Important GST/HST Developments From 2018

Sales tax continues to be an important consideration in nearly all transactions and the Canada Revenue Agency (CRA) continues to scrutinize those transactions with a view to extract more revenues for the government coffers. There have been a number of key developments in the GST/HST case law in 2018 that are noteworthy for practitioners in the corporate-commercial space. Below, we have provided a highlight of the relevant cases in our year in review.

Secured creditors have priority over CRA where the bankrupt is a GST/HST debtor

Callidus Capital Corporation v. HMQ (SCC) clarifies that once a borrower files for bankruptcy a secured creditor is not subject to the CRA's deemed trust super-priority with respect to the property of a borrower.1Callidus confirms that, in such cases, the CRA loses its deemed trust and is treated as an unsecured creditor with respect to its claim to unremitted GST/HST. For a detailed summary of Callidus, view our bulletin from November 2018.

Cross-border transactions — RVs sold outside Canada; RV parts inside Canada

The "place of supply" is an important issue in cross-border transactions, as supplies of property and services "made" outside of Canada do not attract GST/HST. Jayco is a timely reminder of the importance of well-drafted agreements that clearly establish the place of supply of goods and services for cross-border transactions.2 Care must be taken to ensure that the parties' intentions regarding the place of supply complies with the applicable sale of goods legislation (both inside and outside of Canada) as it relates to each specific supply.

Jayco, Inc. is a major manufacturer of RVs and related parts for sale with a network of authorized dealers throughout North America, including Canada. In JayCo, Inc. v. R., the Canadian RV dealers purchased RVs and parts from the Jayco, Inc. who delivered the RVs to dealers "ready to ship" at its U.S. factory, then arranged for shipping into Canada.The Tax Court of Canada (TCC) was asked to determine whether the RVs and parts sold to the Canadian dealers took place in Canada or the U.S. If it were the latter, no GST/HST would need to have been charged on the sale. Justice D'Aurey closely examined the various agreements between the parties and the applicable Canadian and U.S. sale of goods law before concluding that the sale of RVs took place in the U.S. pursuant to Indiana's sale of goods law whereas the part sales took place in Canada and were subject to GST/HST.

The...