CRA finalizes its Memorandum on when transfer payments are taxable consideration

CRA has finalized its GST/HST Memorandum on the issue of when a governmental or other transfer payment is consideration for a supply, with only very minor changes from the previous draft version.

CRA indicates that if there is a direct link between a supply made by the grantee and a transfer payment, the transfer payment is consideration for that supply, and provides various guidelines to assist in that determination.

Sometimes the distinctions drawn are subtle. For example (Example 10), a government department. which is required under its governing legislation to maintain public parks, makes a transfer payment to a grantee so that the grantee will undertake such maintenance: the government department is considered to likely be contracting out to acquire taxable services from the grantee.

On the other hand (Example 11), a government department provides a transfer payment to a grantee to subsidize the construction of low-income housing although, under its governing legislation, it is not required to provide low-income housing but rather has a mandate to fund or otherwise support activities that increase the availability of low-income housing: the government department is not contracting out its responsibilities, so that there may not be a direct link between the funding provided and a supply made by the grantee.

Neal Armstrong. Summary of GST/HST Memorandum 18-4 “Determining Whether a Transfer Payment is Consideration For a Supply” June 2022 under ETA s. 123(1) – consideration.