Excise and GST/HST News - No. 108 September 2020

Forgivable loans under CECRA program

Under the CECRA program, CMHC will provide an unsecured forgivable loan to an eligible commercial property owner who enters into a rent reduction agreement that reduces an impacted small business tenant’s monthly gross rent payable by at least 75% for the 4-month period of April, May, June and July 2020. …

No GST/HST collectible by CMHC on forgivable loans

There is no GST/HST applicable with respect to payments received by the commercial property owners from CMHC under the CECRA program. …

The forgivable loans provided by CMHC under the CECRA program are exempt supplies of financial services. …

Brief description of the CECRA program

Under the CECRA program, CMHC will provide an unsecured forgivable loan to an eligible commercial property owner who enters into a rent reduction agreement that reduces an impacted small business tenant’s monthly gross rent payable by at least 75% for the 4-month period of April, May, June and July 2020. …

The amount of the forgivable loan will equal 50% of the monthly gross rent payable by the impacted small business tenant during the 4-month period. Generally, as a condition of the forgivable loan, the commercial property owner must use the full amount of the loan in either refunding or adjusting any amount in excess of 25% of the monthly gross rent payable during the 4-month period that was paid or payable by the impacted small business tenant. Generally, the remaining part of the refund or adjustment (that is, the difference between the amount of the rent reduction and the amount of the forgivable loan) must be borne by the commercial property owner. …

No GST/HST collectible by CMHC on forgivable loans

GST/HST implications

There is no GST/HST applicable with respect to payments received by the commercial property owners from CMHC under the CECRA program. …

The forgivable loans provided by CMHC under the CECRA program are exempt supplies of financial services. …

Requirement to follow s. 232 re rent reductions

Application of GST/HST to refunds or adjustments of the gross monthly rent paid or payable

The rent reduction agreement … has the effect of reducing the amount of consideration payable for a taxable supply of real property made by way of lease, licence or similar arrangement … .

… [P]ursuant to a rent reduction agreement, a commercial property owner agrees to subsequently reduce an impacted small business tenant’s monthly gross rent payable by at least 75% for the 4-month period. Pursuant to section 232 … in this case where a commercial property owner agrees to refund or credit an amount of GST/HST already collected, or agrees to adjust the GST/HST applicable to the reduction of the monthly gross rent payable, the commercial property owner must issue a credit note, meeting the prescribed requirements that are set out in the Act, to the impacted small business tenant.

Where a credit note is issued, the parties must adjust their net tax remittance accordingly in order to reflect that, in accordance with the CECRA program, GST/HST is applicable to only 25% (or less) of the monthly gross rent payable by the impacted small business tenant.

Services of osteopathic manual practitioner (other than an osteopathic physician) not exempted]

Manual osteopathy is not recognized as a regulated health profession in any province or territory in Canada. As such, the conditions in paragraphs (b) or (c) of the definition of practitioner cannot be met. Therefore, supplies of osteopathy services rendered by manual osteopathic practitioners do not meet the conditions for exemption in paragraph 7(f) of Part II of Schedule V … .

B.C. sales tax on vapour products is included in the value of the consideration

Although taxes imposed under BC’s Provincial Sales Tax Act are in most cases prescribed and therefore excluded from the consideration for a supply, the new provincial sales tax rate of 20% on sales and leases of vapour products exceeds BC’s specified tax rate of 12% set out in the Regulations. As such, it is not a prescribed tax and is therefore included in the value of the consideration for the supply of vapour products in BC.

CRA’s existing policy re drugs with mixed substances is consistent with Patterson Dental

[Patterson Dental held] that the supply of epinephrine in combination with an analgesic in the appellant’s solutions was not a single supply containing a taxable element and a zero-rated element, and was therefore not zero-rated … .

The FCA also determined that, even if the anesthetic solutions sold by the appellant were to be regarded as such a supply, the case law had established that the zero-rated element of a mixture had to be the principal element in a supply in order for the supply to be zero-rated. In the case of the anesthetic solutions sold by the appellant, even though epinephrine was an important element in the appellant’s anesthetic solutions, the FCA held that it was not the main or predominant element, and that the local anesthetic was the main element.

The CRA’s existing policy regarding the application of the GST/HST to drugs that are mixed substances or solutions is consistent with the decisions of the Courts.