Tax & Trade Blog

The Canada Revenue Agency (“CRA”) has been rigorously challenging intermediaries in the financial services industry, categorizing their services as taxable promotional, advertisement or taxable administrative services (as opposed to treating them as GST/HST exempt financial services).

While this aggressive approach seems (at first blush) consistent with the definition of a “financial service” under 123(1) of the Excise Tax Act (“ETA”) (which exempts the “arranging for” processing of credit and debit card payments, while excluding from exemption “promotional or advertising services”), many have suggested that contrary:   that CRA was trying to pigeon-hole what these service providers do in order to find “taxable” services.

In the recent Zomaron Inc. v. The Queen case (“Zomaron”), the Tax Court of Canada (“TCC”) found against CRA, and concluded that the dominant element of the services being provided were “exempt” in nature, and that the promotional, advertisement or administrative elements of the services did not serve to disqualify from GST/HST exemption.

On July 7, 2021 the Canada Border Services Agency (the "CBSA") issued a Notice of Initiation of Investigation under the Special Import Measures Act ("SIMA") of alleged dumping of Oil Country Tubular Goods ("OCTG") imported from Austria. This investigation was prompted by a complaint filed by Canadian manufacturers of OCTG in Ontario and Alberta.

The goods under investigation are currently defined as

We said then: “An individual buying a run-down house, fixing it up, and living in it a while, and then selling for a tidy income tax exempt profit (the house being the individual’s principal residence) sounds like a recipe for success. [But repeat] that 21 times in a row, and you may have a different kettle of fish!”

Apparently, all you have to do is “repeat 2 times in a row” to be liable for income taxes on our profits, and uncollected GST/HST on your sales revenue!

The Canada Revenue Agency (“CRA”) has broad audit powers, allowing it to request any documents, records, and information from taxpayers and third parties under audit. The 2021 Federal Budget proposed an expansion (!) to these powers – allowing CRA to compel interview and answers from an owner-manager and any other employees of the business. The changes are aimed at making it easier for the CRA to get information and issue assessments, but those in the know predict real problems for unrepresented taxpayers and their employees! The worry is that CRA will have a single mindset heading into these interviews and will use them to simply gain ammunition for an Assessment.

On June 30, 2021 the Canada Border Services Agency (the "CBSA") issued a Notice of Initiation of Investigation under the Special Import Measures Act ("SIMA") of alleged dumping of Oil Country Tubular Goods ("OCTG") imported from Mexico. This investigation was prompted by a complaint filed by Canadian manufacturers of the products in Saskatchewan and Ontario.

The goods under investigation are currently defined as

Effective May 5, 2021, as a result of an anti-dumping investigation that began in December 2020, imports of items of Upholstered Domestic Seating originating in, or exported from, China or Vietnam will be subject to provisional anti-dumping duties of 206.36% for China, and 89.77% for Vietnam for imports where the exporter has not been issued a specific rate. Provisional countervailing duties of 89.54% for imports from China and 11.73% for imports from Vietnam are also applicable.

Keep reading for more about what anti-dumping duties are, and what will happen next with Upholstered Domestic Seating

In Budget 2021 the government of Canada proposed changes to the ITC Information Requirements which will generally make it easier for businesses to claim ITCs in two ways:

1. increasing the dollar thresholds of the ITC Information Requirements; and
2. expanding the definition of "intermediary" to include billing agents, such that a recipient can obtain the name and/or GST registration number of a billing agent rather than the underlying vendor in order to support an ITC claim.

Some details of these proposals, which are effective starting April 21, 2021, are set out below.

Canadians and travellers into Canada may be pleased to learn that Canadian border officials do not have unlimited powers to search the contents of their electronic devices when entering the country.

The Alberta Court of Appeal (ABCA) reached this conclusion last year in the case of R v Canfield (2020 ABCA 383), finding that the relevant search powers in the Customs Act were unconstitutional to the extent that they allowed for unlimited searches of personal electronic devices.  Recently, the Supreme Court of Canada (SCC) dismissed the application for leave to appeal Canfield, meaning that the ABCA’s decision stands.

Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the GST/HST registration and collection regime for short-term rental accommodation platforms (like AirBnb) and the underlying persons offering the accommodations to ensure GST/HST is properly collected on these supplies.  This article gives a high-level overview of the proposed changes—which will be especially important to anyone who rents out their property on these platforms!

Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the registration and collection regime for fulfillment warehouses (like Amazon) to ensure that vendors collect GST/HST on the final price paid for their goods when they are sold in Canada.  This article gives a high-level overview of these specific changes.

Quebec has special rules regarding the mandatory disclosure of “nominee agreements” (which are essentially the Quebec civil law equivalent of undisclosed agency agreements) where the agreement is made as part of a transaction or series of transactions that have “tax consequences”.

We previously blogged about a Tax Court of Canada (TCC) case on the tax status of credit card/payment processing services provided by Visa. In that case, the TCC held that Visa’s services constituted the supply of “administrative services” and were therefore excluded from the definition of a “financial service” in subsection 123(1) of the Excise Tax Act (ETA).

The Federal Court of Appeal (FCA) has now reversed the TCC decision, holding that Visa’s services were in fact exempt financial services.

On December 21, 2020, the CBSA initiated a dumping and subsidy investigation into certain upholstered domestic seating (“UDS”) from China and Vietnam under the Special Imports Measures Act (“SIMA”). In the Notice of Initiation of Investigations, the subject goods under investigation were described as follows:

In November 2020, the Canadian government introduced Bill C-11, the Digital Charter Implementation Act, 2020(DCIA). This long-awaited bill follows years of consultation and calls for reform and, if passed, would significantly overhaul Canada’s federal privacy laws.

The determination of whether a transaction is a ‘sham’ has been a longstanding issue in tax law, but one that has seemingly been the focus of a number of CRA projects across a number of different industries, including a current project in the international long-distance minutes business, where the CRA says that businesses are involved in the so-called carousel sham!

On Monday, November 30, 2020, the Government of Canada delivered its Fall Economic Update, entitled Supporting Canadians and Fighting COVID-19. As reported in the National Post, the Update will be particularly noteworthy for online businesses selling goods/services to Canadians, as it announced that the government would soon “force foreign digital vendors like Netflix and Amazon to collect sales taxes on a bevy of products and services sold to Canadians”.

The tax measures cover a variety of online services, from streaming platforms to short-term rental accommodations, and are expected to be in effect Canada-wide for GST/HST purposes by July 21, 2021.

Following the United Kingdom’s (“UK”) exit from the European Union earlier this year, Canada had agreed to allow its current free-trade agreement with the EU continue to apply to the UK.  That agreement is called the Comprehensive Economic and Trade Agreement (“CETA”), and Canada’s agreement to continue providing similar benefits to the UK was set to expire at the end of 2020.

Canada and the UK have now agreed on a new interim trade deal, titled the Canada-United Kingdom Trade Continuity Agreement (“TCA”).

When it comes to the payment on taxes for goods sold on-reserve, Canadian First Nations Persons enjoy a special tax status.  Section 87 of the federal Indian Act provides that First Nations persons are not liable to taxation in respect of their personal property on reserve:

87 (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83 and section 5 of the First Nations Fiscal and Statistical Management Act, the following property is exempt from taxation:

(a) the interest of an Indian or a band in reserve lands or surrendered lands; and

(b) the personal property of an Indian or a band situated on a reserve.

This special status is reflected in both federal and provincial taxation measures.

When a supplier pays GSTH/HST on a property or service acquired for consumption, use or supply in the course of commercial activities, the supplier is entitled to claim an input tax credit (“ITC”) equal to the tax paid on expenses incurred:  see section 169 of the Excise Tax Act (“ETA”). 

“Commercial activity” excludes exempt supplies listed in Schedule V of the ETA.  (Suppliers that make exempt supplies do not charge and collect GST on their outputs, and are thus also ineligible to claim ITCs on inputs.)

This area has been ripe for recent assessments, with the CRA often struggling to determine whether exempt or commercial (taxable) supplies are being made.   In many instances, the CRA assesses suppliers making “exempt” supplies on the basis that their supplies are actually taxable, assessing large amounts for “GST not collect”:  see, for example, Applewood Holdings Inc. v. The Queen and Zomaron Inc. v. The Queen, the suppliers challenged the CRA’s conclusion of “taxable” supplies in the Tax Court of Canada (“TCC”), arguing that their services were in fact exempt financial services.  The suppliers won on “exempt” supplies argument at the court, thus, relieving them from any obligation to charge and collect GST/HST on their services.  (Note the possible downside of the “winning” such an assessment, as that usually leads to a denial of ITCs that may have been inadvertently claimed by the exempt supplier, which was highlighted in our prior blog on Applewood.) 

In other cases, the CRA makes a 180 degree-turn and takes the position that the suppliers providing “taxable supplies” (and collecting GST, and claiming ITCs) are in fact either not making supplies for consideration, or are making exempt supplies – in an attempt to deny the ITCs that have been historically claimed.   Such is the case in Canadian Legal Information Institute v. The Queen, 2020 TCC 56 (CanLII).

One of the CRA’s latest projects appears to involve the scrap gold and telecommunications industries, which has been the subject of a number of recent CRA audits, culminating in a number of legal challenges in various contexts.

In the May 2020 case of Express Gold Refining Ltd. v. Canada, the taxpayer was in the business of buying scrap gold and other precious metals, and getting it refined for resale in a pure form.  It paid the GST/HST on its purchases, but did not collect this tax on its sales on the basis that sales of refined precious metals are not subject to GST/HST.  It generally filed credit returns, and the CRA began an audit – while delaying a GST refund of near $10 million.  While not identifying this as a “GST carousel” audit, the CRA did admit that the taxpayer’s GST return had initially been flagged by an automatic system for further screening, and that the CRA had identified the scrap gold business as “a high risk industry”.

In Iris Technologies Inc. v. Canada, a more recent “GST carousel” case released over the summer months – albeit in the telecommunications sector – the CRA did appear to accuse the taxpayer of participating in a “carousel scheme”, all the while attempting to deny ITCs of over $62 million!