Federal Budget 2017 – Sales Tax Highlights
Spring has sprung, which means there has been a recent flurry of Budget releases. The following is a brief summary of the major changes in Commodity Tax legislation that have been proposed as a result.
Federal Budget HST/GST
Federal Finance Minister, Bill Morneau, tabled his second budget on March 22, 2017. A couple of hot button issues were addressed including;
Ride-sharing services – All drivers of ride sharing services (see UBER) must register and report GST/HST effective 1 July 2017. It has been a long standing rule that Taxi owners and drivers were required to collect GST/HST on their fares regardless of the annual revenues they earn. There was no minimum threshold for sales beneath which they did not have to register (i.e. below $30,000). However, drivers for ride-sharing services have not had the identical requirement and were not required to be registered if they earned less than $30,000/year. Budget 2017 addresses this obvious inequity by proposing to amend the definition of “taxi business” for GST/HST purposes effective 1 July 2017 and will require drivers offering ride-sharing services through electronic platforms or systems to also register for and report GST/HST on their fares regardless of their level of sales.
Opioid overdose drug GST/HST exemption – Naloxone is a drug used to treat opioid overdose. When Health Canada began allowing it to be dispensed without a prescription, the drug’s historical GST/HST exemption was eliminated. To restore its GST/HST-free status, Budget 2017 proposes to include Naloxone in Part 1 of Schedule VI as a zero rated, non-prescription drug.
Elimination of non-resident GST/HST rebate for tour package accommodations – Budget 2017 proposes to repeal the GST/HST rebate available to non-resident individuals and tour operators in respect of the accommodation portion of eligible tour packages. While generally repealed effective 23 March 2017, the rebate will continue to be available in respect of eligible tour packages supplied and paid for prior to 1 January 2018.
British Columbia PST
Michael De Jong table the BC Budget on February 21, 2017. Obviously, the government is content with the current sales tax regime as only one minor change was made.
Phase-out of provincial sales tax on electricity purchases by businesses – The provincial sales tax on taxable electricity will be phased out. Effective 1 October 2017, the tax rate on electricity is reduced to 3.5% from 7% of the purchase price. Effective 1 April 2019, electricity is fully exempt from provincial sales tax.
In the Budget released on March 22, 2017, Premier Brad Wall showed that he was serious in his commitment to shift Saskatchewan’s taxation system towards a focus on consumption taxes. Many changes have been proposed including; an increase to the rate of Saskatchewan’s provincial sales tax (PST), the taxation of real property contracts, the elimination of several PST exemptions, and the expansion of the PST system to include insurance.
PST Increase – Saskatchewan’s PST rate has increased from 5% to 6% as of midnight on Budget night, March 22, 2017. The immediate change will have a definite impact, especially on the retail sector, which is expected to make this immediate changeover with little warning.
Real Property Contracts – Surprisingly, the revenue gains from the above PST rate increase to 6% ($242.1MM) takes a back seat to an even bigger change in the PST regime, the taxation of real property contracts ($344.6MM). Saskatchewan’s budget announced a major change in this area, with PST to apply to contracts for the repair, renovation or improvement of real property that are entered into on or after 1 April 2017. Additionally, contractors will be permitted to purchase the materials used to fulfill these contracts on a PST exempt basis from that point forward. However, contractors will still be required to pay PST on the tools and equipment they use to perform these contracts. This change will have a major effect on the mining, oil and gas, and construction sectors, which use these services extensively and will now incur the better part of a 6% increase in costs. This principle will apply to many different scenarios including newly built residential homes and commercial buildings. They will now cost 6% more to build. This is a radical shift in the PST base that will have a significant impact on the provincial economy and its national competitiveness.
PST Exemptions revoked – Effective 1 April 2017, children’s clothing, restaurant meals and snack food, and permanently mounted equipment used in the oil and gas sector, which are all currently exempt from PST, will become taxable.
PST on Insurance – The Budget proposed that, as of 1 July 2017, PST will apply to insurance premiums, including those premiums in respect of policies covering life and health. This is another major change that mirrors the PST treatment of Insurance in several other jurisdictions.