Section 165 of the Excise Tax Act imposes GST/HST on taxable supplies "made in Canada". A supply is deemed to be made in Canada if “delivered or made available” to the supply’s recipient in Canada (para. 142(1)(a)), but deemed to be made outside Canada if “delivered or made available” outside Canada (para. 142(2)(a)). “Delivery” refers to physical delivery, and “made available” refers to constructive or “legal” delivery.
The recent decision of the Tax Court of Canada (“TCC”) in Jayco, Inc. v. The Queen, 2018 TCC 34(“Jayco”) is a good example of issues that can arise when a contract is silent as to the place of physical or legal delivery.
In Canada, most financial services are exempt from tax under the Excise Tax Act (“ETA”). This means that financial institutions cannot charge GST/HST and cannot claim input tax credits (“ITCs”) to recover the GST/HST that they have paid to provide these exempt financial services.
The inability to claim ITCs could incentivize financial institutions to purchase goods and services in non-harmonized provinces (where only the 5% GST would normally apply) to the detriment of harmonized provinces. To prevent this from happening the ETA and the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations(“SLFI Regulations”) outline special attribution method rules (the “SAM rules”) under which Selected Listed Financial Institutions (“SLFIs”) must determine their provincial HST component based on where they supply the exempt financial services rather than where they purchase their inputs. In this context, net tax is calculated using “attribution percentages” that are based on the type of financial institution.
The Federal Court of Appeal (“FCA”) recently dealt with these complex SAM Rules in Farm Credit Canada v. Canada, 2017 FCA 244. In this case, the Appellant was a federal Crown corporation that provided specialized financial services to the farming industry. Unlike most of its private financial institution competitors, the Appellant did not accept or fund its loans from public deposits.
Section 165 of the ETA imposes GST in respect of supplies “made in Canada”. The so-called “place of supply rules” in section 142 of the ETA serve to deem particular supplies to be made either inside or outside of Canada. As a result of a legislative inconsistency these rules can conceivably deem a particular supply to be made both inside and outside of Canada. This inconsistency was analyzed by the TCC in the recent decision of Club Intrawest (2016 TCC 149). In doing so, the TCC arguably expanded the place of supply rules such that GST now applies to more supplies than even CRA had previously contemplated.
If your business ever provides a good or service in exchange for advertising, you should be aware of a recent CRA ruling (RITS 2015-158946), dated November 4, 2015), which sets out how GST/HST applies to barter transactions and includes an example of a person who exchanges advertising services for goods or services. Case law such as 9022-8891 Québec Inc. (2006 TCC 60)confirmed that a barter of goods or services for advertising may constitute two taxable transactions for GST/HST purposes. RITS 2015-158946, however, provides more details on the tax consequences of a barter exchange - consideration, place of supply, input tax credits, and zero-rating - and represents a blueprint for the GST/HST analysis of barter transactions.
