CRA rules that emission allowances issued under the Quebec cap and trade regime constitute “emission allowances” for GST/HST purposes

ETA s, 221(2.1) indicates that a supplier of an “emission allowance” is not required to collect GST/HST on the supply. The Finance Explanatory Notes indicate that the recipient is required to account for the tax on the supply, but in most cases would not have any amount to remit because of an offsetting input tax credit.

The Environment Quality Act (Quebec) provides for the issuance (pursuant to a cap and trade system) by the Quebec Minister of “offset credits” representing greenhouse gas (GHG) emission removals and reductions (measured in metric tonnes of CO₂ equivalents) generated from verified projects, as well as other “emission allowances,” which may be used by a GHG emitter to “cover” its GHG emissions, or traded to another emitter or another “participant” (e.g., an exchange) for use to cover purchasers' emissions.

CRA ruled that the emission allowances issued by the Minister satisfied the “emission allowance” definition in s. 123(1), so that subsequent supplies constituted supplies of emission allowances for GST/HST purposes.

Neal Armstrong. Summary of 31 January 2024 GST/HST Ruling 245426 under ETA s. 123(1) - emission allowance.