CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 30.

Supplier agrees to deliver 100 widgets to the Recipient at $10 per widget, but is only able to obtain 20 widgets. An action of the Recipient is settled by Recipient agreeing to release Supplier from all damages in exchange for a payment of $100 and for the provision by the Supplier of 20 widgets at no cost. CRA agreed that s. 182 would not apply, and that (under "general taxing concepts"), as the damages payment "appears to be entirely compensatory and is not linked to a supply of property or services," it would not be subject to GST/HST, regardless of it being made partly in kind (i.e., widgets valued at $200).

Supplier agrees to deliver 100 widgets to the Recipient at $10 per widget, but is only able to obtain 20 widgets. An action of the Recipient is settled by Recipient agreeing to release Supplier from all damages in exchange for a payment of $100 and for the provision by the Supplier of 20 widgets at no cost. CRA agreed that s. 182 would not apply, and that (under "general taxing concepts"), as the damages payment "appears to be entirely compensatory and is not linked to a supply of property or services," it would not be subject to GST/HST, regardless of it being made partly in kind (i.e., widgets valued at $200).