On March 4, 2010, Finance Minister James Flaherty presented Canada’s 2010 Federal Budget. This budget confirms the government’s intention to provide an additional $19 billion in new federal stimulus spending under Canada’s Economic Action Plan, further investment in initiatives to create jobs and a commitment to balance Canada’s finances.
From a commodity tax perspective, the budget contains several new measures and reaffirms a number of initiatives that were previously announced.
Purely cosmetic health care procedures, including related goods and services, are not considered to be basic health care services and, therefore, are subject to tax. The government has proposed amendments to clarify its position on cosmetic procedures, effective for supplies made after March 4, 2010 and for supplies made on or before March 4, 2010, where the supplier collected or remitted GST/HST.
As a result, GST/HST will apply to all purely cosmetic procedures, as well as devices or other goods used or provided with these procedures, and to services related to cosmetic procedures. Procedures generally subject to GST/HST include surgical or non-surgical procedures to enhance a person’s appearance (e.g., liposuction, hair replacement, botox injections, etc.).
However, cosmetic procedures will continue to be exempt if they are required for medical or reconstructive purposes (e.g., surgery to restructure a deformity resulting from a congenital abnormality, personal injury or trauma, or a disfiguring disease). In addition, cosmetic procedures paid for by a provincial health insurance plan will continue to be exempt.
Simplification for the Direct Selling Industry
The budget reaffirmed the government’s intention to implement proposals to simplify the GST/HST for network sellers by allowing them, subject to certain criteria, to apply for the use of a special GST/HST accounting method, as announced in last year’s budget.
The government also introduced some enhancements and clarifications to the proposed measures, including:
- allowing new network sellers to apply to the Minister of National Revenue (the “Minister”) at any time during a fiscal year for approval to use the special GST/HST accounting method, as long as they have met the qualification criteria and have never before made a supply of a select product;
- clarifying that host gifts provided by a network seller to a host will not be subject to GST/HST;
- and providing a “safety mechanism” for a network seller who does not meet the qualification criterion concerning commissions paid to sales representatives during a fiscal year.
Under the new mechanism, there would be no adjustments to the net tax of a network seller where:
- in the first fiscal year the network seller has failed to meet the requirement that all or substantially all (i.e., 90% or more) of its sales representatives do not have commission revenue exceeding $30,000 provided that at least 80% of the sales representatives do not have commission revenue exceeding the $30,000 threshold in that fiscal year; or
- in the second fiscal year the network seller has failed to meet the above requirement, the network seller has made a request in writing to the Minister, within the first six months of that year, to revoke its approval for the use of the special GST/HST accounting method and that at least 80% of the sales representatives do not have commission revenue exceeding the $30,000 threshold in that second fiscal year.
The proposed amendments will be available to network sellers for fiscal years that begin after 2009. In addition, for network sellers with fiscal years beginning in 2010, a proposed transitional measure will allow the seller to apply for approval to start using the special GST/HST accounting method for the remaining part of that fiscal year.
Customs Tariff Measures
The budget proposes to eliminate the remaining tariffs on manufacturing inputs and machinery and equipment. This announcement will impact 1,541 tariff items currently listed in the Schedule to the Customs Tariff. For these items, the “Most-Favoured-Nation” rates of duty will be reduced to “Free”, effective in respect of goods imported into Canada on or after March 5, 2010.
Previous Sales Tax Measures
The budget reaffirms the government’s intention to implement several previously announced tax measures, including the intensely debated GST/HST changes for financial institutions announced in September and December of 2009.
Changes for the Financial Services Sector
The government has indicated that it will proceed with several measures designed to improve the application of GST/HST to the financial services sector, including:
- allowing large banks, insurance companies and securities dealers to develop their own methodology to allocate input tax credits in certain circumstances;
- granting more flexibility for financial institutions to have input tax credit allocation methods pre-approved; and
- providing an extension for the filing due date for GST returns for certain financial institutions until six months after the end of the fiscal year.
For further details on all of the planned measures, please see the Tax Developments section of the Ryan Canada web site at: Improvements to the Application of the GST to the Financial Services Sector.
Changes to Financial Services Resulting from Recent Court Decisions
In response to recent court decisions involving the appliction of GST to certain financial services, the government has proposed that certain investment management and administrative services, including discretionary investment management services, be excluded from the definition of a financial service. Note that these proposed amendments have been annexed to the budget in a Notice of Ways and Means. Details on these changes to financial services can be found in the Tax Developments section of the Ryan Canada web site at: Recent Court Decisions on the GST and Financial Services.
Air Travellers Security Charge
The budget confirms the increases to the Air Travellers Security Charge rates announced on February 25, 2010.
The government has also reaffirmed its plan to implement an enhanced stamping regime for tobacco to deter contraband. The initial proposal was released on August 6, 2009.
Other Tax Measures
Aboriginal Tax Policy
Consistent with prior years, the federal government has confirmed its continued support for direct taxation arrangements in which Indian bands and self-governing Aboriginal groups levy a sales tax within their jurisdictions. The government notes that, to date, it has entered into 32 sales tax arrangements of this nature.
The budget proposes to amend the Income Tax Act, Excise Tax Act, Excise Act, 2001, Air Travellers Security Charge Act, and the Canada Pension Plan and Employment Insurance Act to allow for the electronic issuance of certain notices that can currently be sent by ordinary mail. However, notices that are specifically required to be served personally or by registered or certified mail will not be eligible for electronic transmission. This will provide the Canada Revenue Agency with the legislative authority to issue electronic notices, where authorized by the taxpayer.
Further details on the 2010 Federal Budget are available from the Department of Finance Canada web site at: