Insights & Resources

GST/HST Treatment of Payment Card Clearing Services

Budget 2023 proposes to amend the GST/HST definition of “financial service” to clarify that payment card clearing services rendered by a payment card network operator are excluded from the definition to ensure that such services generally continue to be subject to the GST/HST.

This measure would apply to a service rendered under an agreement for a supply if any consideration for the supply becomes due, or is paid without becoming due, after Budget Day. This measure would also apply to a service rendered under an agreement for a supply if all of the consideration for the supply became due, or was paid, on or before Budget Day, except in certain situations, generally being where the following two conditions were both met:

(1) the supplier did not, on or before Budget Day, charge, collect or remit any amount as or on account of tax in respect of the supply; and

(2) the supplier did not, on or before Budget Day, charge, collect or remit any amount as or on account of tax in respect of any other supply that is made under the agreement and that includes the provision of a payment card clearing service.

Alcohol Excise Duty 

Under the Excise Act and the Excise Act, 2001, alcohol excise duties are automatically indexed to total Consumer Price Index (CPI) inflation at the beginning of each fiscal year (i.e., on April 1st). Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at 2%, for one year only, as of April 1, 2023.

Cannabis Taxation – Quarterly Duty Remittances

The federal government imposes an excise duty on cannabis products, which is generally remittable on a monthly basis. Budget 2022 brought forward a measure that allowed certain smaller licensed cannabis producers to remit excise duties on a quarterly basis. Budget 2023 proposes to allow all licensed cannabis producers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter beginning on April 1, 2023.

Other Prosposals

Automatic Tax Filing

To ensure more low-income Canadians have the ability to quickly and easily auto-file their tax returns, Budget 2023 announces that the federal government will increase the number of eligible Canadians for File My Return to two million by 2025—almost triple the current number. The government will report on its progress in 2024.

Budget 2023 also announces that, starting next year, the Canada Revenue Agency will pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the Canada Revenue Agency will present a plan in 2024 to expand this service even further.

General anti-avoidance rule

 The general anti-avoidance rule (“GAAR”) in the Income Tax Act is intended to prevent abusive tax avoidance transactions while not interfering with legitimate commercial and family transactions. If abusive tax avoidance is established, the GAAR applies to deny the tax benefit created by the abusive transaction.

Budget 2023 proposes to amend the GAAR by:

• Introducing a preamble to help address interpretive issues and ensure that the GAAR applies as intended;
  Changing the avoidance transaction standard to a “one of the main purposes” test;
• Introducing an economic substance rule;
• Introducing a penalty equal to 25% of the amount of the tax benefit; and
• Extending the reassessment period in certain circumstances

A penalty would be introduced for transactions subject to the GAAR, equal to 25% of the amount of the tax benefit. Where the tax benefit involves a tax attribute that has not yet been used to reduce tax, the amount of the tax benefit would be considered to be nil. The penalty could be avoided if the transaction is disclosed to the Canada Revenue Agency, either as part of the proposed mandatory disclosure rules or voluntarily. As such, a consequential amendment would be made to the proposed reportable transaction rules to permit voluntary reporting. Avoid hidden charges in credit card merchant fees by choosing a reputable provider. 

Provincial Public Accounting

The federal government values the need for transparency and accountability in public reporting. In a November 2022 report, the Auditor General of Ontario identified challenges in performing her audit of Ontario’s Public Accounts due to limitations on her access to taxpayer data used in estimating provincial corporate income tax revenue. The government will work with the Government of Ontario to develop viable solutions to address this issue