As we blogged about here, experienced indirect tax practitioners will know to always check section 154 of the Excise Tax Act (“ETA”) when dealing with provincial taxes and to think about whether the that provincial tax is excluded from the “consideration” for the supply. If the provincial tax is not excluded, it means that GST will be applied on top of the provincial tax — in effect meaning there will be tax (GST) on the tax (provincial sales tax).

The most recent issue of the CRA Excise and GST/HST News explained how the GST applies on top of British Columbia’s Major Events Municipal and Regional District Tax ( “Major Events Tax” or “MET”) and serves as another example of this principle in practice.

MET Background

BC recently announced the implementation of the MET which imposes a 2.5% tax on all supplies of “short-term accommodation” made in the city of Vancouver from February 1, 2023 to January 31, 2030. The MET is designed at the provincial level to be imposed alongside BC’s existing 8% provincial sales tax and the existing 3% Municipal and Regional District Tax. The MET was ostensibly created to assist the City of Vancouver to fund its 2026 FIFA World Cup responsibilities — though the legislative framework also allows for other communities to apply to have similar taxes apply to short term accommodation in order to finance other “major events”.

Application of GST/HST on top of MET and other BC Taxes

The BC announcement helpfully pointed out that there would be “tax on tax” due to section 154 of the ETA.

The ETA defines “consideration” as “any amount that is payable for a supply by operation of law”. Section 154 then provides, among other things, that taxes, fees, and duties imposed by a provincial government (defined as “provincial levies”) that are payable by a recipient of a supply are to be included in the value of the consideration unless they are specifically excluded by the operation of the relevant ETA regulations (being the Taxes, Duties and Fees (GST/HST) Regulations the “Regulations”).

As of the date of this blog, while the list of prescribed provincial levies includes BC provincial taxes made under BC’s Provincial Sales Tax Act, per subparagraph 2(b)(iv) of the Regulations, this exclusion will only apply if the total of all taxes under that Act which apply to the supply do not exceed the “specified tax rate” for that province (which is 12% in BC’s case).

Since the MET (2.5%), BC’s Provincial Sales Tax (8% for short-term accommodation), and the Vancouver Municipal and Regional District Tax (3%) are collectively greater than 12% — the 5% GST will apply to the total of the cost of the short-term accommodation and all three BC provincial taxes.

For example, a $200 hotel room subject to the BC taxes described above would be expected to cost an additional $27 in provincial taxes, before the 5% GST is applied to the total of $227, for a total bill of $238.35.

While the difference on a single room may be de minimis for consumers, a hotel charging the wrong amount of GST may find the difference adds up rather quickly!

Commentary

This is an important reminder of the rules governing the interaction between provincial and federal taxes on goods and services. Businesses in industries subject to these taxes should seek expert advice to understand their obligations!

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