Goods and Services Tax Law

Canada is one of about 120 countries that impose a consumption tax or "value added tax" on goods and services, having introduced its Goods and Services Tax (GST) in 1991. (France introduced the first V.A.T. in 1954.)

GST law is contained in the Excise Tax Act and administered by the Canada Revenue Agency (CRA), which until 2003 was called the Canada Customs and Revenue Agency (CCRA).

This 7% federal tax applies on most goods and services supplied in Canada. Visitors to Canada (for up to 60 days) can apply to have their tax refunded, while Aboriginals are exempt from payment.

A small number of goods and services are exempt, such as used residential housing; most health, medical and dental services; day care; music lessons; and certain goods and services provided by non-profit organizations, governments, and other public service bodies.

Still other goods and services are "zero rated" or taxable at 0% such as basic groceries, prescription drugs, exports, and any property or service that is for the use of the Governor General— (From a consumer's point of view, there is no difference between zero-rated and exempt goods and services, because no tax is charged in either case. However, there is a difference for those registered to collect GST from end users and to remit it to the federal government, because they can claim "input tax credits" on zero-rated goods and services.)

Three provinces, namely New Brunswick, Nova Scotia, and Newfoundland and Labrador, combined their provincial sales taxes with the GST to create a harmonized sales tax or HST, which applies to the same base of goods and services. The single 15% tax is composed of an 8% provincial portion and the 7% GST.

Unlike laws governing income tax, the thrust of GST laws is on the tax collectors rather than the taxpayers. That's because the merchants or service providers who sell goods and services are in charge of collecting GST payments and remitting them to the federal government. Hence, GST law deals in large part with registering under the Act, filing returns and calculating tax credits.

The similarity to other tax laws is in the complexity. The rules contain exceptions to the exceptions. For example, small businesses whose profits are less than $30,000 per year are not required to register and file. But some businesses, such as taxi and limousine services, are not covered by this exception.

Consider the following two paragraphs, which are contained in several pages of regulations governing taxi and limousine operators:

"If you have another business that provides taxable goods and services other than your taxi or limousine business, you have to determine if you have to register your other business. To do so, total your taxable revenues from all of your businesses including the total taxable revenues of all your associates. Call us if you need help to determine if you are associated with another person.

"You do not have to register your other business if your total taxable revenues from all of your businesses, including your taxi or limousine business, are: $30,000 or less in the last four consecutive calendar quarters; or $30,000 or less in a single calendar quarter. If you choose not to register your other business, do not collect GST/HST on those sales and do not claim any input tax credits for business purchases that relate to your other business."

If you operate a business in Canada, you need to know about the GST/HST and keep abreast of frequent amendments to the legislation. The CRA provides guidebooks on many aspects of GST law, but a tax lawyer is indispensable when you encounter the devil in the details.

John Jaffey is a staff writer for The Lawyers Weekly