News and Insights

“New Harmonized Value-added Tax System Regulations, Made Under the Excise Tax Act”,

Tax Development Jun 09, 2010

Her Excellency the Governor General in Council, on the advice of the Minister of Finance, has now annexed the New Harmonized Value-added Tax System Regulations to the Excise Tax Act.  This action has resulted in the formalization of these regulations and gives full legal force to the previously released general HST transitional (released on October 14, 2009) and place of supply rules (released February 25, 2010).  In addition, these regulations include general anti-avoidance rules related to harmonization that had been discussed briefly in the general HST transitional rule documents issued by Ontario and British Columbia.  

The rules included in these regulations are required in order to facilitate the transition to the HST in Ontario and British Columbia and to ensure an appropriate determination of the place of supply for HST purposes in all participating provinces.  

The general HST transitional rules specify how the provincial component of the HST will apply to supplies, made in both Ontario and British Columbia, that straddle the July 1, 2010 HST implementation date.  These rules differ based on the type of supply being made (i.e., goods, services or intangibles).  In general, HST at a rate of 13% in Ontario and 12% in British Columbia will apply to supplies of taxable goods and services delivered or performed on or after July 1, 2010 in either of these two provinces.    The HST place of supply rules determine whether a supply that is made in Canada is made in a participating province.  Previously, the place of negotiation was a factor in determining the place of supply, which often sited the place of supply based on the supplier’s location.  The new rules place more emphasis on the location of the recipient of the supply when determining the place of supply.  The place of supply rules included in these regulations were designed to align the place of supply with the place of consumption for supplies of services and intangibles, and are believed to eliminate any competitive disadvantages that businesses located in the participating provinces may face.  

Anti-avoidance rules are required to prevent taxpayers from improperly taking advantage of changes in the harmonized valued-added tax system that has been put in place under the Excise Tax Act.  These rules will focus on various changes, including the addition of a province to the system, a change to the tax rate of a participating province and a change to rebates available for of the provincial component of the HST.  In general, these anti-avoidance rules will prevent persons not dealing at arm’s length from attempting to obtain a tax benefit from further harmonization or changes to existing harmonization.    The specific rules and associated definitions making up these New Harmonized Value-added Tax System Regulations are included in the following document:

New Harmonized Value-Added Tax System Regulations