Spring 2024: IMPORTANT Indirect Tax Changes

The federal and provincial budgets season has come to an end for 2024 and there were plenty of new taxes, tax base expansion and numerous surprises (good and bad). We wanted to share some key indirect tax highlights from spring 2024 that may affect you and your clients in 2024 and beyond; from GST/HST on short-term rental property restrictions and underused housing tax, to provincial sales tax changes. There were no notable changes or updates from Ontario east to the Atlantic, so we’ve only covered federal and western Canada, but you can also explore our commentary on the Federal Budget changes such as the controversial change to the capital gains inclusion rate, by clicking here.

British Columbia (“BC”) key 2024 budget changes

• BC’s Budget 2024 had some notable changes, including the introduction of a new “home flipping” tax on the sale of residential properties in BC, where the seller holds the property for less than two years beginning after 2024. If sold within 365 days of purchase, the tax is 20% of the proceeds, declining proportionately to 0% if sold after 365 days and 730 days after initial purchase, subject to various exemptions.
• BC also introduced several welcome changes to its property transfer tax system including an increase to the exemption thresholds for new home buyers and eliminating the tax for new purpose-built rental buildings, provided certain criteria are met.
• PST changes include significantly broadening the definition of “software” retroactive to April 2013 (see our in-depth article here), restricting PST refunds for purchasers who claim to be buying goods PST-exempt for resale, when in fact they are exporting goods for resale outside the province, and finally clarify the rules when services are provided together with taxable goods.
• Within the budget, BC announced several new penalty provisions (applying to PST and certain other BC taxes) which are intended to increase compliance with the PST rules generally and given the significance of some of the penalties, this change should have the intended effect. For example, the new failure to file returns penalty is the sum of 10% of the understated PST owing, plus 1% per month the return is late to a maximum of 12 months; or up to 22% of the PST. The repeated failure to file penalty effectively doubles these amounts.
• Lastly, any energy generation projects that use sunlight, wind, tides, air or water to produce clean energy, will generally qualify for the production machinery and equipment exemption beginning February 23, 2024.

Prairie provinces key 2024 budget changes

• Alberta had no notable changes on indirect taxes other than ending the fuel tax holiday that expired April 1, 2024, coinciding with the increase in the federal carbon tax.
• In Saskatchewan’s 2024 Budget, there were no PST changes, although changes will be made to enhancing PST collection tools, increasing penalties, preventing tax avoidance and clarifying compliance obligations and increasing the province’s monitoring of same.
• In the 2024 Budget, Manitoba extended its fuel tax holiday (zero cents/litre) to September 30, 2024 on gasoline and diesel, while increasing the PST registration threshold to $30,000 (from $10,000) of taxable sales beginning January 1, 2024.
• In addition, Manitoba introduced various PST administrative measures around books and records retention periods, audit periods and elimination of PST reporting commissions.
• Lastly, certain technical changes will be made to clarify PST treatment of interior window coverings (remain as goods) upon installation, PST not applied on electricity sold via electric vehicle charging stations if provided paid PST on purchase; and changes to PST refunds on vehicles purchased in the province and later removed within 6 months.

Federal Budget 2024 and 2023 Fall Economic Statement key changes

• Psychotherapists and counselling therapists services will now be exempt from GST/HST effective upon Royal Assent; which will entail wholesale changes to accounting for GST/HST on expenditures as well as no longer charging tax. Any assets or property on hand will change use and will have GST or HST become payable, which may not be expected by these practitioners or their advisors.
• Several (welcomed) proposed changes to overhaul the GST/HST joint venture election proposals that were out for consultation until March 15, 2024, will now be implemented after stakeholder feedback. These long overdue changes will be significant to the GST/HST joint venture election which may fix some issues with the existing rules, but may also cause more problems for those sectors (e.g., real estate, energy) that routinely conduct business via joint ventures.
• Implementing proposals (see our in-depth article here) and related amendments to the enhanced GST residential rental rebate, while also adding certain cooperative housing corporations and post-secondary educational institutions’ student residences, among other “fixes”.
• However there has still been no clarity provided for some of these proposed changes about how the CRA will administer the meaning of effective “Construction start (and end) dates” for otherwise qualifying projects. In addition, no definitive guidance has yet been provided on how the CRA will administer the rebate in determining if and for how long, an otherwise qualifying project’s percentage (at least 90%) of qualifying long-term residential rental units, must be maintained.
• Lastly, previously announced changes (see our in-depth article here) in the 2023 Fall Economic Statement regarding the Underused Housing Tax, will be implemented along with input from stakeholders since the announcement. These include welcomed changes to eliminate many Canadian residential property owners from having to file returns, including most trusts, corporations and partnerships that were previously affected in 2022.
• In addition, many previously announced measures from prior budgets and fall economic statements will move forward such as:
  • Changes made to closely related parties election for both financial institutions and other groups engaged exclusively in commercial activities; allowing a non-resident partnership to form a closely related group to allow Canadian registrants to file the election.
  • Enshrining in law, the previously announced changes to purchase amount thresholds related to partial and full documentary requirements necessary to claim valid ITCs.
  • Conjunctive income tax and GST/HST changes related to credit unions as well as other technical amendments to the GST/HST application to financial institutions.
  • Implementing GST/HST changes announced in fall 2023 relating to relief for certain payment card clearing services.
  • Implementing GST/HST changes announced in August 2022 and Budget 2021 in relation to various miscellaneous changes and in particular, the input tax credit information requirements that increased the dollar thresholds on extent of information required.
  • Implementation of various excise tax on motive fuels for export, changes to the Luxury Tax system to provide clarity on treatment of certain “luxury” items, and proposals to temporarily “pause” the federal carbon tax on heating oil in certain provinces.

Our takeaways

There was a lot to unpack this spring, despite there being very few PST changes, notwithstanding the significant changes to BC’s definition of software and imposition of punitive late-filing penalties. Moreover, the GST/HST changes appear on the surface, as fairly minor with the exempting of psychotherapists and counselling therapists services and the tweaks to other previously announced measures such as UHT and the Enhanced GST rebate for new multi-family residential construction. However, there are many historically-announced changes that were never implemented and they’ve all been packed into this Budget bill.

Altogether, there are a lot of changes in the GST/HST space to tackle this year that will affect a broad range of industries and sectors and especially housing and construction, but also anyone doing business in joint venture arrangements.

Would you like to discuss how the 2024 federal and provincial budget changes impact your business?