Evidence of meeting #183 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was back.
A video is available from Parliament.
Conservative
Pierre Poilievre Conservative Carleton, ON
Okay. Back to the carbon allowances, the HST does apply to those allowances.
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
The GST/HST is a multi-stage tax that applies to every stage when there's a supply, a sale, in the distribution process.
Those emission allowances would be subject to HST.
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
But as I mentioned, when they are sold between two businesses, the businesses who purchase them are usually businesses that pollute. They are involved in commercial activity whether it's mining, oil and gas, or whatever. These entities are usually considered exclusive in commercial activity, and they can recover the GST/HST they pay on the cost of those allowances through the input tax credit mechanism.
Conservative
Pierre Poilievre Conservative Carleton, ON
Anybody can do that with any product. That's not the question. The question is whether or not the tax does apply to the allowance at any point from production to final purchase.
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
Yes, but an allowance is an input to a large business. The large businesses involved in commercial activity are allowed to claim all the tax they pay on their inputs because they are going to charge tax on their final products when they are sold to a consumer.
Conservative
Pierre Poilievre Conservative Carleton, ON
Then the question is very simply after the rebates of GST/HST are taken into consideration, is GST/HST applied to the carbon allowance, yes or no?
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
The amendment in part 2 of the bill—
Conservative
Pierre Poilievre Conservative Carleton, ON
I know what the amendment is, and if I could finish, it is absolutely fair for us to ask you about the general application of the rules so we might understand the amendments. This is a yes or no question. Either it does apply or it doesn't apply. It can't be neither and it can't be both.
Liberal
The Chair Liberal Wayne Easter
Mr. Mercille may not be in a position today to answer that question, but coming back from the other committee he may be.
Go ahead, Mr. Mercille, the floor is yours.
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
I don't think I can answer by yes or no because in your question you mentioned the word “rebate”. I have not mentioned the word “rebate”.
What the amendment does is that, when a purchaser of an emission allowance from another person acquires that emission allowance, they will have to self-assess the GST/HST on the value of that allowance. When they are doing their return, they are going to do their self-assessment, and then they are going to look at the use of that allowance. That allowance will likely be used in the course of their commercial activity and entitle them to an ITC of the value of the tax they would have self-assessed. At the end, they will remit nothing.
Conservative
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
There's a price. There's a market for it.
Conservative
Pierre Poilievre Conservative Carleton, ON
That's fair. Does the HST, at the end of the day, apply on top of that price?
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
What the amendment does—
Conservative
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
I'm here to describe what is in the bill, so....
Conservative
Pierre Poilievre Conservative Carleton, ON
Yes, but in order for us to understand what's in the bill, we have to understand what the rules are. We need to understand what you're amending before we can understand the amendment itself, and I'm simply asking, does the HST apply on the price of the allowance, yes or no?
November 1st, 2018 / 11:25 a.m.
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
The HST applies, but the purchaser will be allowed, generally, to claim an offsetting input tax credit.
Conservative
Pierre Poilievre Conservative Carleton, ON
Right, and after that offsetting input tax credit is taken into effect, will there at any stage, or by any person or entity, be HST on the allowance, yes or no? What is the net effect?
Liberal
Conservative
Pierre Poilievre Conservative Carleton, ON
Either it does or it doesn't. This is not one of those situations where it could be a maybe.
Liberal
Director General, GST Legislation, Sales Tax Division, Tax Policy Branch, Department of Finance
The emissions allowance is like any other input for a business. When a business is involved exclusively in commercial activity, when it acquires something for whatever product it produces, it is entitled to claim ITC in respect of the tax it paid on the input it used in the course of its commercial activity.
Conservative
Pierre Poilievre Conservative Carleton, ON
Putting aside that entity, will any entity pay HST on the allowance, yes or no?