CRA considered, and declined, extending its wash-trading policy to supplies made to municipalities
In assessing a “wash transaction,” CRA will automatically waive a significant portion of the interest that was assessable (or all of it, in the context of a voluntary disclosure). However, Memorandum 16-3-1 states that municipalities, which are eligible for 100% GST rebates, are not considered to have received a wash transaction. When asked for the rationale, CRA indicated that it had reviewed this policy 10 years ago and had decided:
to maintain the original tax policy intent of the wash transaction policy whereby it would continue to only possibly apply for recipients involved in commercial activities and entitled to claim full ITCs. The wash transaction policy was not intended to apply to all circumstances where there is no net loss of revenues for the government.
CRA also noted:
… Municipalities in participating provinces may be entitled to a PSB rebate of 100% of the federal part of the HST but only entitled to a lesser percentage of the provincial part of the HST.