On March 21, 2013, Minister of Finance Jim Flaherty tabled the 2013 Federal Budget (the “Budget”) entitled Jobs, Growth and Long-Term Prosperity – Economic Action Plan 2013. The Budget includes some significant customs tariff and sales and excise tax measures.
Customs Tariff Measures
Tariff Relief for Canadian Consumers
The Budget proposes to eliminate customs tariffs on 37 retail products, including baby clothing, and sports and athletic equipment (excluding bicycles and racquets for racquet sports) effective in respect of goods imported into Canada after March 31, 2013.
The List of Tariff Provisions set out in the schedule to the Customs Tariff will be amended to provide that the Most-Favoured-Nation (MFN) Tariff rates of customs duty and, where necessary, the applicable preferential tariff rates of customs duties, be “Free” for the following tariff items:
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Tarrifs on these goods, which include hockey and golf equipment, ski and snowboard equipment, water-skis, surf boards, sailboards and other water sports equipment, fitness and gymnastics equipment, leather sports gloves and other recreational equipment, previously ranged from 2.5% to 20%. As a result, these changes provide some significant cost savings opportunities for importers of these goods into Canada that, the federal government hopes, will be passed on to consumers. Planning opportunities may also exist for businesses to recover duties previously paid on existing inventory imported into Canada prior to April 1, 2013.
Modernizing Canada's General Preferential Tariff Regime for Developing Countries
The Budget also proposes to change the General Preferential Tariff (“GPT”) regime under the Customs Tariff to ensure that the development assistance intended to be provided by the GPT to developing countries is appropriately aligned with the global economic landscape and targets benefits to countries most in need.
The current GPT covers approximately 175 beneficiary countries, including almost all non-OECD countries, and covers over 80% of tariff items, including many manufactured goods (notable exceptions include clothing, footwear and certain agricultural products). To be eligible for GPT, over 60% of the value of an imported good must contain inputs from GPT beneficiary countries or Canada. Further, goods are entitled to the GPT only if they are shipped to Canada directly from a beneficiary country.
Further to objectives set out in the 2012 Federal Budget, Budget 2013 proposes that preferential duty status be removed with respect to goods shipped to Canada from 72 higher-income and export-competitive countries, including China, India, Brazil and Korea. These are countries that either: (a) are classified by the World Bank as high or upper-middle income economies for the last two years; or (b) have a 1% or larger share of world exports for two consecutive years according to World Trade Organization statistics. Based on these criteria, it is the Government's intention to withdraw GPT eligibility from the following countries:
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The practical impact of these changes is that importers of goods into Canada may pay more duty on goods that they import from countries losing their GPT status. However, imports from the above-listed countries that are entitled to other preferential tariff treatments (e.g., under free trade agreements) will continue to be eligible for tariff preferences under those tariff treatments. Additionally, the General Preferential Tariff and least Developed Country Tariff Rules of Origin Regulations will be amended to continue allowing the duty-free importation of textiles and apparel from least developed countries that are produced using textile inputs from current GPT beneficiaries.
These changes will be effective for goods imported into Canada after December 31, 2014, and will be extended for 10 years, until December 31, 2024.
Sales and Excise Tax Measures
GST/HST and Health Care Services
Home Care and Personal Services
Currently, an exemption from GST/HST exists for publicly subsidized or funded homemaker services, such as cleaning, laundering, meal preparation and child care, rendered to an individual who, due to age, infirmity or disability, requires assistance in the home. The Budget proposes to expand this exemption to publicly subsidized or funded personal care services, such as bathing, feeding, assistance with dressing and taking medications, rendered to such individuals. The expanded exemption will apply to supplies made after Budget Day.
Reports and Services for Non-Health Care Purposes
The Budget proposes to clarify that GST/HST applies to reports, examinations and other services that are not performed for the purpose of protection, maintenance or restoration of the health of a person or palliative care, even if provided by health care professionals. Such services would include, for example, reports prepared solely for the purpose of determining liability in court proceedings.
GST/HST Pension Plan Rules
The Budget proposes two measures to simplify employer compliance with GST/HST pension plan rules.
Election Not to Account for GST/HST on Taxable Supplies
An employer participating in a registered pension plan will be permitted to jointly elect with a pension entity of that pension plan to treat an actual taxable supply by the employer to the pension entity as being for no consideration where the employer accounts for and remits tax on the deemed taxable supply. The election remains in effect until it is jointly revoked by the employer and the pension entity effective from the beginning of a fiscal year for the employer. Additionally, the Minister has discretion to cancel the election in certain circumstances. This measure applies to supplies made after Budget Day.
Relief from Accounting for GST/HST on Deemed Taxable Supplies
Under the existing GST/HST rules, an employer that participates in a registered pension plan is required to account for and remit GST/HST under the deemed taxable supply rules in respect of every acquisition, use or consumption of the employer’s resources in pension activities, even where the employer’s involvement in the pension plan is minimal.
The Budget proposes to relieve employers from applying the deemed taxable supplies rules for a fiscal year of the employer where the amount of the GST (and the federal component of the HST) that the employer was otherwise required to account for and remit under the deemed taxable supplies rules in the preceding fiscal year is less than each of the following amounts:
- $5,000; and
- 10% of the total net GST (and the federal component of the HST) paid by all pension entities of the pension plan in that preceding fiscal year.
In certain circumstances, employers that do not meet these thresholds may qualify for limited relief. This measure will apply in respect of any fiscal year of an employer that begins after Budget Day.
GST/HST Business Information Requirement
Businesses are generally required to provide the CRA with certain business identification when they register for GST/HST.
Currently, a $100 penalty applies for failure to provide this information. The Budget proposes that the CRA be given authority to withhold GST/HST refunds until such time as all prescribed business identification information is provided to the CRA. This measure will apply on Royal Assent to the enacting legislation.
GST/HST on Paid Parking
Supplies of Parking by PSBs
Supplies of a property or service made by a Public Sector Body (“PSB”) are exempt from GST/HST if all or substantially all (i.e., 90% or more) of the supplies of the property or service are made for free. The Budget clarifies that this exempting provision does not apply to supplies of paid parking made by way of lease, licence or similar arrangement in the course of a business carried on by a PSB. Occasional supplies of paid parking by a PSB, such as those made as part of a special fund-raising event, would continue to qualify for the GST/HST exemption. This measure will be effective the date the GST legislation was enacted.
Supplies of Paid Parking by Charities
Supplies of parking made by charities (other than municipalities, universities, public colleges, schools or hospitals) are exempt from GST/HST. The Budget clarifies that this exemption does not apply to supplies of paid parking that are made by way of lease, licence or similar arrangement in the course of a business carried on by a charity set up or used by a municipality, university, public college, school or hospital to operate a parking facility. This measure will apply to paid parking supplies made after Budget Day.
GST/HST Treatment of the Governor General
For supplies made after June 30, 2013, the current GST/HST exemption for the Governor General is proposed to end.
Excise Duty Rate on Manufactured Tobacco
Effective after Budget Day, the rate of excise duty on manufactured tobacco (e.g. chewing tobacco or fine-cut tobacco used in roll-your-own cigarettes) is proposed to increase from $2.8925 to $5.3125 per 50 grams or fraction thereof.