Federal Budget 2023: Indirect tax measures

Tara: Hi, I'm Tara Benham, National Tax Leader at Grant Thornton. I'm joined by Sarah Noftell, our Indirect Tax Leader, who is going to talk to us about indirect tax measures introduced in the Federal Budget 2023. Thanks for joining me, Sarah.

Sarah: Hi, Tara, happy to be here to provide some insight.

Tara: So, the 2023 Federal Budget was announced on March 28th. We saw a number of indirect tax measures. Sarah, what can you tell me about the changes introduced and the impact of these changes?

Sarah: Yes. In this year's budget, the federal government announced its intention to introduce new legislation to eradicate forced labor from Canadian supply chains and strengthen the import ban on goods produced using forced labor by 2024. What this means is businesses will need to know and document where their goods and the underlying raw materials are coming from. Based on similar measures introduced recently in the United States, we might see shipments in the electronics, textiles and other industries held at the border or even denied entry.

Tara: Well, in this one I think is a bit of a sleeper. You wouldn't think that there's a lot in there. But I do have a client who is seriously affected by the U.S. change. They have a whole bunch of inventory that is now essentially trapped in Canada and they cannot make goods and send them to the states because they were produced in the wrong portion of China. So what this does is it really highlights how we need to navigate the rules and be prepared to address the supply chain vulnerabilities and incomplete documentation that might be there.

Tara: So next on our list is what about the changes to payment processing?
Sarah: Well, in the budget, we see proposals that will make payment card clearing services rendered by a payment card network operators subject to GST or HST. Historically, these were taxed and there was a recent tax court decision which found them to be exempt in some cases. So, this proposal amends the definition of financial service so that it's clarified that these services will be taxed. 

Tara: So really, we're just getting back to what was there before, so it makes sense. We did see some other changes that affect individuals like a new tax on alcohol and travel. What are those?

Sarah: Yes, there were some consumer related measures. So, in a typical year, alcohol excise duty rates increase at a rate that's indexed to inflation, so indexed to the consumer price index. But there was a decision because inflation is so high this year to cap the increase for this year only at 2% rather than the 6.3% increase that would have otherwise come into effect on April 1st. On another consumer front, the air traveler’s security charge is set to increase. The 32.85% increase sounds substantial, but it is notable that this rate has actually not changed in about 13 years. And this particular tax or levy applies to services, including chargeable flight segments after May 1st, 2024.

Tara: So, Bob and Doug McKenzie's lobbying worked. Way to go, Bob and Doug.

Tara: So next, we've got some commentary around Indigenous taxation. What do we see there? 

Sarah: On the Indigenous taxation front, not so much proposed measures, but a number of potential encouragements, including a potential extension of First Nations goods and services, tax on reserve and settlement lands, and enabling the implementation of personal income taxes within interested communities. So, it's important to note that these are voluntary measures where the governments and the communities would work together towards a mutually beneficial agreement. Another framework that is being developed is for the taxation of fuel, alcohol, cannabis, and tobacco. And again, just looking towards further ability for self-determination and revenue generation in interested communities.
And the federal government also reiterated its support to facilitate discussions regarding these tax arrangements between Indigenous governments as well as provincial and territorial governments, and not just the federal government.

Tara: So, it's great to see the federal government acknowledging and working with the Indigenous to create a tax system that is going to work for everybody. And I know that there was an announcement ahead of the budget. What did we hear about UHT?

Sarah: So first, the underused housing tax was actually not mentioned in the federal budget. And I think we were anticipating or maybe hoping for some clarity there. There is still lots of confusion around the wage chair and who is excluded or affected owner. And it's important to get clarity on this. In fact, we even have tax alerts on our website to assist with clarifying and understanding the different tax obligations here. Ahead of the budget, the evening before the CRA released an announcement that provided that returns that are filed by an amount to are paid by October 1st, penalties and interest will be waived up to that point. So, some temporary reprieve from the original April 30th deadline just for this year to allow a little extra time to clarify and understand your filing obligations. 

Tara: Thanks, Sarah. So, from my seat, it really does seem like all of the indirect tax changes are quite substantial. In fact, it really does seem like there's more changes here than there is in the income tax side of things. And I wonder if this is because the government is hearing that consumption taxes are more fair than income taxes, meaning you spend more, you pay more. Interesting thing to ponder. What do you think about that, Sarah?

Sarah: Well, I think there is certainly a trend towards more specific items taxes. So not necessarily an increase in the overall GST rate. The taxes on luxury goods, fuel tobacco, cannabis, as well as some elements of how things.

Tara: Thanks, Sarah.