NOVA SCOTIA SET TO REDUCE HST RATE
TRANSITIONAL AND PLACE OF SUPPLY RULES MAY AFFECT TAXPAYERS
On April 1, 2025, the Province of Nova Scotia is set to decrease their harmonized sales tax (“HST”) rate by 1 percentage point, resulting in a combined GST/HST rate of 14 percent in the province. The reduction will put more money in the pockets of Nova Scotians, but individuals and businesses need to be aware of the complex Transitional Rules and Excise Tax Act (“ETA”) place of supply rules to determine to the applicable rate of HST on their transactions.
The Nova Scotia HST Reduction – Background
In a Budget Address for the fiscal year of 2012-2013, former Nova Scotia Finance Minister Graham Steele announced that the province planned to implement the 1 percent reduction to their HST rate in 2014, with a further 1 percent reduction in 2015. Nova Scotia eventually changed course by the Budget Address for fiscal year of 2014-2015, and the proposed HST reduction for 2014 was abandoned due to its unaffordability and effect on the forecasted budgetary deficit. Since that time, no reductions in the Nova Scotia HST rate have taken place.
The Transitional Rules
The Transitional Rules will determine what rate of HST applies to transactions that occur around the April 1, 2025, implementation date of the HST reduction. The general transitional rule is that the applicable HST rate is determined in respect of a transaction at the time the HST becomes payable.
There are also several exceptions to the general transitional rule depending on the type of transaction, such as sales of real property. Individuals and businesses should review the Transitional Rules in full to determine if any exceptions to the general transitional rule apply to their transactions, as they may affect the rate of HST that applies in the circumstances.
The ETA Place of Supply Rules
Once the 1 percent reduction to the Nova Scotia HST rate takes effect, it will be the first time since October 1, 2016, that Canada’s four Atlantic provinces no longer have the same GST/HST rate. Consequently, it is imperative that businesses situated in Nova Scotia, and out of province businesses that conduct business with individuals or businesses in Nova Scotia, review the HST place of supply rules in the ETA to confirm the correct rate of HST to charge on their supplies.
Generally speaking, the rules used to determine which province a supply takes place in are found in a combination of Schedule IX of the ETA, and Part 1 of the New Harmonized Value-added Tax System Regulations. However, these rules are not always straightforward, and in practice the ETA’s place of supply rules are complex and difficult to navigate.
Nova Scotia is set to reduce its HST rate by 1 percent on April 1, 2025. The assistance of experienced legal counsel may be required to navigate complex transitional and place of supply rules.
Takeaways
While the reduction of Nova Scotia’s HST rate by 1 percent is a positive development for taxpayers in the province, the Transitional Rules and the ETA’s place of supply rules may constitute a hurdle to overcome. There are several exceptions to the general transitional rule, and the ETA’s place of supply rules are very intricate and differ by the type of supply. Given the complexity of these rules, taxpayers will require assistance from experience legal counsel to ensure the appropriate HST rate is applied to their transactions.
For help with the ETA's place of supply rules, click here.
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