On March 28, 2023, the Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland, tabled the budget for the 2023-2024 fiscal year (Budget).

In this insight, we briefly discuss the new indirect tax measures announced in the Budget.

Income Tax and Goods and Services Tax/Harmonized Sales Tax (GST/HST) Treatment of Credit Unions

Under the existing legislation, if a credit union earns more than 10% of its revenue from sources other than certain specified sources (such as interest income from lending activities), it would not meet the definition of “credit union” and the income tax and GST/HST rules governing credit unions would no longer apply to it. This could arise even though the credit union’s governing legislation permits it to earn revenue from these other sources.

The Budget  proposes to amend the Income Tax Act (Canada) by eliminating the 10% test from the definition of “credit union” and amending that definition to accommodate how credit unions currently operate. The amendment would apply in respect of taxation years of a credit union ending after 2016.

GST/HST Treatment of Payment Card Clearing Services

The Budget 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, by adding exclusionary paragraph 123(1)(r.6) in the Excise Tax Act (Canada) (ETA).  

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.

Based on the Notice of Ways and Means Motion to amend the ETA, the Minister of National Revenue may assess, reassess or make an additional assessment of any amount payable or remittable by a person in respect of a supply referred to in the new exclusionary paragraph (r.6) of the definition of financial service in subsection 123(1) of the ETA at any time on or before the later of the day that is one year after the day on which the legislation enacting the proposed change receives royal assent and the last day of the period otherwise allowed under the ETA for making the assessment, reassessment or additional assessment.

Alcohol Excise Duty

The Budget 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. The new proposed excise duty rates on all alcoholic beverages are presented in the Budget. 

The proposed measure would come into force on 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. The 2022 Budget brought forward a measure that allowed certain smaller licensed cannabis producers to remit excise duties on a quarterly basis.

The Budget 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.

Air Travellers Security Charge

The Air Travellers Security charge (ATSC) came into effect in April 2002 to fund the air travel security system, including the Canadian Air Transport Security Authority (CATSA), which is the federal authority responsible for the security screening of air passengers and their baggage. The ATSC is generally paid by passengers when they purchase airline tickets. For transborder and international travel, the ATSC generally applies only to flights departing from Canada.

The Budget proposes to provide $1.8 billion over five years, starting in 2023-24, to maintain and increase CATSA’s level of service, improve screening wait times, and strengthen security measures at airports. To support financing of this proposal, the Budget proposes to increase ATSC rates by 32.85%. The new proposed ATSC rates are presented in the Budget.

The proposed new ATSC rates will apply to air transportation services that include a chargeable emplanement on or after May 1, 2024, for which any payment is made on or after that date.

Previously Announced Measures

The Budget confirms the government’s intention to proceed with the following previously announced indirect taxes and related measures, as modified to take into account consultations and deliberations since their release:

• Legislative and regulatory proposals relating to the GST/HST, excise levies and other taxes and charges announced in the August 9 release;

• Legislative proposals released on February 4, 2022, with respect to the GST/HST treatment of Cryptoasset Mining;

• Measures confirmed in the 2016 Budget relating to the GST/HST Tax joint venture election.

The Budget 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.

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For more information on this topic, please contact your Dentons Indirect Tax advisors, Manon Jubinville, Camille Janvier-Langis and Dragann Mallette.