Good afternoon. My name is Pierre Mercille, and I am the Director General responsible for legislation in the Sales Tax Division of the Department of Finance. Part 2 of the bill amends part IX of the Excise Tax Act to implement amendments to the goods and services tax and the harmonized sales tax. The measure that I will describe is found in clauses 41, 44, 45, 48 and 53 of the bill.
The measure modifies the way the GST/HST that is payable on a sale of a carbon emission allowance in the secondary market is to be accounted for. These allowances or permits are created by government entities and issued to emitters of carbon and other greenhouse gases. At the end of a compliance period, emitters with surplus allowances may sell the surplus to other companies that have exceeded their emissions target. This is the case under a cap-and-trade system, for example.
The supply of these allowances between companies is taxable under the GST/HST. The amendment does not change the amount of GST/HST payable on such a sale, but it provides that the purchaser of the carbon emission allowance is responsible for self-assessing the tax amount. This replaces the previous requirement whereby the seller of the allowance collected the tax from the purchaser and remitted it to the Canada Revenue Agency.
This brings the Canadian rules in line with how these allowances are generally treated internationally, such as in most EU countries where value-added tax applies and where a cap-and-trade system exists. lt should be noted that the companies purchasing these allowances are generally involved in commercial activities and would be generally allowed to claim an offsetting input tax credit.
That concludes my description of the amendments proposed by part 2 of the bill.