Which Governments Pay Which Taxes? Recent Changes in Canada
This article written byLisa McIntosh, first appeared in CCH's Provincial tax News newsletter no. 6, dated November 2011.
Since the implementation of the GST, the federal government and the provincial governments have, for the most part, continued to observe reciprocal taxation agreements that govern the tax relationships between jurisdictions.
The federal Government of Canada, including all federal government departments, collects GST/HST on taxable, other than zero-rated, supplies made by it. The federal government has its own GST registration number which appears on invoices issued by federal government departments.
It is the federal government’s policy to pay its own tax. Therefore, GST/HST generally applies to federal government purchases of taxable goods and services, with few exceptions. When goods are imported from unregistered, non-resident vendors, the Federal Government Departments Remission Order relieves the government from having to pay GST/HST at the border.
Similarly, each of the provincial and territorial governments is registered for GST/HST and collects tax on any taxable supplies.
Certain provincial and territorial governments have agreed to pay GST/HST on their taxable purchases. These provinces are: British Columbia (effective July 1, 2010), New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario (effective July 1, 2010), Prince Edward Island, and Nunavut. However, other provincial governments—namely Alberta, Manitoba, Saskatchewan, Northwest Territories, Quebec, and the Yukon —are exempt from paying GST/HST on their purchases. This extends to departments, ministries, Crown corporations, commissions, boards, and agencies of these governments which are listed in the reciprocal taxation agreements. Lists of exempt provincial and territorial bodies may be obtained from local Canada Revenue Agency Tax Services offices.
Due to the reimplementation of a provincial sales tax in British Columbia, as expected in April 2013, British Columbia will likely, once again, be exempt from paying GST/HST on their taxable purchases. Consequently, all provincial bodies previously exempted from paying the tax prior to July 1, 2010 will likely be exempt from GST/HST subsequent to the reimplementation date. However, until further Information is released by British Columbia regarding this particular exemption, there remains a possibility that the exemption will not be reintroduced.
Provincial governments that are exempt from paying GST/HST on their purchases should issue a “certificate” on their purchase documents to receive point-of-purchase relief. The certificate wording should be similar to the following:
______________________ [Name of Provincial/Territorial Government Department or Institution], and are not subject to GST/HST.
The exempt status of otherwise taxable supplies made to certain provincial governments has no effect on a supplier’s eligibility for input tax credits with respect to inputs incurred in the course of its commercial activities.
Sales to municipalities are generally subject to GST/HST. However, municipalities are generally entitled to a 100% rebate of the GST or federal component of the HST paid. On any provincial component of the HST paid, municipalities are generally eligible for a rebate of 75% in British Columbia, 57.14% in New Brunswick and Nova Scotia, and 78% in Ontario. There is no rebate available for the provincial component of the HST paid by municipalities located in Newfoundland and Labrador.
Provincial Sales Tax
The Government of Canada is registered in each province to collect provincial sales tax on all taxable supplies. Pursuant to the reciprocal taxation agreements, the federal government currently does not pay provincial sales tax, including QST, on taxable purchases. However, as part of an agreement on the further harmonization of the QST with the GST, the federal government has agreed to commence paying QST on its purchases of taxable supplies, starting on April 1, 2013.
Vendors making otherwise taxable sales to the federal government should obtain the purchaser’s tax registration number on a valid federal government purchase order or record the registration number on the sales invoice in order to support the exempt status of the transaction. Note that federal Crown corporations and agencies are generally required to pay provincial sales taxes.
Each of the provincial governments with its own provincial sales tax collects that tax on taxable sales and, with the exception of Quebec and certain Prince Edward Island government entities (as of April 1, 2006), pays its own tax. A list of exempt government entities in Prince Edward Island can be found in Revenue Tax Guide 168, “Revenue Tax Exemption for the Province of Prince Edward Island”. In addition, as part of the agreement on further harmonization noted above, Quebec will be required to pay QST on its own taxable purchases starting on April 1, 2013.
Municipalities are generally registered and required to collect applicable provincial sales taxes, including QST, on any taxable sales made by them. It is interesting to note that, unlike the GST/HST rebates discussed above, Quebec municipalities, and non-profit organizations providing quasi-municipal services, are currently not entitled to QST rebates in respect of tax paid on inputs to municipal services. However, the province has announced its intention to introduce municipal rebates which will operate in a manner similar to those in place for GST purposes by January 1, 2014.
Government Issued Credit Cards
For GST/HST purposes, the Canada Revenue Agency does not require an exemption certificate if payment is made using a provincial government credit card, provided the invoice is issued to an exempt provincial government. Consequently, employees of a provincial government can pay for hotels and meals, in the course of official provincial business, using their government credit card, as long as the invoice is issued to the government. However, employees are not relieved from GST/HST when paying with a personal credit card or cash. The provincial government exemption does not extend to purchases made by employees in their own name.
Provincial governments have their own requirements for exempt credit card purchases. Quebec government employees may make exempt purchases with a Government of Quebec credit card. However, purchases made with credit cards in an employee’s own name are not exempt, even if the purchase is made in relation to government business. Saskatchewan and Prince Edward Island require a government issued purchase order. In Manitoba, as noted above, the federal government’s tax registration number must be quoted on the invoice to support the exemption.
Other Consumption Taxes
The governments of Canada and Quebec, and their corporations and agencies, generally pay the specific taxes payable in respect of certain properties and services, including those applicable to alcoholic beverages, fuel, tobacco, insurance premiums, lodging, and new tires.
The following lists recent tax developments by jurisdiction. Recently issued documents are available on the Provincial Tax News Tracker on CCH Online. For a summary of new or revised content in each Provincial Tax Reporter, see also What’s New pages for each Reporter on CCH Online.
The Fall sitting of the 4th session of the 27th Legislature resumes November 21, 2011.
Forms and Publications