Bill C-24: The Sales Tax and Excise Tax Amendments Act, 1999 (LS-362E)

This document was prepared by the staff of the Parliamentary Research Branch to provide Canadian Parliamentarians with plain language background and analysis of proposed government legislation. Legislative summaries are not government documents. They have no official legal status and do not constitute legal advice or opinion. Please note, the Legislative Summary describes the bill as of the date shown at the beginning of the document. For the latest published version of the bill, please consult the parliamentary internet site at www.parl.gc.ca.

HOUSE OF COMMONS		SENATE
Bill Stage	Date	Bill Stage	Date
First Reading:	16 February 2000	First Reading:	14 June 2000
Second Reading:	10 May 2000	Second Reading:
Committee Report:	16 May 2000	Committee Report:
Report Stage:	12 June 2000	Report Stage:
Third Reading:	13 June 2000	Third Reading:

Royal Assent: Statutes of Canada N.B. Any substantive changes in this Legislative Summary which have been made since the preceding issue are indicated in bold print.

Bill C-24 would implement measures relating to the Goods and Services Tax and the Harmonised Sales Tax (GST/HST) announced on 20 March 1997 as well as the sales tax initiatives proposed in the Budget of 24 February 1998. The bill also contains proposed measures relating to other taxes and tariffs that would affect tobacco products, sales taxes levied by certain First Nation bands, alcohol products, split-run periodicals, and duty and tax exemptions for residents returning from overseas travel. Most of the proposals relating to the GST/HST are revenue-neutral and would make technical adjustments to the tax system.

Essentially, the proposed amendments would attempt to eliminate a number of inconsistencies in the treatment of goods and services subject to the GST/HST, thereby necessitating amendments to other Acts, including the Excise Tax Act, the Bankruptcy and Insolvency Act, the Budget Implementation Act, 1997, the Budget Implementation Act, 1998, and the Budget Implementation Act, 1999. Changes would also be required to the Canada Pension Plan, the Companies’ Creditors Arrangement Act, the Cultural Property Export and Import Act, the Customs Act, the Customs Tariff, the Employment Insurance Act, the Excise Act, the Income Tax Act, the Tax Court of Canada Act and the Unemployment Insurance Act. In most instances, the proposed amendments are intended to bring these Acts into harmony with the GST/HST provisions in order to ensure the efficiency and effectiveness of the assessment, appeals and collections processes.

Bill C-24 also contains a number of housekeeping amendments that would update cross-references, correct editorial errors, remove inconsistencies between the French and English versions of the legislation and correct ambiguities or obvious anomalies in existing provisions of the GST/HST legislation and the Excise Act.

The principal amendments in Bill C-24 relating to the application of the GST/HST cover the following areas:

A number of health and education amendments are proposed in order to reduce the tax burden imposed on institutions. In the health field, the bill would exempt respite care services for individuals with limited capacity for self-supervision as a result of an infirmity or disability; maintain the exemption for speech therapy services; and ensure that osteopathic services were exempt from the tax. The bill would also provide for a rebate of GST/HST in respect of the cost of specially equipped motor vehicles for persons with disabilities. It would also permit eyeglasses and contact lenses that are intended to be sold under prescription on a tax-free basis at the retail level to be sold on a tax-free basis at the pre-retail level. Finally, Bill C-24 would remove the requirement that psychologists must be registered in the Canadian Register of Health Service Providers in Psychology in order for their services to be exempt.

In the education field, the bill would ensure that the existing exemption for second language training applied equally where the training was provided by vocational schools.

As a result of Bill C-24, charities operating bottle return depots would be able to claim a reimbursement for the tax component of the amount refunded by the charity. It would also refine the accounting method by which charities engaged in commercial activities determine their net GST/HST remittances. Finally, it would restore the exemption for the supply of food, beverages and short-term accommodation where these are provided by charities in the course of relieving poverty, suffering or distress of individuals.

The bill proposes a number of changes in the treatment of public bodies and provincial agencies by refining the rules relating to the administration of the rebates for hospital and school authorities, universities, public colleges and municipalities. It would also clarify the rules for determining the net GST/HST to be remitted by provincial gaming authorities. Finally, Bill C-24 provides that the same capital property rules that apply to public service bodies (such as municipalities) would also apply to provincial Crown agents that agreed to pay the GST/HST and recover it by way of input tax credits or rebates.

The bill provides several relief measures aimed at simplifying compliance with the GST/HST in the energy sector and ensuring that exports and sales to unregistered non-residents would not bear unrecoverable tax.

Bill C-24 would extend the opportunities for tourists to receive exemptions from the GST/HST provisions. It would extend to campsite rentals the GST/HST visitor rebate in respect of short-term accommodation. For foreign conventions and domestic conventions attended by non-residents, it would allow a 50% rebate on the food and beverage component of the convention fee. The bill would also remove the tax from air navigation services supplied by NAV CANADA in relation to international flights and would provide consistent tax treatment on a number of other international transportation services.

Bill C-24 aims to clarify the tax treatment of a number of business transactions and arrangements such as exchanges between members of barter clubs or networks. In order to facilitate trading among their members, most networks use what is commonly referred to as "barter units" as a medium of exchange, instead of money; however, these barter units do not fit the definition of "money." When members of the network provide goods or services they can acquire barter units in return, rather than other goods or services. The barter units can then be used to acquire services and products from other members as they are needed. The Act stipulates that, though these barter units themselves are not subject to the GST/HST, this tax is payable on the goods and services acquired by using the barter units.

The bill would also clarify a number of other GST/HST measures relating to meal and entertainment expenses and how these are treated under the Income Tax Act. It would also exempt more small contractors of direct selling organisations from having to register for GST/HST purposes and allow eligible Canadian partnerships to elect not to account for tax on certain transactions among members of a closely related group that would otherwise be fully recoverable. The bill would also simplify the treatment of some transactions and correct some double taxation problems in relation to leasing transactions of doctors and dentists.

Bill C-24 would also address certain GST/HST inequities in the financial sector. It would provide a level playing field for credit card companies by repealing bad debt relief for closely related financing companies. It would clarify the treatment of sales of accounts receivable and make it plain that the management or administrative services provided to investment vehicles such as pension plans are subject to the tax. The bill would also clarify the application of the tax when a surety fulfilled the obligations of a defaulting contractor by completing a construction project. To trusts governed by multi-employer pension plans, the bill would rebate a portion of the tax incurred on expenses relating to the plans. Finally, it would ensure that precious metal refiners were entitled to the appropriate recovery of tax on purchases.

With respect to real property and the GST/HST, the bill would correct the problem of double taxation in connection with the sale of a new residence situated on leased land. It would ensure that condominium fees and related parking fees for single detached condominium units received the same exempt treatment as do multiple-unit condominium fees and that the appropriate amount of tax applied to a new residential complex built on leased land.

Bill C-24 provides for several consequential amendments and additional rules on the introduction of the HST in order to address the transition from the retail sales taxes in participating provinces. The bill would also modify previously existing GST provisions as necessary to reflect the 15% HST rate and refine the simplified method by which financial institutions operating in the participating provinces calculate their net tax remittances

Bill C-24 would update several provisions in the area of the administration and enforcement of the tax system with respect to current administrative practices. In particular, it seeks to harmonize certain provisions of the GST/HST and income tax and customs practices and to improve the efficiency and effectiveness of the assessment, appeals and collections processes. This would include ensuring that there was no double recovery of tax that had been paid by a supplier in error through a tax adjustment. Moreover, the employment insurance premiums and the Canada Pension Plan contributions would be fully recoverable by the Crown in the event of a bankruptcy.

In 1994, as part of the National Action Plan to Combat Smuggling, federal and provincial tobacco taxes were lowered sharply. The existing tax on tobacco products had been so high that the difference created between the Canadian and American prices was large enough to encourage illegal cigarette trade with the United States and a resulting large reduction in the revenues collected through the excise tax and through the GST. A reduction implemented in the excise tax reduced the level of smuggling significantly, and much of the lost revenue was recouped through the GST on the now higher legal sales.

The experience demonstrated that higher taxes did not appreciably reduce smoking among the general population, because a large proportion of the population was prepared to purchase smuggled goods. It also showed that increases could be implemented in Canadian taxes on tobacco only if there were also increases in American tobacco taxes. While a price increase for tobacco products has little effect on consumption among the general population, it has a significant effect on consumption among young people, since they have much less income.

Since a number of American tobacco taxes have been increased in recent years, the increases in the Canadian tobacco taxes are not likely to encourage smuggling activities to the same extent as before. Moreover, a domestic tax increase may very well reduce tobacco product consumption among teenagers. Bill C-24 contains a number of proposals that would restrict tobacco production and consumption. For instance, it would lower the exemption threshold for the export tax on tobacco products from 3% of the preceding year’s level of production to 2.5%. It would also increase the excise rates on cigarettes and tobacco sticks in the provinces of Central and Eastern Canada, thereby making these items more expensive.

The bill would make three technical corrections to provisions of the Budget Implementation Acts of 1997, 1998, and 1999, to clarify the definition of "alcoholic beverage" and "alcohol" for the purposes of the above Acts. In addition, Bill C-24 would ensure that the GST/HST "small supplier rules" applied in the context of these taxes.

Bill C-24 would repeal the tax regime for split-run periodicals retroactive to 30 October 1998. The original measure had been intended to shelter Canadian magazines from foreign competition by preventing Canadian advertisers from placing advertisements in foreign magazines with Canadian editions; the tax was never collected, as it rendered the cost of split-run periodicals prohibitive. In 1997, the Appellate Body of the World Trade Organisation subsequently ruled that the excise tax on split-run periodicals violated Canada’s obligations under the General Agreement on Trade and Tariffs. The government accepted the ruling and agreed to correct the matter by 30 October 1998. In its place the government introduced other non-tax measures, as set out in the Foreign Publishers Advertising Services Act.

The bill proposes amendments to the duty and tax-free personal exemptions from customs tariffs. The first would involve increasing the personal exemption from $500 to $750 for Canadian residents who had been out of the country for seven days or more. The other proposal would allow Canadians who had been absent from Canada for 48 hours or more to bring back 1.5 litres of wine duty free (up from 1.14 litres). These changes would essentially make it easier for Canadians to clear customs and should result in an administrative saving for the Canada Customs and Revenue Agency.

Most of the amendments proposed in Bill C-24 involve technical measures in respect to the GST/HST. Several would involve reducing or eliminating the GST/HST on goods and services or increasing a tax rebate for producers and institutions in the health, education and public administration fields. These measures would extend the list of goods and services that are exempt from the GST/HST and for which the seller can claim tax credits for all tax paid at the intermediate stages of production and distribution.