• May 10, 2022
  • Jean-Guillaume Shooner and Alexandra Iannarino

On April 7, 2022, the Government of Canada unveiled its 2022 federal budget and announced certain important commodity tax measures. Budget 2022 includes proposed amendments to past proposals, as well as some completely new rules.

The highlights of Budget 2022 from a commodity tax standpoint are set out below.

GST/HST health care rebate

Under the current Goods and Services Tax/Harmonized Sales Tax (“GST/HST”) rules, hospitals can generally claim an 83 percent rebate and charities and non-profit organizations can claim a 50 percent rebate of the GST/HST that they pay on inputs used in their exempt supplies. In 2005, the 83 percent rebate was expanded to cover eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals. One of the conditions to be eligible for the expanded hospital rebate is that a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, a physician. This eligibility condition may also be met by the active involvement of a nurse practitioner, but only in a geographically remote community.

Budget 2022 proposes to remove that geographical limitation. In other words, it proposes that to be eligible for the expanded hospital rebate, a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, either a physician or a nurse practitioner, irrespective of their geographical location. This measure would generally apply to rebate claim periods ending after April 7, 2022, in respect of tax paid or payable after that date.

GST/HST on assignment sales by individuals (residential housing)

An assignment sale in respect of residential housing is a transaction in which a purchaser under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to another person.

Under the current GST/HST rules, an assignment sale in respect of newly constructed or substantially renovated residential housing may be either taxable or exempt, depending on the reason for purchasing the home:

  • An assignment sale made by an individual would generally be exempt if that individual had originally entered into the agreement of purchase and sale for the primary purpose of occupying the home as a place of residence.
  • An assignment sale made by an individual would be taxable if that individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of assigning their interest in the agreement.

The current rules have created opportunities for speculators who are willing to misrepresent their original intentions, leading to uncertainty as to whether such assignments are taxable or not. To address these issues, Budget 2022 proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.

If the consideration for an assignment sale would include a deposit that had previously been paid to the builder by the assignor, Budget 2022 proposes to exclude such deposit from the consideration for a taxable assignment sale to avoid double taxation considering such deposit will already be subject to tax when applied against the purchase price at the time of the sale.

Taxation of vaping products

Further to public consultations that took place following Budget 2021 regarding a proposal for a new excise duty on vaping products, Budget 2022 contains refinements to the originally proposed taxation framework.

In particular, the proposed federal excise duty rate would be $1 per 2 ml (or fraction thereof) for containers with less than 10 ml of vaping liquid. For containers with more than 10 ml, the applicable federal rate would be $5 for the first 10 ml, and $1 for every additional 10 ml (or fraction thereof). The proposed federal excise duty framework for vaping products would come into force on October 1, 2022.

Budget 2022 proposes to allow duty-free importations by travellers returning to Canada of unstamped vaping products for personal use. For an absence of 48 hours or more, there will be a duty-free importation for personal use of:

  • up to 12 vaping products (e.g., pods, bottles, or disposable vape pens) of less than 10 ml each (for a total of 120 ml), or
  • any combination of vaping products of 10 ml or more, so long as the total volume imported is below 120 ml.

The Government has also invited its provincial and territorial counterparts to join a coordinated vaping taxation framework, under which an additional duty equal to the proposed federal rate would be applied.

Cannabis taxation framework and general administration under the Excise Act, 2001

Budget 2022 proposes to allow licensed cannabis providers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter that began on April 1, 2022.

Budget 2022 also proposes other technical amendments to strengthen and adapt the cannabis excise duty framework to this relatively new and evolving sector of the Canadian economy with respect to the following matters:

  • Contract-for-service arrangements between two licensed cannabis producers;
  • Penalty provision for lost stamps;
  • Exemptions for holders of a Health Canada-issue Research Licence or Cannabis Drug Licence; and
  • General administration matters under the Excise Act, 2001.

WTO settlement on the 100 percent Canadian wine exemption

Wine that is produced in Canada and composed wholly of agricultural or plant products (i.e., 100 percent Canadian wine) is currently exempt from excise duties. In 2018, the 100 percent Canadian wine excise duty exemption was challenged at the World Trade Organization. Canada reached a settlement on this dispute in July 2020 in which it agreed to repeal the excise duty exemption by June 30, 2022, as Budget 2022 proposes to do as of that date.

Beer taxation

Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5 percent ABV, bringing the tax treatment of such beer into line with the treatment of wine and spirits with the same alcohol content. The proposed measure would come into force on July 1, 2022.

Previously announced measures

Budget 2022 also confirms that the Canadian government intends to move forward with respect to certain previously announced measures, as modified to take into account consultations and deliberations since their release, notably:

  • Legislative proposals relating to the Select Luxury Items Tax Act released on March 11, 2022.
  • Legislative proposals released on February 4, 2022 in respect of the following measures:
    • a technical fix related to the GST Credit top-up; and
    • crypto asset mining.
  • Original measures announced in Budget 2014 and later confirmed in subsequent budgets relating to the GST/HST joint venture election. In theory, a GST/HST joint venture election is available only if the activities of the joint venture are prescribed by regulation as eligible activities. Prescribed activities are generally restricted to certain specific endeavours. Budget 2014 proposed to significantly broaden the scope of permitted joint venture activities for the purpose of the joint venture election. Based on this proposal, joint venturers would be allowed to make the election as long as the activities of the joint venture are exclusively commercial activities and the participants are engaged exclusively in commercial activities.

Jean-Guillaume Shooner is a partner in the Tax Group. He specializes in commodity taxation (including Goods and Services Tax/Harmonized Sales Tax, Québec Sales Tax and provincial sales taxes), customs, import/export controls, excise taxes, fuel taxes and various international trade issues. Jean-Guillaume acts for major Canadian and multinational corporations and provides strategic advice in the areas of international trade, customs, Goods and Services Tax/Harmonized Sales Tax, sales tax, dispute settlement and regulatory matters. Jean-Guillaume also advises on CUSMA (USMCA) compliance, valuation issues and tariff classification. He has expertise with respect to import and export license requirements for controlled nuclear substances under the Nuclear Non-proliferation Import and Export Control Regulations. Jean-Guillaume’s commodity taxation and customs matters expertise are also recognized by the legal industry’s most prominent directories, including ChambersLexpert and The Legal 500.

Alexandra Iannarino was recruited by Stikeman Elliott in 2017 and was seconded to a client’s in-house legal team in 2019. During her studies at McGill University, Alexandra worked as Portfolio Coordinator for the Human Rights Working Group and volunteered for various organizations including the McGill and Concordia Legal Information Clinics.