amount of the charge at $4.95 per chargeable emplanement to a maximum of $9.90 per ticket for domestic air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all domestic air travellers contribute to the cost of air travel security on an equitable basis.

Paragraph 12(1)(c) establishes the amount of the charge at $7.94 per chargeable emplanement to a maximum of $15.89 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is required to be paid. With the application of tax under subsection 165(1) of the Excise Tax Act at a rate of 6 per cent, the total cost of the ATSC is $8.42 per chargeable emplanement to a maximum of $16.84 per ticket for transborder air travel.

Paragraph 12(1)(d) establishes the amount of the charge at $8.42 per chargeable emplanement to a maximum of $16.84 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all transborder air travellers contribute to the cost of air travel security on an equitable basis.

The proposed rate reduction for the GST and the federal component of the HST to 5 per cent has the effect of reducing the total cost of the ATSC when applied to the rates currently established by paragraphs 12(1)(a) and (c). In order to ensure equitable treatment of air travellers in those situations where tax under subsection 165(1) of the Excise Tax Act is not required to be paid, ATSC rates established by paragraphs 12(1)(b) and (d) must be reduced.

Application of the GST or the federal component of the HST at a rate of 5 per cent to the current ATSC rates established in paragraph 12(1)(a) of $4.67 and $9.34 has the effect of reducing the total cost of the ATSC to $4.90 per chargeable emplanement to a maximum of $9.81 per ticket for domestic air travel. In order to maintain the maximum cost per ticket at a level equivalent to twice the amount for a single emplanement, the maximum ATSC rate set out in paragraph 12(1)(a) rate is reduced by one cent, to $9.33 from $9.34.

New paragraph 12(1)(a) establishes the amount of the charge at $4.67 per chargeable emplanement to a maximum of $9.33 per ticket for domestic air travel, where tax under subsection 165(1) of the Excise Tax Act is required to be paid. With the application of tax under subsection 165(1) of the Excise Tax Act at a rate of 5 per cent, the total cost of the ATSC is $4.90 per chargeable emplanement to a maximum of $9.80 per ticket for domestic air travel.

New paragraph 12(1)(b) establishes the amount of the charge at $4.90 per chargeable emplanement to a maximum of $9.80 per ticket for domestic air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all domestic air travellers contribute to the cost of air travel security on an equitable basis.

Application of the GST or the federal component of the HST at a rate of 5 per cent to the current ATSC rates established in paragraph 12(1)(c) of $7.94 and $15.89 has the effect of reducing the total cost of the ATSC to $8.34 per chargeable emplanement to a maximum of $16.68 per ticket for transborder air travel. As the maximum charge remains at a level equivalent to twice the amount for a single emplanement, no adjustment is required for ATSC rates in paragraph 12(1)(c).

New paragraph 12(1)(d) establishes the amount of the charge at $8.34 per chargeable emplanement to a maximum of $16.68 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all transborder air travellers contribute to the cost of air travel security on an equitable basis.

Consistent with the effective date for the proposed GST/HST rate reduction, new paragraphs 12(1)(a), (b) and (d) apply to air travel purchased on or after January 1, 2008.

Amount of charge if service acquired outside Canada

ATSCA
12(2)(b)

Existing subsection 12(2) establishes the amount of the charge that is payable on an air transportation service acquired outside Canada.

Paragraph 12(2)(a) establishes the amount of the charge at $7.94 per chargeable emplanement to a maximum of $15.89 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is required to be paid. With the application of the GST at a rate of 6 per cent, the total cost of the ATSC is $8.42 per chargeable emplanement to a maximum of $16.84 per ticket for transborder air travel.

Paragraph 12(2)(b) establishes the amount of the charge at $8.42 per chargeable emplanement to a maximum of $16.84 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all transborder air travellers contribute to the cost of air travel security on an equitable basis.

The proposed rate reduction for the GST and the federal component of the HST to 5 per cent has the effect of reducing the total cost of the ATSC when applied to the rates currently established under paragraph 12(2)(a). In order to ensure equitable treatment of air travellers in those situations where tax under subsection 165(1) of the Excise Tax Act is not required to be paid, ATSC rates under 12(2)(b) must be reduced.

Application of the GST or the federal component of the HST at a rate of 5 per cent to the current ATSC rates established in paragraph 12(2)(a) of $7.94 and $15.89 has the effect of reducing the total cost of the ATSC to $8.34 per chargeable emplanement to a maximum of $16.68 per ticket for transborder air travel. As the maximum charge remains at a level equivalent to twice the amount for a single emplanement, there is no adjustment to ATSC rates in paragraph 12(2)(a).

New paragraph 12(2)(b) establishes the amount of the charge at $8.34 per chargeable emplanement to a maximum of $16.68 per ticket for transborder air travel, where tax under subsection 165(1) of the Excise Tax Act is not required to be paid. This ensures that all transborder air travellers contribute to the cost of air travel security on an equitable basis.

Consistent with the effective date for the proposed GST/HST rate reduction, new paragraph 12(2)(b) applies to air travel purchased on or after January 1, 2008.

Excise Act, 2001

Clause 197

Definition "taxed tobacco"

EA, 2001
58.1

This section defines terms used in Part 3.1 of the Excise Act, 2001 (the "Act") regarding the tobacco products inventory tax.

"Taxed tobacco" defines the tobacco products that are subject to the tobacco inventory tax. The definition is amended to include all cigarettes, tobacco sticks, cigars and loose fine-cut tobacco that were held for resale in the domestic market at the end of December 31, 2007, and in respect of which excise duty had been imposed before the January 1 increase in duties. Tobacco products that are held in vending machines or relieved from the duty on tobacco for domestic sale under the Act are excluded from the definition.

This amendment is consistent with the amendment to section 58.2 to impose a tax on taxed tobacco held in inventory at the beginning of January 1, 2008.

This amendment comes into force on January 1, 2008.

Clause 198

Imposition of tax

EA, 2001
58.2

Section 58.2 imposes a tax on taxed tobacco (i.e., cigarettes, tobacco sticks, loose tobacco and cigars) held in inventory. This section is amended to impose a tax on inventories of tobacco products held at the beginning of January 1, 2008 at rates equivalent to the excise duty increases set out in Schedule 1 to the Act. This tax ensures that the tobacco excise duty increases are applied in a consistent manner to all tobacco products at different trade levels, as well as to prevent tax avoidance through inventory build-ups.

This amendment comes into force on January 1, 2008.

Clause 199

Exemption for small retail inventory

EA, 2001
58.3

Section 58.3 is amended to provide that the tax will not apply to separate retail establishments holding 30,000 or fewer units of tobacco products – in any combination of cigarettes, tobacco sticks, grams of fine-cut tobacco, or cigars – in inventory at the beginning of January 1, 2008.

This amendment comes into force on January 1, 2008.

Clause 200

Returns

EA, 2001
58.5

This section is amended to require every person liable to pay the tax to file a return by February 29, 2008. This amendment is consistent with the amendment to section 58.2 to impose a tax on taxed tobacco held in inventory at the beginning of January 1, 2008.

This amendment applies to tax that a person is required to pay under section 58.2 of the Act after December 31, 2007.

Clause 201

Payment

EA, 2001
58.6

This section sets out the general rules on the payment of the tax. Subsection (1) is amended to require every person liable for the tax to pay the total amount owing to the Receiver General by February 29, 2008. This amendment is consistent with the amendment to section 58.2 to impose a tax on taxed tobacco held in inventory at the beginning of January 1, 2008.

This amendment applies to tax that a person is required to pay under section 58.2 of the Act after December 31, 2007.

Clause 202

Punishment – minimum and maximum amount

EA, 2001
216(2)(a)(i) to (iv) and (3)(a)(i) to (iv)

Section 216 currently makes it an offence for a person to possess, offer to sell or sell, other than in accordance with section 32, tobacco products that are not stamped. A person convicted of possessing, selling or offering to sell contraband tobacco is liable to a fine determined in accordance with the amounts set out in subsections 216(2) and (3), or to imprisonment. The amounts of the fines are a function of the rates of duty on tobacco products. The amounts in subparagraphs 216(2)(a)(i) to (iv) and 216(3)(a)(i) to (iv) that are used to determine the fines are increased, consequential to the increase in the rates of duty on tobacco products set out in Schedules 1 and 2 to the Act.

These amendments come into force on the later of January 1, 2008, and the day on which these amendments are assented to.

Clause 203

Contravention of subsection 50(5)

EA, 2001
240

Section 240 imposes a penalty on a tobacco licensee who removes from the licensee’s excise warehouse for export in a calendar year unstamped manufactured tobacco in excess of the 1.5-per-cent limit on exports established in subsection 50(5). The penalty is based on the rates of duty on tobacco products.

Consequential to the increase in the rates of duty on tobacco products, this penalty is increased to:

These amendments come into force on the later of January 1, 2008, and the day on which these amendments are assented to.

Clause 204

Duty on cigarettes

EA, 2001
Schedule 1, paragraph 1(b)

Paragraph 1(b) of Schedule 1 to the Act sets out the rate of duty imposed under section 42 of the Act on Canadian-produced or imported cigarettes for domestic sale. This duty is increased to $0.425 per five cigarettes ($17.00 per carton).

This amendment comes into force on January 1, 2008.

Clause 205

Duty on tobacco sticks

EA, 2001
Schedule 1, paragraph 2(b)

Paragraph 2(b) of Schedule 1 to the Act sets out the rate of duty imposed under section 42 of the Act on Canadian-produced or imported tobacco sticks for domestic sale. This duty is increased to $0.06325 per tobacco stick ($12.65 per 200 sticks).

This amendment comes into force on January 1, 2008.

Clause 206

Duty on other manufactured tobacco

EA, 2001
Schedule 1, paragraph 3(b)

Paragraph 3(b) of Schedule 1 to the Act sets out the rate of duty imposed under section 42 of the Act on Canadian-produced or imported manufactured tobacco, other than cigarettes and tobacco sticks, for domestic sale. This duty is increased to $57.85 per kilogram ($11.57 per 200 grams).

This amendment comes into force on January 1, 2008.

Clause 207

Duty on cigars

EA, 2001
Schedule 1, section 4

Section 4 of Schedule 1 to the Act sets out the rate of duty imposed under section 42 of the Act on Canadian-produced or imported cigars for domestic sale. This duty is increased to $18.50 per 1,000 cigars.

This amendment comes into force on January 1, 2008.

Clause 208

Additional duty on cigars

EA, 2001
Schedule 2

Schedule 2 to the Actsets out the rates of additional duty imposed under section 43 of the Act on cigars. This additional duty is the greater of the specific rate set out in paragraph (a) of Schedule 2 and the ad valorem rate set out in paragraph (b) of Schedule 2. The specific rate is increased to $0.067 per cigar. The ad valorem rate is increased to 67 per cent of the sale price in the case of Canadian-manufactured cigars, and 67 per cent of the duty paid value in the case of imported cigars.

This amendment comes into force on January 1, 2008.

Clause 209

Application of interest

EA, 2001
Schedule 1, paragraphs 1(b), 2(b) and 3(b), and section 4; and Schedule 2

This clause provides that, for the purposes of applying the provisions of the Customs Act that provide for the payment of, or liability to pay interest in respect of any amount, that amount is to be determined, and interest is to be computed on it, as if the provisions of the Budget and Economic Statement Implementation Act, 2007, which implement the tobacco duty increases, were assented to on January 1, 2008.


Draft Regulations Relating to Tax Information Exchange Agreements 

Income Tax Regulations

Draft regulations to implement certain of the international tax fairness measures announced in the 2007 Budget are provided below:

  1. (1) Subsection 5907(11) of the Income Tax Regulations is replaced by the following:

  (11) For the purposes of this Part, a country or other jurisdiction is a "designated treaty country" for a taxation year of a foreign affiliate of a corporation where Canada and that country or jurisdiction have entered into a comprehensive agreement or convention for the elimination of double taxation on income, or a comprehensive tax information exchange agreement, that has entered into force and has effect for that taxation year of the foreign affiliate, but any territory, possession, department, dependency or area of that country or jurisdiction to which that tax treaty or agreement does not apply is not included in that designated treaty country.

  (2) Section 5907 of the Regulationsis further amended by adding the following after subsection (11.1):

  (11.11) For the purpose of subsection (11), where Canada and another country or jurisdiction have entered into a comprehensive tax information exchange agreement that has entered into force on a particular day and has effect, the agreement is deemed to have entered into force and have come into effect on the first day of the taxation year, of a foreign affiliate of a corporation, that includes the particular day.

  2. Subsections 1(1) and (2) apply after 2007.

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