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GST measures in the Canadian federal budget

Canadian Indirect Tax News, March 2008 (08-3)

The federal budget was tabled on February 26, 2008, and contained the following goods and services tax (GST) measures.

The health care sector

GST-exempt or zero-rated treatment has been expanded to a range of health care services, prescription drugs and medical devices, in what Finance describes as an effort to better reflect how health care delivery has evolved. Most changes are effective February 27, 2008, except as stated below:

  • Specially designed training programs to assist individuals to cope with a disability or disorder (for example, autism) will be exempt if the training is supplied by a government, the cost of training is fully or partially reimbursed under a government program, or a health professional whose services are GST-exempt prescribes the training to allow the patient to better cope with the disability or disorder.
  • Nursing services provided within a “nurse-patient relationship” will be exempt from GST regardless of where the service is performed. Previously, a nursing service had to be performed in a health care facility or at a patient’s home to be exempt.
  • A clarifying amendment will confirm that an otherwise GST-exempt health care service will be exempt where the health care professional performs the service through a corporation or other structure (such as where an MD or a psychologist incorporates a professional corporation).
  • Sales of drugs to final consumers are now zero-rated when they are prescribed by a wider range of health care professionals, provided the professional is authorized to prescribe such drugs under provincial or territorial legislation. The zero-rating also applies to supplies made before February 27, 2008, when the sale was treated as zero-rated in error.
  • The following devices have become zero-rated:
    • devices for neuromuscular stimulation or standing therapy, and chairs for use by individuals with a disability, when prescribed by a medical practitioner;
    • chest wall oscillation systems for use in airway clearance therapy; and
    • service animals supplied by recognized organizations that are trained to assist individuals with a disability or impairment.

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Long-term care facilities

After a long period of uncertainty over the GST treatment of long-term care facilities, new measures seek to clarify that they will be treated for GST purposes like long-term residential rental properties, notably:

  • new facilities will be subject to GST self-assessment at the time of substantial completion and first occupancy;
  • new facilities will qualify for the GST New Residential Rental Property Rebate;
  • the subsequent sale of a long-term care facility will be GST-exempt; and.
  • ground leases to a facility operator will be GST-exempt.

The relieving provisions generally are effective as after February 26, 2008, but may also apply to transactions that occurred on or before February 26, 2008, in limited situations, such as where facility owners self-assessed GST following the CRA’s interim policy position.

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Other sectors 

The following additional measures were announced in the budget:

  • As a small step to encourage environmentally sustainable energy sources, GST will not apply to property leases for the purpose of installing wind and solar power equipment for evaluating the feasibility of generating electricity from the sun or wind (effective February 26, 2008).
  • A number of changes are proposed to enhance enforcement and compliance of the excise duty on tobacco, and in some cases to raise it as follows:
    • possession and importation of tobacco manufacturing equipment will be limited to persons holding a licence to manufacture tobacco products, to reduce contraband tobacco production (effective on Royal Assent);
    • all manufactured tobacco of 50 grams or less will be subject to duties applicable to 50 gram packages. This is intended to discourage the growing practice of producing small-sized packages of cigarettes that qualified for lower excise duty and had become popular with youth (effective July 1, 2008);
    • the rate of duty on tobacco sticks will be increased, to equate to the rate applied on cigarettes (effective February 27, 2008); and
    • the current rule allowing Canadian producers of tobacco products to pre-pay the duty on tobacco intended for sale at duty-free shops will be extended to foreign producers (stamping and pre-payment requirements effective February 28, 2008, but the $2/carton rebate only payable on Royal Assent). This is intended both to simplify compliance at the border for returning travelers and to reduce access to untaxed tobacco products.
  • High-alcohol imitation spirits derived from a brewing process which compete with traditional distilled spirits will now be subject to the excise duty of $11.696/litre of absolute alcohol that applies to distilled spirits. Previously, such imitation spirits received the favourable excise duty treatment afforded beer. The new excise treatment will apply where the alcohol by volume of the brewed product exceeds 11.9%, which is considered to be the highest ABV achievable for traditional beer products.
  • Currently there are 30 sales tax arrangements in place whereby self-governing aboriginal groups levy a sales tax within their settlement lands. In addition there are 13 arrangements for aboriginal groups levying a personal income tax on residents in their settlement lands. The government intends to continue to encourage the exercise of direct taxation powers by aboriginal groups.

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