Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 200835
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION – Emission Allowance
Thank you for your correspondence of July 2, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of emission allowances. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
INTERPRETATION REQUESTED
You would like to know if the definition of “emission allowance” set out in subsection 123(1) is now in effect and whether the definition includes offsets which can be issued by private companies. In addition, you would like to know whether the supplier or recipient is responsible for remitting the GST/HST on the sale of these offsets.
Further, if these offsets are excluded from the definition of emission allowance set out in subsection 123(1), you would like to know if the Canada Revenue Agency (CRA) will extend the definition of “emission allowance” in future to include carbon offsets issued by private companies.
INTERPRETATION GIVEN
The definition of "emission allowance" set out in subsection 123(1), deemed to have come into force on June 27, 2018, means:
(a) an allowance, credit or similar instrument (other than a prescribed allowance, credit or instrument) that
(i) is issued or created by, or on behalf of,
(A) a government, a government of a foreign country, a government of a political subdivision of a country, a supranational organization or an international organization (each of which is in this definition referred to as a "regulator"),
(B) a board, commission or other body established by a regulator, or
(C) an agency of a regulator,
(ii) can be used to satisfy a requirement under
(A) a scheme or arrangement implemented by, or on behalf of, a regulator to regulate greenhouse gas emissions, or
(B) a prescribed scheme or arrangement, and
(iii) represents a specific quantity of greenhouse gas emissions expressed as carbon dioxide equivalent, or
(b) a prescribed property (Footnote 1)
Whether a carbon offset is an emission allowance as defined in subsection 123(1) is a question of fact and a determination is made on a case-by-case basis on a complete set of facts. For a carbon offset to meet the criterion in subparagraph (a)(i) of the definition emission allowance, it must be issued or created by, or on behalf of, a government or an international organization (a "regulator") or by a body established by, or an agency of, a regulator. For example, where the applicable legislation governing these instruments states that the instrument is issued or created by a designated or appointed employee of, a body established or an agency of a government or international organization.
Where a carbon offset is issued or created by a private company who is not doing so on behalf of entity described above, it will not meet the definition of emission allowance set out in subsection 123(1). As such, the general rule for the collection and remittance of tax applies under subsection 221(2) and the GST/HST registrant supplier is required to collect from the purchaser the GST/HST payable on a taxable supply of such an instrument and remit it to the CRA.
The CRA is responsible for the administration of the ETA and its Regulations, as passed by Parliament. An amendment to the ETA would be required to expand the definition of “emission allowance” set out in subsection 123(1). Legislative amendments are a matter of tax policy, which falls within the responsibility of the Department of Finance.
Should you have a factual situation that involves the sale of a specific carbon offset, we invite you to submit a ruling request including all of the details relevant to the transaction.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-550-1665. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Alison Jones
Special Projects Unit
Public Services Bodies and Governments Division
GST/HST Rulings Directorate
FOOTNOTES
1 At the current time, no property is prescribed.
Email this Content