News and Insights

Department of Finance Canada Announces Changes to GST/HST Rules for Carbon Emission Allowances

Tax Development Jun 29, 2018

The Department of Finance Canada (Finance Canada) today issued a press release in relation to draft changes to the rules surrounding GST/HST and sales of carbon emission allowances, effective June 27, 2018.  In addition, Finance Canada released the following documents:

The new rules require that a purchaser of any carbon emission allowances (such as those traded in a cap-and-trade system) through a secondary market self-assess GST/HST, and remit that tax on their GST return.  If entitled, the purchaser can also claim an input tax credit for the tax self-assessed on the same return.  These rules are similar to the reverse collection rules governing certain real property purchases in Canada.  Emission allowances supplied initially by a Canadian government entity will continue to be generally exempt from the GST/HST.  In addition, the legislative proposals include a provision disallowing a rebate for tax paid in error in respect to carbon emission allowances, unless it was an amount paid directly to the Canada Revenue Agency, or where a condition or circumstance prescribed by regulation is met. 

Taxpayers and other interested parties are invited to provide comments on the legislative proposals by July 27, 2018, by email or by mailing Finance Canada’s Tax Policy Branch.