2023 Federal Budget: Sales And Excise Tax Measures

• Jurisdiction: Canada
• Law Firm: Stikeman Elliott LLP
• Subject Matter: Finance and Banking, Tax, Financial Services, Income Tax, Sales Taxes: VAT, GST
• Author: Mr Jean-Guillaume Shooner, Vanessa Clusiau and Antonin Lapointe
• Published date: 20 April 2023

On March 28, 2023 ("Budget Day"), the Government of Canada unveiled its budget ("Budget 2023"), which proposes a number of new sales and excise tax measures as well as confirming the Government's intention to proceed with several other significant measures that had been announced previously.

The highlights of Budget 2023 from a sales and excise tax standpoint are set out below.

1. Financial Services: GST/HST Treatment of Payment Card Clearing Services

On January 22, 2021, the Federal Court of Appeal overturned the Tax Court of Canada's dismissal¹ of a Canadian bank's appeal in connection with the bank's claim for GST/HST rebates for tax paid in error.² While the Tax Court had originally found that what was characterized to be a single supply "of a payment platform and facilitating payments on that platform"³ provided by Visa Canada for the credit cards issued by the bank constituted a taxable supply, the Federal Court of Appeal was of the view that such supply was an exempt "financial service" that was not otherwise excluded pursuant to any of the specific exclusionary paragraphs (the "Exclusionary Paragraphs") in the definition of that term in subsection 123(1) of the Excise Tax Act (the "ETA").

In this respect, the federal government appears to be of the view that this decision runs contrary to what has always been the "widely understood" position to the effect "that the services of payment card network operators are excluded from the GST/HST definition of 'financial service'." Budget 2023 accordingly proposes to amend the definition of "financial service" in subsection 123(1) of the ETA to ensure that payment card clearing services rendered by payment card network operators are subject to GST/HST. This objective is achieved through the proposed addition of paragraph (r.6) to the definition of "financial service" as a brand-new Exclusionary Paragraph:

(r.6) a service (other than a prescribed service) that is supplied by a payment card network operator in respect of a payment card network (as those terms are defined in section 3 of the Payment Card Networks Act) and that is

• a service in respect of the authorization of a transaction in respect of money, an account, a credit card voucher, a charge card voucher or a financial instrument,
• a clearing or settlement service in respect of money, an account, a credit card voucher, a charge card voucher or a financial instrument, or
• a service provided in conjunction with a service referred to in subparagraph (i)...