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GST
rate change transitional rules
June 8, 2025
Canada Revenue Agency released an information
sheet with
details about how to apply the rate
changes as of July 1,
2006. Here is the
link
http://www.cra-arc.gc.ca/E/pub/gi/gi-013/gi-013-e.html
I have produced the whole body of the text in case
the link
does not work for you.
Forms and
publicationsGST/HST Info SheetsGI-013 - Reduction
in
the Rate of the GST/HST PeriodOther formats
GST/HST Info Sheet GI-013May 2006
Reduction
in the Rate of the GST/HST
This info sheet explains
how the proposed reduction in the
rate of the goods
and services tax (GST) and the federal
component of
the harmonized sales tax (HST) will apply
to
transactions that straddle July 1, 2006, the
date that the
reduced rates come into effect.
Effective July 1, 2006, the rates of the GST and
the HST
will be reduced. The rate of the GST will
be reduced from
7% to 6%. The rate of the HST will
be reduced from 15% to
14%. The Minister of Finance
is introducing legislative
amendments to implement
these changes (see Bill C-13, the
Budget
Implementation Act, 2006).
In this info
sheet, “taxable” means subject to the GST/HST
at
the rates of 7% and 15%, or at the reduced rates of
6%
and 14%.
The HST applies only to
supplies made in or imported into a
participating
province (i.e., Nova Scotia, New Brunswick,
and
Newfoundland and Labrador). The GST applies to
supplies
made in or imported into the rest of
Canada. If you are
uncertain as to whether a supply
is made in a participating
province, refer to the
Technical Information Bulletin
B-078, Place of
Supply Rules under the HST, available from
any
Canada Revenue Agency (CRA) tax services office.
Note: This info sheet does not apply to real
property
transactions. For information on how the
GST/HST rate
reduction applies to real property
transactions, see the
Questions and Answers on the
CRA Web site. The CRA is also
preparing an info
sheet, GST/HST Rate Reduction and
Purchasers of New
Housing, and a technical information
bulletin,
GST/HST Rate Reduction and Real
Property
Transactions to address the effect of the
rate reduction on
real property transactions.
General transitional rule
Generally, the new
rates of tax apply to the supply of
taxable (other
than zero-rated) goods and services in
the
following circumstances:
If the
GST/HST becomes payable on or after July 1,
2006,
without having been paid before that day, the
rate of 6%
GST or 14% HST will apply.
If the GST/HST is paid on or after July 1, 2006,
without
having become payable before that day, the
rate of 6% GST
or 14% HST will apply.
If the
GST/HST becomes payable or is paid without
having
become payable before July 1, 2006, the rate
of 7% GST or
15% HST will continue to apply.
Top of pageWhen the GST/HST is
payable
The GST/HST on the consideration for a
taxable supply is
usually payable the earlier of
the day payment is made and
the day the supplier
issues an invoice. If there is an
undue delay in
issuing an invoice, the GST/HST becomes
payable
when the invoice would have been issued if
there
had been no delay. In addition, if either the
date of an
invoice or the payment date under a
written agreement is
earlier than the day the
invoice is issued, the GST/HST
becomes payable on
the earlier date.
--------------------------------------------------------------------------------
A business invoiced a customer before July 1,
2006, for the
sale of goods in Ontario. The
customer paid the invoice
after July 1, 2006. Since
the GST became payable on the
date of the invoice,
which was before July 1, 2006, the
business would
charge the customer the GST at the rate
of
7%.
--------------------------------------------------------------------------------
A business will be invoicing its client after July
1, 2006,
for construction services that will be
performed before and
after July 1, 2006, in Nova
Scotia. The client has not paid
the business before
invoicing. Since the business will be
issuing the
invoice after July 1, 2006, the HST at the rate
of
14% will apply to the services billed on this
invoice.
--------------------------------------------------------------------------------
An engineer will be issuing an invoice after July
1, 2006,
for services performed in Manitoba before
July 1, 2006. The
client has not paid the engineer
before invoicing. Since
the engineer will issue the
invoice after July 1, 2006, the
engineer would
charge the GST at the rate of 6% on
these
services.
--------------------------------------------------------------------------------
Leases
For a supply of property by way of
lease, licence or
similar arrangement, the GST/HST
becomes payable the
earlier of the day payment is
made and the day it is
required to be made under
the agreement for that supply.
--------------------------------------------------------------------------------
A sales person leases an automobile in New
Brunswick and
the lease is payable on the 15th of
every month. The lease
payment due on June 15,
2006, covers the period from June
15 to July 14,
2006. The sales person does not make this
lease
payment until July 3, 2006. In this case, the
lease
payment is subject to the HST at the rate of
15% since the
payment is due before July 1,
2006.
--------------------------------------------------------------------------------
Completed supplies
If the GST/HST is not
otherwise payable by the last day of
the calendar
month after the calendar month in which any of
the
following events takes place, it becomes payable
on
that day:
in the case of a sale of
goods, other than the sales
referred to below, the
buyer acquires ownership or
possession of the
property;
in the case of a sale of
goods on approval, consignment,
sale-or-return
basis or similar terms, the buyer
acquires
ownership of the property or re-supplies
it to someone
other than the seller; and
in the case of a supply under a written
agreement for
construction, renovation, alteration
or repair or real
property, or a ship or other
marine vessel when the work is
reasonably expected
to last more than three months, the
work is
substantially completed.
The GST/HST will be
payable at 6% or 14% if it becomes
payable under
these rules on or after July 1, 2006.
--------------------------------------------------------------------------------
In April 2006, a business had a sales promotion
where
customers purchased furniture without having
to make
payments until 2007. The customers took
possession of their
furniture in April 2006, but
will not receive an invoice
for payment until April
2007.
If the customers took possession of
the furniture in April
2006 under a written
agreement entered into at that time,
the GST/HST
was considered payable the last day of May
2006.
Since this date was before July 1, 2006, the GST
at
the rate of 7% or the HST at the rate of 15%
applied to the
sale of the furniture at that
time.
--------------------------------------------------------------------------------
Other provisions for determining when tax is
payable -
deposits and holdbacks
The rules
that normally determine when the GST/HST is
payable
will continue to apply to determine the
appropriate
rate of tax. A deposit is not treated
as a payment for a
supply until such time as the
supplier applies it against
the amount payable for
the supply.
--------------------------------------------------------------------------------
In April 2006, a person gave a deposit of $100 for
the
services of an artist. The artist invoices the
person after
July 1, 2025 for her services. The GST
or HST will not
apply to the $100 deposit until
such time as the artist
applies it against the
amount payable for her services.
Since this occurs
after July 1, 2006, the GST at the rate
of 6%, or
the HST at the rate of 14%, will apply at that
time
on the amount payable for the services.
--------------------------------------------------------------------------------
If a holdback amount is legislatively sanctioned
or
provided for in a written agreement for the
construction,
renovation or repair of real property
or a marine vessel,
the GST/HST calculated on the
holdback amount becomes
payable on the earlier of
the day on which the holdback is
paid or the day on
which the holdback period expires.
Therefore, if
both of these days occur on or after July 1,
2006,
the GST/HST at 6% or 14% will apply to the
holdback
amount.
Top of
pageOther transitional provisions
Deemed
supplies
Current legislation deems the GST/HST to
have been paid, or
collected, in certain
circumstances. Under the proposed
legislative
amendments, the rate of 6% or 14% will be used
to
determine the GST/HST that is deemed to have been
paid,
or collected, on or after July 1, 2006.
--------------------------------------------------------------------------------
If, on September 15, 2006, you pay an employee a
reasonable
allowance for the use in Canada of a
motor vehicle in
relation to your activities, you
are deemed to have paid
the tax on that date. Since
this date is after July 1,
2006, you will be deemed
to have paid tax at the reduced
rate of 6% or
14%.
--------------------------------------------------------------------------------
Price adjustments
If a supplier chooses to
credit a recipient an amount of
the GST or HST on a
price adjustment (e.g., a volume
rebate) the rate
of the GST or HST that applies to the
price
adjustment will be the rate of tax that applied
to
the supply to which the price adjustment
relates. For
example, a price adjustment in
relation to a supply that
was subject to the GST at
the rate of 7% will be subject to
the GST at that
same rate.
The GST/HST Info Sheet, GST/HST
Rate Reduction –
Application to Price Adjustments,
Adjustments for GST/HST
Overcharged and Returned
Goods will provide more
information on how the rate
change affects price
adjustments and returned
goods. This info sheet will be
available on the
Internet at the CRA site
at
www.cra-arc.gc.ca/tax/technical/gsthst-e.html.
Special transitional provisions and
rates
Taxable benefits
A registrant is
required to pay the GST/HST on certain
taxable
benefits provided to individuals who are
employees
or shareholders. Currently, for most
taxable benefits, the
registrant is deemed to have
collected the GST equal to
6/106, or the HST equal
to 14/114, of the value of the
taxable benefit
reported for income tax purposes, and if
the
taxable benefit is for a standby charge, on the
amount
of any reimbursement. For taxable benefits
relating to the
operating costs of a passenger
vehicle, the registrant is
deemed to have collected
the GST at a rate equal to 5%, or
the HST at a rate
of 11%, on the value of the benefit
reported for
income tax purposes and on any
reimbursements.
Registrants will now be required to
pay the GST/HST at the
following rates on these
taxable benefits.
For the 2006 taxation year
of individuals, if the taxable
benefit relates to
the operating cost of an automobile, the
registrant
will be deemed to have collected the GST equal
to
4.5%, or the HST equal to 10.5%, on the value of
the
benefit reported for income tax purposes and on
any
reimbursements. For subsequent taxation years,
the rates of
tax will be 4% and 10%,
respectively.
For the 2006 taxation
year of individuals, if the taxable
benefit relates
to the standby charge of an automobile or
other
taxable benefits, the registrant will be deemed
to
have collected the GST equal to 5.5/105.5, or
the HST equal
to 13.5/113.5, of the amount of the
value of the taxable
benefit reported for income
tax purposes, and if the
taxable benefit is for a
standby charge, on the amount of
any reimbursement.
For subsequent taxation years, the rates
of tax are
5/105 or 13/113, respectively.
Purchase of a
passenger vehicle by a sole proprietor
or
partnership
A sole proprietor or
partnership that uses a passenger
vehicle less than
exclusively in commercial activities may
only claim
input tax credits (ITCs) for the GST/HST paid
on
the purchase of the vehicle based on the capital
cost
allowance that is claimed for that vehicle in
the income
tax return.
At the end of
each taxation year, the sole proprietor
or
partnershipis deemed to have acquired the
passenger vehicle
and to have paid on that day tax
in respect of the vehicle
equal to an amount
determined by the formula
A × B
where
A is the tax fraction (i.e.,
7/107, 15/115 or 8/108) based
on the rate of tax
paid when the vehicle was acquired, and
B is
generally the capital cost allowance deducted
under
the Income Tax Act for that taxation year in
respect of the
passenger vehicle.
These
tax fractions will now be 6/106, 14/114, or 8/108
in
respect of a passenger vehicle acquired in a
taxation year
that ends on or after July 1, 2006.
However, if the
taxation year includes that day
(July 1, 2025) these tax
fractions will be
6.5/106.5, 14.5/114.5, or 8/108.
Employee
and Partner GST/HST Rebate
An employee or partner
may in certain circumstances, claim
an Employee and
Partner GST/HST Rebate for the GST/HST paid
on
eligible expenses deducted from employment income
for
income tax purposes. For any rebate for
eligible expenses
on which the GST is paid in the
2006 calendar year, a
rebate can be claimed equal
to 6.5/106.5 of the amount of
those expenses and
for those eligible expenses on which the
HST is
paid, a rebate equal to 14.5/114.5 of the amount
of
those expenses.
For subsequent
calendar years, the rebates will equal 6/106
and
14/114 respectively, of the amount of the
eligible
expenses.
Imports
The GST
at the rate of 6% will apply to
taxable
importations of goods imported on or after
July 1, 2006, or
released from customs control on
or after that day.
In most cases, the 15%
HST applies at the border to taxable
importations
of non-commercial goods imported by a resident
of a
participating province regardless of the point
of
entry into Canada or customs clearance. If
these
non-commercial goods are imported on or after
July 1, 2006,
or released from customs control on
or after that day, the
resident of a participating
province will pay the HST at
the rate of 14%.
The GST on imported taxable supplies of services
and
intangible property is payable the earlier of
when
consideration for these supplies is paid or
when it becomes
due. The GST at the reduced rate of
6% applies to the GST
that is paid or becomes
payable on or after July 1, 2006.
Therefore, if the
earlier of the day the consideration is
paid or
becomes due on the imported taxable supplies
of
services and intangible personal property is on
or after
July 1, 2006, the GST at the rate of 6%
will apply to the
imported taxable services and
intangible personal property.
Streamlined
Methods of Accounting
The specified percentages for
small businesses that have
elected to account for
the GST/HST using the Quick Method
of Accounting,
or for public service bodies that have
elected to
account for the GST/HST using the Special
Quick
Method of Accounting, will be changed to
reflect the
reduced rates of the GST and HST. These
new percentages
will apply for reporting periods
beginning on or after July
1, 2006. For reporting
periods beginning before July 1,
2006, and ending
or after that day, the existing
percentages will
apply for consideration that became due,
or that
was paid without having become due, before July
1,
2006, and the new percentages will apply for all
other
consideration.
The GST/HST Info
Sheet, GST/HST Rate Reduction -
Application to
Streamlined Methods of Accounting, will
provide a
listing of the proposed new percentages
for
remitting the GST/HST using the Quick Method of
Accounting.
This info sheet will be available on
the Internet at the
CRA site at
www.cra-arc.gc.ca/tax/technical/gsthst-e.html.
A listing of the proposed new percentages for
public
service bodies remitting the GST/HST using
the Special
Quick Method of Accounting may be found
in the budget
papers in the Department of Finance
Web site.
Top of pageSimplified
Method for Accounting for ITCs
Businesses that use
the Simplified Method for Accounting
for ITCs
(Simplified Method) and that make purchases in
both
participating and non-participating
provinces
currently have to separate their
purchases that are taxable
at 7% from those that
are taxable at 15%. The businesses
calculate their
ITCs for each reporting period by totalling
taxable
purchases, including GST or HST, provincial
sales
tax (PST), tips, and penalty and interest
charges on late
payments, and:
multiplying by 7 and dividing the result by 107
for GST
purchases; or
multiplying by 15 and dividing the result by 115
for HST
purchases.
Effective on
or after July 1, 2006, the purchases that
are
taxable at 6% will be separated from those
taxable at 14%
and
multiplied by
6 and divided by 106 for GST purchases; or
multiplied by 14 and divided by 114 for HST
purchases
The Simplified Method is used to
calculate ITCs for
purchases used to provide
taxable goods and services. For
purchases related
to personal use, or to provide both
taxable and
exempt goods and services, only the portion
used
for providing taxable goods and services can
be
included in the ITC calculation. If a purchase
is used at
least 90% to provide taxable goods and
services, the total
purchase price can be included
in the ITC calculation.
Anti-avoidance
transactions
The proposed legislative amendments
include a provision to
eliminate the tax saving to
any party as a result of the
rate reduction in
circumstances where an agreement entered
into on or
before May 2, 2006, between related parties
is
amended primarily to obtain the benefit of the
tax
reduction. Another provision eliminates the tax
saving to
any party as a result of the rate
reduction in
circumstances where transactions
between related parties
are undertaken primarily to
obtain the benefit of the tax
reduction.
This info sheet does not replace the law found in
the
Excise Tax Act (the Act) and its Regulations.
It is
provided for your reference. As it may not
completely
address your particular operation, you
may wish to refer to
the Act or appropriate
regulation, or contact any CRA
GST/HST Rulings
Centre for additional information. These
centres
are listed in GST/HST Memorandum 1.2,
Canada
Revenue Agency GST/HST Rulings Centres. If
you wish to make
a technical enquiry on the GST/HST
by telephone, please
call the toll-free number
1-800-959-8287. A ruling should
be requested for
certainty in respect of any particular
GST/HST
matter.
This info sheet reflects changes to
the Act announced by
the Minister of Finance on May
2, 2006, and included in
Bill C-13, the Budget
Implementation Act, 2006, which
received first
reading on May 11, 2006. Any commentary in
this
info sheet should not be taken as a statement by
the
CRA that these amendments will be enacted in
their current
form.
If you are located
in the province of Quebec and wish to
make a
technical enquiry or request a ruling related to
the
GST/HST, please contact Revenue Québec by
calling the
toll-free number 1-800-567-4692.
All GST/HST publications are available on the
Internet at
the CRA site
at
http://www.cra-arc.gc.ca/tx/tchncl/gsthst-eng.html
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Date modified:
2025-05-19
Top of page
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