CRA confirms that there is no GST/HST on a fee charged for the cancellation of an exempt supply agreement

Although there is no general rule that deems a fee charged for the cancellation of an agreement to make an exempt supply to also be consideration for an exempt supply, this is not a problem. CRA acknowledges that compensation or indemnification for damages is not consideration for a supply, so that there is no GST/HST on general principles. ETA s. 182, which deems the compensation received by the supplier of taxable supplies for the termination of the related agreement to be taxable, does not apply to the termination of an agreement for making an exempt supply.

Neal Armstrong. Summary of 7 December 2016 Ruling 158637 under ETA s. 123(1) – supply, s. 182(1), and s. 232(1).