Commodity tax and customs practice encompasses the HST, provincial sales taxes, customs and excise, and related matters. Because the area is so specialized, commodity tax lawyers often practice within the whole range of services, from solicitor–client mandates to advocacy up to and including the Supreme Court of Canada. (In June 2018, the Canadian Minister of Finance issued Explanatory Notes Relating to the Excise Act.1)
Commodity Tax Amendments
In June 2014, the federal government enacted changes to the election rules under section 15 of the Excise Tax Act (ETA), which deals with closely related persons; to the joint venture election rules; and to the rules regarding GST and HST registration.
Section 156 Election Amendments
Section 156 of the ETA allows certain closely related corporations and partnerships (qualifying members of a qualifying group) to make a GST/HST election to supply each other without collecting the GST/HST.
The definition of “qualifying member,” however, has been somewhat problematic because it did not accommodate a newly created corporation or partnership that did not yet have any assets or make any taxable supplies. Taxpayers got around this by acquiring a single or just a few assets from a related party and paying tax on these assets. The parties would then make a Section 156 Election that allowed them to acquire the remaining assets from the related party without attracting GST/HST.
The problem has been addressed with an amendment to the definition of “qualifying member” so that it now embraces registrants who have no property and have not made taxable supplies if it is reasonable to expect that taxable supplies would be made through the next 12 months and the property subject to tax will be exclusively for the consumption, use, or supply in the course of the registrant’s commercial activities.
GST/HST and Joint Venture Amendments
Previously, the rules allowed participants in certain joint ventures to designate an “operator” as the person responsible for accounting for the taxes on behalf of the co-venturers with regard to the JV. The election, however, was not available for certain activities such as exploration or exploitation of minerals, or the construction and ownership of real property.
The rules have now been amended to allow all participants in a JV to make an election “as long as the activities of the joint venture are exclusively commercial and the participants are engaged exclusively in commercial activities.”
The registration rules have been amended to allow the CRA to force a non-compliant person to register for the GST/HST. Previously, the rules allowed only the CRA to register a taxpayer if the taxpayer had applied for registration.
Apparently, the CRA will continue its practice of contacting a non-registered person asking them to remedy their default. If compliance does not occur, the CRA will send a formal notice advising that registration will occur 60 days from the date of the notice. The non-compliant person will then have 60 days to demonstrate that it is not required to register. If it does not do so, it will be assigned a GST/HST number and thereafter be required to collect and remit the taxes.
Economic Sanctions Enforcement
The Special Economic Measures Act (SEMA) has lain dormant for over 20 years. In 2014, an Alberta-based company, Lee Specialties Ltd., pleaded guilty and paid a C$90,000 fine for violating the statute by attempting to export controlled goods valued at C$15 to the Islamic Republic of Iran. The charges followed on the Canada Border Service Agency’s detention of a Lee’s shipment of Viton O-rings, items whose export to Iran was prohibited because they fell under the Iranian sanctions regulation as “seals and gaskets made of Viton fluoroelastomers.”
The case is a clear indication that the Canadian government has increased enforcement of economic crimes including the violation of international sanctions laws. Seven countries are currently subject to SEMA sanctions: Iran, North Korea, Syria, Burma, Russia, Ukraine, and Zimbabwe.
- “Explanatory Notes Relating to the Excise Tax Act.” Department of Finance Canada, June 2018. https://www.fin.gc.ca/drleg-apl/2018/eta-lta-0618-n-eng.pdf.