GST General Principles

• Author: Blake M. Murray and Sean Aylward
• Profession: Partners, Osler, Hoskin & Harcourt LLP
• Pages: 597-614

Chapter Twenty-Two

GST General Principles

Blake M. Murray and Sean Aylward

A. OVERVIEW

The goods and services tax (the “GST”) is a value added tax (VAT) applied

on final consumption and is generally similar to the European value added

tax (“VAT”). Like the VAT, the GST is a multi-stage sales tax collected at

each stage in the supply process and provides an offsetting credit for taxes

paid on business inputs by most firms.

The GST was enacted as Part IX of the Excise Tax Act (Canada) (the

“ETA”) and came into effect on January 1, 1991. The requirement to collect

GST will depend on the status and activities of the supplier and the nature

of the goods or services to be provided. The provision of goods and services

(referred to as supply) is classified as either a taxable supply, zero-rated sup-

ply or exempt supply.

GST at the rate of seven percent applies on the value of the considera-

tion paid or payable by the purchaser of a taxable supply of property or of

services made in Canada. An additional tax known as the harmonized sales

tax (“HST”) at the rate of eight percent applies on the value of the consid-

eration where a supply is made in New Brunswick, Nova Scotia and New-

foundland. In the case of taxable supplies made in Canada, although legal

liability is imposed on the purchaser, the GST generally is required to be

collected by the vendor (registrant) as an agent of the Crown. GST also

applies to all imported goods and is payable by the importer at the time of

importation at seven percent of the duty paid value of the goods. In addi-

597

tion, GST and HST may apply on a self-assessment basis to the importa-

tion of intangible personal property or a service that is not used in a com-

mercial activity. Virtually every transaction is brought within the potential

ambit of GST. “Tax is the rule, exemption the exception.” Relief from tax is

extended to supplies which are made or deemed to have been made outside

Canada, zero-rated supplies, exempt supplies and certain other limited sit-

uations (such as on the sale of a business and under the group relief pro-

visions). Certain goods and services, such as exports, are completely

relieved from tax as “zero-rated” supplies. Other goods and services defined

as “exempt supplies” such as financial services, and used residential hous-

ing are not taxable to the recipient, but the supplier is not entitled to recov-

er the GST it paid on its inputs for these supplies.

Each of these concepts is now discussed in greater detail.

B. TAXABLE SUPPLIES

The basic charging provision for the GST is found in s. 165 of the ETA. Sec-

tion 165 provides that every recipient of a “taxable supply” . . . “made in

Canada” is required to pay tax in respect of the supply equal to seven per-

cent1of the value of the consideration for the supply. Section 221 of the ETA

in turn provides that every person who makes a taxable supply in Canada

is required, as agent of the Crown, to collect tax payable by the recipient.

Taken together, these provisions operate to impose on every supplier

an obligation to collect and on every purchaser an obligation to pay GST in

respect of the consideration for “taxable supplies” made in Canada.

The vast majority of supplies made in Canada are “taxable supplies.” A

supply is determined to be a “taxable supply” under the ETA if it is:

(i) a “supply”;

(ii) “made in Canada”; and

(iii) made in the course of a “commercial activity.”

These statutory provisions underpinning the imposition of GST are is con-

sidered below.

ADVOCACY AND TAXATION IN CANADA598

1 “Zero-rated” supplies are taxable supplies which are taxed at the rate of 0 percent.

Consequently, while the recipient is not liable to pay tax on the consideration for such

supplies, the supplier is able to recover all GST paid on inputs through the input tax

credit mechanism.