Tax Measures: Supplementary Information
Table of Contents
- Personal Income Tax Measures
- Business Income Tax Measures
- International Tax Measures
- Sales and Excise Tax Measures
- Previously Announced Measures
This annex provides detailed information on tax measures proposed in the 2023 Fall Economic Statement.
Table 1 lists these measures and provides estimates of their fiscal impact.
|Personal Income Tax
|Taxpayer Information Sharing for the Canadian Dental Care Plan
|Business Income Tax
|Clean Hydrogen Investment Tax Credit
|Clean Technology and Clean Electricity Investment Tax Credits - Equipment Using Waste Biomass
|Canadian Journalism Labour Tax Credit
|Dividend Received Deduction by Financial Institutions - Exception
|International Tax Measures
|International Shipping Income
|Sales and Excise Tax Measures
|Psychotherapists' and Counselling Therapists' Services
|Joint Venture Election
|Underused Housing Tax
1 A positive amount represents a decrease in revenue; a negative amount represents an increase in revenue.
2 A "–" indicates a nil amount, a small amount (less than $500,000) or an amount that cannot be determined in respect of a measure that is intended to protect the tax base.
Personal Income Tax Measures
Taxpayer Information Sharing for the Canadian Dental Care Plan
The 2023 Fall Economic Statement proposes to amend the Income Tax Act to provide legislative authority for the Canada Revenue Agency to share taxpayer information with an official of Public Services and Procurement Canada solely for the purposes of the administration or enforcement of the Canadian Dental Care Plan. This would allow Employment and Social Development Canada to engage the services of Public Services and Procurement Canada in administering the Canadian Dental Care Plan.
Similar amendments are proposed to the Excise Tax Act and the Excise Act, 2001.
These amendments would come into force upon royal assent.
Business Income Tax Measures
Clean Hydrogen Investment Tax Credit
Budget 2023 proposed to introduce the Clean Hydrogen Investment Tax Credit (ITC) and announced the credit's main design elements in respect of eligible projects, credit rates, measuring carbon intensity, eligible equipment, verification, and compliance.
Budget 2023 also indicated that additional details on the following design elements of the Clean Hydrogen ITC would be announced at a later date. The 2023 Fall Economic Statement proposes the details in respect of these design elements. The federal government will continue to review eligibility for other low-carbon hydrogen production pathways in the leadup to Budget 2024.
Eligible Clean Ammonia Production Equipment
Budget 2023 indicated that the Clean Hydrogen ITC would provide support for clean ammonia production, at a 15-per-cent credit rate, subject to certain conditions. The 2023 Fall Economic Statement proposes that property that is required to convert clean hydrogen into ammonia be eligible for the Clean Hydrogen ITC, provided that the following conditions are met:
- The taxpayer that is producing the ammonia must use their own hydrogen feedstock for ammonia production, and the hydrogen feedstock must come from a clean hydrogen projects of the taxpayer that are eligible for the Clean Hydrogen ITC;
- The clean hydrogen projects have sufficient production capacity to satisfy the needs of the taxpayer's ammonia production facility; and
- The taxpayer demonstrates the feasibility of transporting the hydrogen from the hydrogen production facilities to the ammonia production facility if they are not co-located.
Equipment used for the sole purpose of converting clean hydrogen into ammonia — including equipment necessary for the feed compression, conversion (such as reactors or other equipment used to carry out the Haber–Bosch process), refrigeration, and on-site storage of ammonia — would be eligible.
In the case of an integrated hydrogen-ammonia production facility, the cost of "dual-use" equipment used for both hydrogen and ammonia production (e.g., an air separation unit) would, for the purposes of the Clean Hydrogen ITC, be allocated between hydrogen and ammonia equipment based on the equipment's relative use between the hydrogen and ammonia production.
For the purpose of calculating the carbon intensity (CI) of hydrogen in an integrated hydrogen-ammonia production facility where pure hydrogen is not produced as an intermediate product, similar rules would apply. The CI associated with dual-use equipment would be allocated to hydrogen based on the ratio of use attributable to hydrogen production relative to total use (for example, electricity supplied to the integrated facility would need to be allocated between the hydrogen and ammonia production).
Power Purchase Agreements and Other Similar Instruments
Budget 2023 indicated that Power Purchase Agreements (PPAs) and other similar instruments that allow project owners to purchase clean electricity from the electricity grid would be eligible for the purpose of calculating a project's CI, in place of using the grid's CI, subject to certain conditions that would be provided at a later date.
The 2023 Fall Economic Statement proposes the following conditions in respect of the use of PPAs and other similar instruments for the purposes of the Clean Hydrogen ITC:
- The purchased electricity is sourced from hydro-, solar-, or wind-powered generation that:
- first commenced production on or after March 28, 2023, and no more than one year before the initial project CI assessment for the related clean hydrogen project is submitted; and,
- is located in the same province or territory as the clean hydrogen project and is connected to the electricity grid of that province or territory.
- Taxpayers would need to demonstrate that the energy being purchased under these instruments is for the operation of the clean hydrogen project.
For the purpose of modelling a project's CI, the contribution of electricity purchased though PPAs or other similar instruments would be calculated by taking into account the number of years for which an eligible instrument is expected to be in place during the first 20 years of the project's operation (the assumed notional service life of a clean hydrogen project). The CI of the electricity purchased through eligible PPAs or other similar instruments would correspond to the CI of technology-specific electricity specified in the Fuel Life Cycle Assessment (LCA) Model.
Renewable Natural Gas
Some hydrogen production projects may use renewable natural gas (RNG) to reduce the CI of their hydrogen production. RNG can be a lower CI alternative relative to natural gas extracted as a fossil fuel.
The 2023 Fall Economic Statement proposes that the use of RNG would be eligible for the purpose of calculating a project's CI, subject to the following conditions:
- The RNG would need to be produced by a supplier subject to the Clean Fuel Regulations;
- RNG would need to be secured from a production facility that commenced RNG production no more than one year before the initial project CI assessment for the associated clean hydrogen project is submitted; and,
- Producers would need to demonstrate that the RNG being purchased is for the operation of the clean hydrogen project.
For the purpose of modelling a project's CI, the contribution of RNG would be calculated by taking into account the number of years for which a contract is expected to be in place during the first 20 years of the project's operation. The CI of the purchased RNG would correspond to the CI assessed under the Clean Fuel Regulations.
Initial Project CI Assessment and Validation
Budget 2023 indicated that projects would undergo an initial project CI assessment based on the design of the project. This assessment would determine the expected CI of the hydrogen that will be produced, by validating two criteria: (1) the modelling of the project using the Fuel LCA Model, and (2) that the project design can reasonably be expected to achieve the modelled outcomes.
The 2023 Fall Economic Statement proposes further clarification:
- The initial project CI assessment would need to be validated by a third party. This would require a validation report prepared by a Canadian engineering firm with an engineering certificate of authorization, appropriate insurance coverage, and expertise in modelling using the Fuel LCA Model.
- Taxpayers would need to submit an initial project CI assessment and third-party validation report, including any required documentation, to Natural Resources Canada.
- Once the expected CI of the project has been validated by Natural Resources Canada, the Clean Hydrogen ITC would be administered by the Canada Revenue Agency.
Compliance and Recovery
Budget 2023 indicated that, once a project is operating, the CI of the hydrogen produced would need to fall into the same tier that the project was assessed at, or the taxpayer could be made subject to a recovery of tax credit amounts.
The 2023 Fall Economic Statement proposes that projects be subject to a one-time verification, based on a five-year compliance period. Over the course of the period, projects would compute and report annually on the effective CI of the hydrogen that is produced. At the end of the period, compliance would be determined by the weighted-average CI over the entire period. The contribution of annual CI figures to the final weighted-average CI would be weighted by the hydrogen produced in each year.
The compliance period would begin 120 days after the beginning of commercial operations. However, projects would have the option of delaying the beginning of the period by a full year. A second full year delay would also be available and could be exercised following the first full year delay. This would allow project operators time to make adjustments that may be required to deliver on the expected CI of the hydrogen produced.
Projects would need to have the CI of the hydrogen verified by a third party. This would require verification reports prepared by a Canadian engineering firm with an engineering certificate of authorization, appropriate insurance coverage, and expertise in life-cycle analysis of greenhouse gas emissions. The engineering firm that verifies the reports on effective CI during the compliance period would need to be a different firm than the engineering firm that validated the initial project CI assessment.
Taxpayers would need to submit third-party verification reports, including any required documentation, to Natural Resources Canada.
Budget 2023 indicated that if a project failed to achieve a CI of produced hydrogen in the same CI tier that the project was assessed at, the Clean Hydrogen ITC could be subject to a recovery equal to the difference between the Clean Hydrogen ITC amount that was claimed based on the assessed CI tier, and the Clean Hydrogen ITC amount that would apply based on the CI tier that is observed during production.
The 2023 Fall Economic Statement proposes that, in addition, projects with a verified CI no more than 0.25 kilogram (kg) of carbon dioxide equivalent (CO2e) per kg of hydrogen above their original validated CI would not be subject to recovery of Clean Hydrogen ITC amounts even if the verified CI exceeds the upper bound of the originally assessed CI tier.
Amounts of Clean Hydrogen ITC claimed in respect of ammonia production equipment would be subject to full recovery if the hydrogen production project supplying the hydrogen used for ammonia production has a verified CI of 4 kg or more of CO2e per kg of hydrogen. However, there would be no recovery with respect to ammonia production equipment if the verified CI is no more than 0.25 kg of CO2e per kg of hydrogen above the originally validated CI.
Interest on any amount of Clean Hydrogen ITC recovered would be calculated from the time the Clean Hydrogen ITC was claimed.
Example of Clean Hydrogen ITC Recovery
Assuming an initial project CI assessment of 0.6 kg of CO2e per kg of hydrogen and eligible property with a cost of $100,000, the project would be eligible for a 40-per-cent credit rate and a Clean Hydrogen ITC in the amount of $40,000.
|Verified CI over the five-year compliance period
(in kg of CO2e per kg of hydrogen)
|Impact on initial investment tax credit of $40,000 based on initial project CI assessment of 0.6
|Less than or equal to 0.75
|No recovery since the verified CI lies within the same CI tier as the CI tier of the initial project CI assessment
|Less than or equal to 0.85
|No recovery since 0.85 – 0.6 ≤ 0.25
|Greater than 0.85 but less than 2
$40,000 – ($100,000 × 0.25) = $15,000 (plus applicable interest)
|Greater than 2 but less than 4
$40,000 – ($100,000 × 0.15) = $25,000 (plus applicable interest)
|Greater or equal to 4
|Recovery of the full amount of Clean Hydrogen ITC claimed: $40,000 (plus applicable interest)
Projects with a verified CI that is in a lower CI tier than the tier that the project was initially assessed at would not be eligible for additional Clean Hydrogen ITC amounts in respect of that lower CI tier.
Strategic Environmental Assessment Statement
The Clean Hydrogen ITC is expected to have a positive environmental impact by encouraging investment in clean hydrogen production that would reduce emissions of greenhouse gases. This would help advance the government's Federal Sustainable Development Strategy target to reduce greenhouse gas emissions by 40 to 45 per cent below 2005 levels by 2030 and achieve net-zero greenhouse gas emissions by 2050.
Clean Technology and Clean Electricity Investment Tax Credits - Equipment Using Waste Biomass
The 2022 Fall Economic Statement proposed a 30-per-cent refundable Clean Technology Investment Tax Credit. The credit would be available to eligible taxpayers investing in eligible property that is acquired and that becomes available for use on or after March 28, 2023, and before 2035, subject to a phase out in 2034 (the credit rate would be reduced to 15 per cent for property that becomes available for use in 2034). Eligible property would generally include certain systems and equipment used for electricity generation, stationary electricity storage, and low-carbon heating, as well as non-road zero-emission vehicles and related charging or refueling equipment.
Budget 2023 proposed a 15-per-cent refundable Clean Electricity Investment Tax Credit. The credit would be available to taxable and non-taxable entities investing in eligible property as of the date of Budget 2024 for projects that did not begin construction before March 28, 2023. The Clean Electricity Investment Tax Credit would not be available after 2034. Eligible property would generally include certain systems and equipment used for electricity generation, stationary electricity storage, and transmission of electricity between provinces and territories. It was announced that the full design details of the Clean Electricity Investment Tax Credit would be provided at a later date.
As proposed in Budget 2023, the Clean Technology and Clean Electricity Investment Tax Credits would be subject to prevailing union wage and apprenticeship requirements.
The 2023 Fall Economic Statement proposes to expand eligibility for the Clean Technology and Clean Electricity Investment Tax Credits to support the generation of electricity, heat, or both electricity and heat, from waste biomass.
Waste biomass, either in its raw form or when processed to produce a more energy-dense fuel (e.g., through gasification) can be combusted to produce heat that can be used on its own for space heating, an industrial process, electricity generation, or some combination thereof.
Accelerated capital cost allowance Classes 43.1 and 43.2 describe various clean energy generation and energy efficient equipment. For the purposes of these Classes, the Income Tax Regulations define "specified waste materials" as meaning wood waste, plant residue, municipal waste, sludge from an eligible sewage treatment facility, spent pulping liquor, food and animal waste, manure, pulp and paper by-product and separated organics. In the context of the proposed expansion of the Clean Technology and Clean Electricity Investment Tax Credits, eligible waste biomass would include only specified waste materials.
Electricity Generation and Cogeneration from Waste Biomass
The 2023 Fall Economic Statement proposes to expand eligibility for the Clean Technology and Clean Electricity Investment Tax Credits to include systems that use specified waste materials solely to generate electricity or both electricity and heat (i.e., cogeneration). Eligible systems would be those that use feedstock, all or substantially all of the energy content (expressed as the higher heating value of the feedstock) of which is from specified waste materials, as determined on an annual basis. Systems that use a fuel that is not produced as an integrated part of the system, even if produced from specified waste material, would not be eligible.
When part of an eligible integrated system, eligible property would include:
- electrical generating equipment (e.g., steam turbine generators);
- heat generating equipment used primarily for the purpose of producing heat energy to operate the electrical generating equipment (e.g., steam boilers used to produce steam to operate steam turbine generators);
- equipment that generates both electrical and heat energy (e.g., gas turbine generators, reciprocating engine generator sets);
- heat recovery equipment (e.g., heat recovery steam generators);
- equipment used to upgrade or enhance the combustibility of specified waste material (e.g., a gasifier); and,
- ancillary equipment (e.g., control, feedwater, and condensate systems).
Eligible property would not include buildings or other structures, heat rejection equipment (e.g., cooling towers), electrical transmission and distribution equipment, fuel or feedstock storage and handling equipment (e.g., conveyors and wheeled loaders), district energy equipment, or equipment used for carbon capture, utilization and storage.
Consistent with the treatment of similar systems under Classes 43.1 and 43.2, eligible systems would include only those systems that do not exceed a heat rate threshold of 11,000 British thermal units per kilowatt-hour. The heat rate would be calculated in a manner similar to that which will be used after 2024 for purposes of eligible specified waste-fuelled electricity generation systems that would qualify for inclusion under Classes 43.1 and 43.2.
Heat Generation from Waste Biomass
The 2023 Fall Economic Statement proposes to expand eligibility for the Clean Technology Investment Tax Credit to include systems that use specified waste materials, other than spent pulping liquor, solely to generate heat energy. Eligible systems would be those that use feedstock, all or substantially all of the energy content (expressed as the higher heating value of the feedstock) of which is from specified waste materials (other than spent pulping liquor), as determined on an annual basis. Systems that use a fuel that is not produced as an integrated part of the system, even if produced from specified waste material, would not be eligible.
When part of an eligible integrated system, eligible property would include:
- heat generating equipment (e.g., burners and boilers), other than that used to operate electrical generating equipment;
- equipment used to upgrade or enhance the combustibility of specified waste material (e.g., a gasifier); and
- ancillary equipment (e.g., control, feedwater, and condensate systems).
Eligible property would not include buildings or other structures, heat rejection equipment (e.g., cooling towers), fuel or feedstock storage and handling equipment (e.g., conveyors and wheeled loaders), district energy equipment, or equipment used for carbon capture, utilization, and storage.
Ongoing Compliance with Eligibility Criteria
For Classes 43.1 and 43.2, an eligible property must satisfy all the conditions for inclusion in the Classes on an annual basis. There is a limited exception in the Income Tax Regulations for a property that is part of an eligible system that was previously operated in a qualifying manner. Such property is considered to be operated in the required manner during a period of deficiency, failure or shutdown of the system that is beyond the taxpayer's control if the taxpayer makes all reasonable efforts to rectify the problem within a reasonable time according to the circumstances.
Similar rules would apply to the Clean Technology and Clean Electricity Investment Tax Credits with respect to systems that generate electricity, heat or both electricity and heat from specified waste material.
Compliance with Environmental Laws, By-Laws and Regulations
Certain properties described in Class 43.1 and Class 43.2 may be included in the Classes only if they are in compliance with environmental laws, by-laws and regulations at the time the property first becomes available for use. This is to ensure that taxpayers who benefit from Class 43.1 or 43.2 operate in an environmentally responsible manner.
The 2023 Fall Economic Statement proposes to replace these rules with a similar rule that looks only to significant non-compliance. It also proposes to extend that rule to apply to all properties described in Class 43.1 or 43.2 and properties that would be eligible for the Clean Technology and Clean Electricity Investment Tax Credits.
The expansion of the eligibility for the Clean Technology Investment Tax Credit would apply in respect of property that is acquired and becomes available for use on or after the day of the 2023 Fall Economic Statement, provided it has not been used for any purpose before its acquisition.
The expansion of the eligibility for the Clean Electricity Investment Tax Credit would be available as of the day of Budget 2024 and to projects that did not begin construction before March 28, 2023, consistent with the general proposed application of this credit.
Strategic Environmental Assessment Statement
These measures are expected to have a positive environmental impact by encouraging investment in projects that would generally be expected to help reduce net emissions of greenhouse gases, in support of Canada's targets set out in the Federal Sustainable Development Strategy. This would have a net positive environmental impact towards Canada's target of reducing greenhouse gas emissions by 40 to 45 per cent below 2005 levels by 2030 and achieving net-zero greenhouse gas emissions by 2050. Incrementally more clean electricity generation would also help achieve Canada's target of generating 90 per cent of electricity from renewable and non-emitting sources by 2030 and 100 per cent in the long term.
Depending on project design, positive environmental impacts could be offset in some cases by the adverse environmental impacts of biomass combustion. While the combustion of waste biomass is generally viewed as carbon neutral on a lifecycle basis and potentially carbon-negative when combined with carbon capture, utilization, and storage, greenhouse gases are released during combustion, as are particulate matter and other air pollutants that impact the environment and human health.
Canadian Journalism Labour Tax Credit
The Canadian journalism labour tax credit was introduced in Budget 2019 as one of several measures to support Canadian journalism. It provides a refundable 25-per-cent tax credit on the salary or wages paid to eligible newsroom employees of a "qualifying journalism organization." Qualifying labour expenditures per eligible newsroom employee are capped at $55,000 for a taxation year.
The 2023 Fall Economic Statement proposes to increase the cap on labour expenditures per eligible newsroom employee from $55,000 to $85,000. It is further proposed that the Canadian journalism labour tax credit rate be temporarily increased from 25 per cent to 35 per cent for a period of four years. As a result, organizations would be able to claim up to $29,750 in eligible labour costs per eligible newsroom employee per year.
These changes would apply to qualifying labour expenditures incurred on or after January 1, 2023. The credit rate would return to 25 per cent for expenditures incurred on or after January 1, 2027.
Transitional rules would apply to prorate these changes in cases where an organization's tax year does not follow a calendar year.
Dividend Received Deduction by Financial Institutions - Exception
The Income Tax Act permits corporations to claim a deduction in respect of dividends received on shares of other corporations resident in Canada. Budget 2023 proposed to deny the dividend received deduction in respect of dividends received by financial institutions on shares that are mark-to-market property.
The 2023 Fall Economic Statement proposes an exception to this measure for dividends received on "taxable preferred shares" (as defined in the Income Tax Act). This exception, along with the rest of the measure, would apply to dividends received on or after January 1, 2024.
Under the Income Tax Act, if a taxpayer receives government assistance in the course of earning income from a business or property, the amount of that assistance may reduce the amount of a related expense or the cost or capital cost of a related property, or may be included in the taxpayer's income. The amount of assistance may also reduce the amount of an expenditure on which an associated investment tax credit is based.
Historically, non-forgivable loans from public authorities were generally not considered government assistance. This position extended to concessional loans (meaning loans that do not bear interest or that bear interest at below-market rates) from public authorities. However, in a 2021 decision, the Tax Court of Canada determined that the full principal amount of a concessional loan was government assistance. This decision was affirmed by the Federal Court of Appeal in 2022.
The 2023 Fall Economic Statement proposes to amend the Income Tax Act to provide that bona fide concessional loans with reasonable repayment terms from public authorities will generally not be considered government assistance.
This amendment would come into force on the date of the 2023 Fall Economic Statement.
International Tax Measures
Income from international shipping activities is generally not subject to corporate income tax. Canada's tax system reflects this international norm in two ways. First, income from international shipping is not taxed if it is earned by a non-resident whose country extends a similar exemption to Canadian companies. Second, Canada provides an exemption to shipping companies that are managed from Canada, provided they are incorporated in a foreign jurisdiction with a reciprocal exemption (among other conditions). These latter companies are deemed to be non-residents of Canada for income tax purposes.
In recognition that international shipping often operates outside the scope of corporate income tax more generally, the framework for a 15-per-cent global minimum tax (i.e., Pillar Two of the two-pillar multilaterally agreed solution for international tax reform) generally excludes international shipping income from the imposition of top-up tax under Pillar Two when certain requirements are met. A key requirement of that exclusion is that the "strategic or commercial management" of a multinational group's international shipping operations must be located in the same jurisdiction where its income is booked. Budget 2023 proposed to implement the Pillar Two rules in Canada effective for fiscal years that begin on or after December 31, 2023, and the government released draft legislative proposals to implement the new Global Minimum Tax Act in August of this year, including the exclusion for international shipping income from Pillar Two in line with the internationally agreed framework.
Shipping companies managed from Canada that have structured their operations to align with the design of Canada's current international shipping exemption generally book their international shipping income in the foreign jurisdiction where they are incorporated (that is, where they are deemed to be resident). As a result, they may not qualify for the exclusion from Pillar Two, which would require such companies to book their income where their management is located.
To ensure consistency with international tax norms, as well as greater consistency between the international shipping provisions of the Income Tax Act and the proposed new Global Minimum Tax Act, it is proposed to make the exemption for international shipping income in the Income Tax Act generally available to Canadian resident companies. This would allow shipping companies with management in Canada to continue their operations in line with both the Pillar Two international shipping exclusion and the exemption in the Income Tax Act. This measure would also effectively remove the incentive that the current tax rules create for shipping companies with management in Canada to incorporate and carry on certain international shipping activities in foreign jurisdictions.
This measure would apply to taxation years that begin on or after December 31, 2023.
Sales and Excise Tax Measures
Removing the GST/HST From Psychotherapists' and Counselling Therapists' Services
Under the Goods and Services Tax/Harmonized Sales Tax (GST/HST), services covered under a provincial public health care plan are exempt in that province. Exemptions are also provided for most services rendered to individuals by physicians, dentists and nurses and certain other health care practitioners, such as optometrists and midwives. The list of other health care practitioners whose services are exempt is set out in the GST/HST legislation.
The 2023 Fall Economic Statement proposes that psychotherapists and counselling therapists be added to the list of health care practitioners whose professional services rendered to individuals are exempt from the GST/HST.
This measure would apply on royal assent of the enacting legislation.
Joint Venture Election
The government is seeking stakeholders' views and comments on the below proposed new Goods and Services Tax/Harmonized Sales Tax (GST/HST) joint venture election rules. These consultations will allow for stakeholders' views to be taken into consideration prior to finalizing the design of the new rules and the tabling of enacting legislation.
Draft legislative proposals with respect to these measures will be released for public consultation in the draft legislation section of the Department of Finance website.
The federal government invites Canadians and stakeholders, including Indigenous governments, organizations and associations, to share their feedback on these proposals by emailing Consultation-Legislation@fin.gc.ca by March 15, 2024.
A joint venture is a commercial arrangement in which participants work together on a project or venture. Typically, each participant contributes resources (property, services or money) to the venture and thereby obtains a right of mutual control or management, a joint interest in assets or products that are the subject matter of the venture, a liability for expenses and a right to revenues. One participant generally acts as an operator that is responsible for the day-to-day operations of the joint venture.
Under the GST/HST, a joint venture is not a person and therefore cannot register and account for tax. Instead, under the general GST/HST rules, each participant would account separately for their proportionate share of tax that is collectible, payable or recoverable in the course of their joint venture activities. This can make tax accounting complex for participants.
To simplify tax accounting, a joint venture participant that is a registrant (the operator) can make an election (a joint venture election) with another participant (the co-venturer) if the activities under their joint venture agreement are eligible activities set out in subsection 273(1)Footnote 1 or prescribed activities in the Joint Venture (GST/HST) Regulations. The election, or a revocation of the election, must be made in prescribed form, contain prescribed information and specify the effective date.
During the period that a joint venture election is in effect between the operator and the co-venturer, the following measures generally apply:
- property or a service that is supplied, acquired, imported or brought into an HST participating province by the operator on behalf of the co-venturer under the joint venture agreement is deemed to be supplied, acquired, imported or brought in by the operator and not by the co-venturer;
- a supply of property or a service by the operator to the co-venturer under the joint venture agreement is deemed not to be a supply to the extent that the property or service is acquired by the co-venturer for consumption, use or supply in the course of commercial activities for which the joint venture agreement was entered into; and
- the operator and the co-venturer are jointly and severally liable for all GST/HST obligations that result from joint venture activities engaged in by the operator on behalf of the co-venturer.
While the joint venture election can simplify tax accounting for joint venture participants, there are aspects of the current rules that could potentially be improved, including:
- the requirement that the joint venture activities must be eligible activities set out in the legislation or regulations, as this means that the simplification benefits of the election may not be available in respect of some commercial joint ventures;
- allowing participants that are not registered for GST/HST purposes to make the election, as non-registered persons are generally not required to account for tax; and,
- deeming the operator to supply and acquire property and services that are in fact supplied and acquired by other participants in the joint venture, as this could create uncertainty about how other GST/HST rules may apply in a joint venture context.
Proposed New Joint Venture Election Rules
To allow more participants in commercial joint ventures access to the simplification benefits of the joint venture election, new joint venture election rules are proposed. Key elements of these proposed new rules include:
- replacing the condition that the joint venture activities must be eligible activities set out in the legislation or regulations with an all or substantially all commercial activities condition (within the meaning of the GST/HST legislation);
- requiring all electing participants to be registered for GST/HST purposes; and,
- replacing existing deeming measures with revised deeming measures that are more precisely focused on tax accounting.
Making or Revoking the Election
Under the proposed new rules, a qualifying operator and a qualifying participant in a qualifying joint venture could jointly make or revoke a joint venture election. Only one person could make the election as the qualifying operator in respect of a qualifying joint venture at any given time.
- A qualifying joint venture would be a joint venture that is not a person under the GST/HST; that operates under an agreement that describes the property that is the subject matter of the joint venture, as well as the activities, obligations and entitlements of the participants and operator; and for which all or substantially all of the joint venture activities are commercial activities.
- A qualifying operator would be a specified person that is resident in Canada, has reporting periods that are fiscal months, is not a bankrupt and is either a qualifying participant or a person designated as the operator of the joint venture under the joint venture agreement that has primary responsibility for the operational control over the carrying on of the day-to-day operations of the joint venture.
- A qualifying participant would be a specified person that is a participant in the joint venture and that contributes resources for consumption, use or supply in the course of the joint venture activities and thereby obtains an interest in the property that is the subject matter of the joint venture and a right of mutual control or management of the joint venture.
- A specified person would be a person that is registered for GST/HST purposes, is engaged all or substantially all in commercial activities and is not a public sector body or listed financial institution.
For a qualifying operator and a qualifying participant to make an election or revocation under the proposed new rules, the details of the election or revocation, including the effective date, would have to be filed in prescribed manner with the Canada Revenue Agency. An election would cease to have effect on the day on which a person that made the election no longer meets the conditions for making it, such as if the person ceased to be registered.
Effects of the Election
If an election under the proposed new joint venture election rules were in effect between a qualifying operator (hereafter the operator) and a qualifying participant (hereafter the participant), the measures described below would generally apply.
Supplies Made on Behalf of the Participant
If the operator makes a supply (other than a supply described in Subdivision C or D of Division II) on behalf of the participant in the course of the joint venture activities,
- section 177 (agents) would not apply to the supply;
- tax collectible in respect of the supply or an amount charged or collected by the operator on behalf of the participant as or on account of tax in respect of the supply would be deemed to be collectible, charged or collected by the operator and not by the participant for purposes of determining net tax of the operator and participant, and for applying section 222 (trust for amounts collected);
- the operator would account for any related adjustments under the bad debt rules in section 231 and the credit note rules in section 232; and,
- for purposes of the filing frequency rules in section 249, the threshold amounts of the operator and participant would be determined as if any consideration in respect of the supply that became due or was paid to the participant, had become due or had been paid to the operator.
Tax Payable to the Receiver General
If tax is payable by the participant to the Receiver General under section 219 or 220.09 or subsection 228(4) in respect of property or a service that is acquired or brought into a participating province by the operator on behalf of the participant for consumption, use or supply, all or substantially all in the course of the joint venture activities, then the operator (rather than the participant) would be required to pay the tax to the Receiver General on or before the day on or before which the operator's return for the reporting period in which the tax became payable is required to be filed, and the tax would be reported by the operator in that return.
Input Tax Credits
If the operator acquires or imports property or a service or brings it into a participating province on behalf of the participant for consumption, use or supply all or substantially all in the course of the joint venture activities, and if tax that is payable or paid by the participant in respect of the supply (other than a supply described in Subdivision C or D of Division II), importation or bringing in, as the case may be, is included in determining an input tax credit of the participant,
- the participant would not be entitled to claim the input tax credit;
- the operator could deduct an amount equal to the input tax credit in determining the operator's net tax;
- if the operator deducts such an amount in determining the operator's net tax for a reporting period, the amount would be deemed to have been claimed by the participant as an input tax credit in the last reporting period of the participant that ended before that time; and,
- if the operator makes a deduction and the participant is thereby deemed to claim the input tax credit, and subsequently a credit note is received or a debit note is issued in respect of an adjustment, refund or credit of an amount of tax, the operator would make any required additions to net tax under paragraph 232(3)(c).
There are tax adjustment measures (particularly under Subdivision C and D of Division II) that variously deem there to be a supply, deem tax to be paid or collected, require an addition to net tax or allow input tax credits to be claimed in specified circumstances. Under the proposed new rules, the default would be that the participants, rather than the operator, would account for these adjustments. For example, a participant would account for GST/HST under the following tax adjustment measures:
- the taxable benefit rules in section 173;
- the allowance and reimbursement rules in sections 174 and 175;
- the capital property change-in-use rules in Subdivision D of Division II; and,
- the input tax credit repayment rules in sections 235 and 236.
Conversely, if the operator is required under the proposed new rules to account for tax on behalf of the participant in respect of a particular supply, acquisition, importation or bringing of property or services into a participating province, the operator (rather than the participant) would be required to also account for related tax adjustments under the following measures:
- the credit and debit note rules in section 232;
- the bad debt rules in section 231;
- the drop-shipment rules in subsection 169(2) and sections 179 and 180; and,
- the forfeiture and extinguished debt rules in section 182.
The question of whether the operator or the participant should account for these and other tax adjustment measures under the GST/HST will be revisited following consultations and in light of information obtained during those consultations.
Supplies by the Operator to the Participant
If the operator supplies property or a service (other than a supply by way of sale of real property) to the participant and the property or service is acquired for consumption, use or supply by the participant all or substantially all in the course of both the joint venture activities and the participant's commercial activities, the supply would be deemed to be made for no consideration.
Joint and Several or Solidary Liability
A person that makes or purports to make the election in respect of an agreement would be jointly and severally, or solidarily, liable for all GST/HST obligations that result from activities carried on under the agreement.
Coming into Force and Transitional Rules
As part of the consultations, the government is seeking views and comments on coming into force considerations for the proposed new joint venture election rules, which are currently proposed to come into force on the day on which the Act enacting the new rules receives royal assent. In addition, the government is seeking views and comments on transitional considerations for the existing rules.
Underused Housing Tax
In Budget 2021, the government announced that it would introduce a national, annual 1-per-cent tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused. The Underused Housing Tax (UHT) took effect on January 1, 2022.
In response to suggestions from Canadians about the implementation of the UHT, the government is now proposing to make several changes to the UHT to help facilitate compliance, while ensuring that the tax continues to apply as intended. These changes are described below.
Draft legislative and regulatory proposals relating to these proposed changes will be released for consultation in the draft legislation section of the Department of Finance website. Following a consultation period, the government intends to bring forward legislation for consideration by Parliament. The federal government invites Canadians and stakeholders, including Indigenous governments, organizations and associations, to share their feedback on these proposals by emailing Consultation-Legislation@fin.gc.ca by January 3, 2024.
Elimination of Filing Requirement for Certain Owners
Currently, every person that, as of December 31 of a calendar year, is an "owner" of residential property in Canada, other than an "excluded owner", is required to file a UHT return for the calendar year in respect of the property.
With limited exceptions, if an owner of a residential property is a corporation or is the owner of the residential property on behalf of a partnership or as a trustee of a trust, the owner must file an annual UHT return in respect of the property. If the entity is substantially or entirely Canadian, however, they may be eligible to claim an exemption from the UHT in their UHT return. Specifically, exemptions may be claimed by:
- A "specified Canadian corporation", which is generally a Canadian corporation having less than 10 per cent of its votes or equity value owned by foreign individuals or corporations;
- A partner of a "specified Canadian partnership", which is generally a partnership whose partners are exclusively "Canadian"; or,
- A trustee of a "specified Canadian trust", which is generally a trust whose beneficiaries are exclusively "Canadian".
To reduce the UHT compliance burden in relation to these Canadian entities, the government is proposing to make "specified Canadian corporations", partners of "specified Canadian partnerships" and trustees of "specified Canadian trusts", "excluded owners" for UHT purposes. As excluded owners, these owners would no longer have UHT reporting obligations.
The government is also proposing to expand the definitions "excluded owner", "specified Canadian partnership" and "specified Canadian trust" to provide UHT filing and tax relief in respect of a broader range of Canadian ownership structures.
These changes would apply in respect of 2023 and subsequent calendar years.
Reduction to Minimum Failure to File Penalties
Currently, the minimum penalty for an individual, who is required to file a UHT return for a residential property but who fails to do so by the filing deadline, is $5,000 per failure. The minimum penalty for a corporation that fails to file by the filing deadline is $10,000 per failure.
The government is proposing to reduce these minimum penalties to $1,000 for individuals and $2,000 for corporations, per failure.
These changes would apply in respect of 2022 and subsequent calendar years.
Exemption for Certain Employee Accommodations
The government is proposing to introduce a new UHT exemption for residential properties held as a place of residence or lodging for employees. This exemption would be available in respect of residential properties located anywhere in Canada other than in a population centre within either a census metropolitan area or a census agglomeration having 30,000 or more residents.
This exemption would apply in respect of 2023 and subsequent calendar years.
Additional Technical Changes
The government is also proposing to introduce other UHT changes of a more technical nature to ensure the UHT applies in accordance with the policy intent and to ensure uniformity of tax statutes. For example, these changes would:
- provide that unitized ('condominiumized') apartment buildings are not "residential property" for UHT purposes, effective in respect of 2022 and subsequent calendar years; and,
- ensure that an individual or a spousal unit can claim the UHT "vacation property" exemption for only one residential property for a calendar year, effective in respect of 2024 and subsequent calendar years.
Additional Time to File 2022 UHT Returns
The deadline for filing the inaugural UHT returns (for the 2022 calendar year) was April 30, 2023. However, on March 27, 2023, the Canada Revenue Agency announced that it would waive penalties and interest provided UHT returns are filed or the UHT is paid by October 31, 2023, effectively giving owners six more months to file.
On October 31, 2023, the Minister of National Revenue announced that this transitional filing relief would be extended by six more months, giving owners until April 30, 2024, to file their 2022 UHT returns. This additional extension is intended to ensure that every effort has been made to inform property owners and help them meet their UHT filing obligations.
UHT returns for the 2023 calendar year will also need to be filed by the normal deadline of April 30, 2024, to avoid penalties and interest.
Previously Announced Measures
The 2023 Fall Economic Statement confirms the government's intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release.
- Legislative proposals released on August 4, 2023, including with respect to the following measures:
- The Carbon Capture, Utilization, and Storage Investment Tax Credit;
- The Clean Technology Investment Tax Credit;
- Labour Requirements Related to Certain Investment Tax Credits;
- Enhancing the Reduced Tax Rates for Zero-Emission Technology Manufacturers;
- Flow-Through Shares and the Critical Mineral Exploration Tax Credit – Lithium from Brines;
- Employee Ownership Trusts;
- Registered Compensation Arrangements;
- Strengthening the Intergenerational Business Transfer Framework;
- The Income Tax and GST/HST Treatment of Credit Unions;
- The Alternative Minimum Tax for High-Income Individuals;
- A Tax on Repurchases of Equity;
- Modernizing the General Anti-Avoidance Rule;
- Global Minimum Tax (Pillar Two);
- Digital Services Tax;
- Technical amendments to Goods and Services Tax / Harmonized Sales Tax (GST/HST) rules for financial institutions;
- Enhancements to the vaping product taxation framework;
- Tax-exempt sales of motive fuels for export;
- Excessive Interest and Financing Expenses Limitations;
- Extending the quarterly duty remittance option to all licensed cannabis producers;
- Revised Luxury Tax draft regulations to provide greater clarity on the tax treatment of luxury items; and,
- Proposed amendments to implement technical tax amendments to the Income Tax Act and the Income Tax Regulations.
- Legislative amendments to implement changes discussed in the transfer pricing consultation paper released on June 6, 2023.
- Tax measures announced in Budget 2023, including:
- The Dividend Received Deduction by Financial Institutions;
- The Clean Hydrogen Investment Tax Credit;
- The Clean Technology Manufacturing Investment Tax Credit; and,
- The Clean Electricity Investment Tax Credit.
- Legislative proposals released on August 9, 2022, including with respect to the following measures:
- Substantive Canadian-Controlled Private Corporations;
- Technical amendments to the Income Tax Act and Income Tax Regulations not yet enacted; and,
- Remaining legislative and regulatory proposals relating to the Goods and Services Tax/Harmonized Sales Tax, excise levies and other taxes and charges announced in the August 9, 2022 release.
- Legislative proposals released on April 29, 2022, with respect to Hybrid Mismatch Arrangements.
- Legislative proposals released in Budget 2021 with respect to the Rebate of Excise Tax for Goods Purchased by Provinces.
- Regulatory proposals released in Budget 2021 related to information requirements to support input tax credit claims under the Goods and Services Tax/Harmonized Sales Tax.
- The income tax measure announced on December 20, 2019, to extend the maturation period of amateur athlete trusts maturing in 2019 by one year, from eight years to nine years.
The 2023 Fall Economic Statement also reaffirms the government's commitment to move forward as required with other technical amendments to improve the certainty and integrity of the tax system.
- Date modified: