On April 16, 2024 (“Budget Day”), the federal government released its annual budget (“Budget 2024”), which includes certain sales and excise tax measures and also confirms the government’s intention to proceed with several other measures that had been announced previously.

The highlights of Budget 2024 from a sales and excise tax standpoint are set out below.

Extending the Enhanced GST Rebate to Student Residences

To promote affordable housing, the federal government recently granted a full Goods and Services Tax (“GST”) break with respect to certain newly constructed purpose-built long-term rental projects.

This tax incentive consists of an “enhanced” (100% of GST otherwise payable) new residential rental property rebate (the “Enhanced Rebate”) for qualifying new purpose-built rental housing projects. The rebate applies to the extent construction started after September 13, 2023 (but before 2031), with final completion occurring before 2036 (the “Construction Timelines”).

Existing rules applying to educational institutions

Under existing rules in Part IX of the Excise Tax Act (“ETA”), educational institutions (e.g., universities, public colleges, and school authorities) that qualify for the general Public Service Body rebates are not eligible for the current new residential rental property rebate in respect of new student housing they provide. The main reason is that the GST rebate rules require that a unit’s first use be as the primary place of residence for an individual under a lease for a period of at least 12 months which is unlikely to be the case as housing is generally offered to students for shorter periods. Moreover, these Public Service Bodies only incur GST/HST on their construction expenses but are not subject to the self-supply rules applicable to other builders which would also trigger the final GST payment amount on which the new residential rental property rebate is then calculated.

How Budget 2024 changes the rules

Budget 2024 proposes to modify the ETA and its regulations to allow universities, public colleges, and school authorities operating on a not-for-profit basis to claim the Enhanced Rebate, by allowing them to apply the normal GST/HST self-supply rules that apply to other builders, in respect of new student housing projects to the extent they also meet the Construction Timelines. Pursuant to the proposed amendments, new student residences will qualify if their purpose is primarily to offer a place of residence for their students and leases for a period of at least 12 months will no longer be required.

Repeal of Zero-Rating Treatment for Face Coverings

Considering the temporary GST/HST relief for face coverings in relation to the COVID-19 pandemic is no longer necessary, Budget 2024 proposes to repeal the zero-rating treatment of certain face masks or respirators and certain face shields. The proposed measure would apply to supplies made on or after May 1, 2024.

Tobacco and Vaping Products

Budget 2024 proposes to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates for other tobacco products. The proposed measure would come into force as of April 17, 2024. June 30, 2024 will be the deadline to file a return and pay the inventory tax.

The following proposed measures for tobacco products would come into force on the first day of the month following royal assent to the enabling legislation.

• Although there is currently no limit on importation of packaged raw leaf tobacco for personal use pursuant to the Excise Act, 2001, Budget 2024 proposes to limit imports to 2500 grams.
• Budget 2024 also announces the government’s intention to replace the regulatory process with respect to prescribed qualifying brands of tobacco products that can be exported without markings and the imposition of a special excise duty. Under the proposal, the Minister of National Revenue will be authorized to specify the brands eligible for the special excise duty and marking requirement exemption.
• Certain persons prescribed by regulation may obtain excise stamps for tobacco products or vaping products to be provided to non-resident manufacturers for future importation of “stamped products” into Canada. Currently, information returns must be filed each month by persons obtaining excise stamps for vaping products but not for tobacco excise stamps. A new requirement to file information returns for prescribed persons obtaining tobacco excise stamps is proposed in Budget 2024.

With respect to vaping products, Budget 2024 proposes to increase the excise duty rate, which increase would also apply to the additional duty imposed in respect of participating jurisdictions under the coordinated vaping product taxation regime (“CVPT”). The proposed measure would come into force on July 1, 2024 (i.e., the effective date for the introduction of the CVPT regime for Ontario, Quebec, the Northwest Territories, and Nunavut). Notably, separate excise duty rates of $2.24 per 2 ml or fraction thereof for the first 10 ml of vaping substance, and $2.24 per 10 ml or fraction thereof for amounts over the first 10 ml would be applicable in such CVPT jurisdictions.

First Nations Goods and Services Tax Act

Budget 2024 includes a proposal to amend the First Nations Goods and Services Tax Act (“FNGSTA”) to provide additional flexibility to First Nations governments. The amendments would allow such governments to enact a sales tax on fuel, alcohol, cannabis, tobacco, and vaping (“FACT”) products within reserves or settlement lands. The FACT sales tax would be similar to the First Nations Goods and Services Tax, including applying at the same 5% GST rate, although limited to FACT products. Indigenous governments would have the choice to levy FACT sales taxes to be implemented through negotiated tax administration agreements with the federal government.

Previously Announced Sales and Excise Tax Measures

As is now customary, Budget 2024 confirms the government’s intention to proceed with a number of notable previously announced sales and excise tax measures. For each of these measures, it is expected that the government will take into account any subsequent consultations and deliberations since their release. These measures notably include:

• March 9, 2024 legislative proposals to extend by two years the 2 per cent cap on the inflation adjustment on beer, spirit, and wine excise duties, and to cut by half for 2 years the excise duty rate on the first 15,000 hectolitres of beer brewed in Canada.
• Legislative proposals announced in the 2023 Fall Economic Statement relating to:
  • The GST/HST joint venture election rules. The draft proposals add a brand new section to the ETA implementing a joint venture election with stringent rules in comparison with the existing election. While such legislative proposals were initially intended to expand the scope of the joint venture election to all commercial activities and simplify GS/HST compliance for all joint venturers, many stakeholders have warned the government that the way the proposals may be ultimately implemented could have an opposite pernicious effect.
  • The addition of psychotherapists and counselling therapists to the list of health care practitioners whose professional services rendered to individuals are exempt from GST/HST.
  • The application of the Enhanced Rebate to qualifying co-operative housing corporations.
• Legislative and regulatory amendments to implement the Enhanced Rebate for purpose-built rental housing announced on September 14, 2023.
• Legislative proposals released on August 4, 2023, including with respect to the following measures:
  • The Income Tax and GST/HST Treatment of Credit Unions;
  • Technical amendments to GST/HST rules for financial institutions;
  • Providing relief in relation to the GST/HST treatment of payment card clearing services;
  • Enhancements to the vaping product taxation framework;
  • Tax-exempt sales of motive fuels for export; and
  • Revised Luxury Tax draft regulations to provide greater clarity on the tax treatment of luxury items.
• Remaining legislative and regulatory proposals relating to the GST/HST, excise levies and other taxes and charges announced in the August 9, 2022 release.
• Regulatory proposals released in Budget 2021 related to information requirements to support input tax credit claims under the GST/HST.

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