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Ottawa, February 20, 2001
2001-017

Legislation to Amend the Excise Tax Act Introduced

Related documents:

• Backgrounder.
• Amendments to the Excise Tax Act - Explanatory Notes.
• Notice of Ways and Means Motion to amend the Excise Tax Act.

Secretary of State (International Financial Institutions) Jim Peterson, on behalf of Finance Minister Paul Martin, today tabled in the House of Commons a detailed Notice of Ways and Means Motion to amend the Excise Tax Act.

The Notice mainly contains measures relating to the goods and services tax and harmonized sales tax. This Notice reintroduces the measures tabled in the House of Commons on October 4, 2000, which include sales tax initiatives that were proposed in the 2000 budget.

In addition to the previous measures, the Notice tabled today includes the following new proposals (described further in the attached backgrounder):

• a refinement to the existing New Housing Rebate, which would qualify a new single-family dwelling for the rebate where it is used primarily as a place of residence by the owner as well as to provide short-term accommodation to the public in certain circumstances, as is the case with many bed-and-breakfast establishments;

• amendments clarifying the application of the existing excise taxes on automobile air conditioners and on new heavy automobiles; and

• an amendment allowing the Minister of National Revenue to waive or cancel interest (or penalties calculated in the same manner as interest) under the excise tax system, consistent with the authority already provided under the sales tax and income tax systems.

Detailed explanatory notes relating to these measures were also released today. The Notice of Ways and Means Motion and explanatory notes are available free of charge on the Department of Finance Web site at the address shown below. Printed copies of the Notice and explanatory notes are available for $10 each and may be obtained by calling the Department of Finance Distribution Centre at (613) 943-8665.

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Backgrounder

New Housing Rebate

Refinements are proposed to certain provisions dealing with the New Housing Rebate, which would address an anomaly that currently results in certain new single-family dwellings not being eligible for the rebate. Sections 254 and 256 of the Excise Tax Act provide for a partial rebate of sales tax paid by an individual on acquiring a newly constructed home or on a self-built home. Section 254.1 of the Act provides for a rebate to the purchaser of a newly constructed house who leases from the builder, on a long-term basis, the land on which the house is built. One of the conditions to be eligible for a New Housing Rebate under any of these provisions is that the home must be considered a "single unit residential complex." The proposed amendments broaden the definition of that term in each of the rebate provisions.

The existing definition of "single unit residential complex", for purposes of the New Housing Rebate, includes a multiple unit residential complex only if it does not contain more than two residential units (e.g., a duplex). "Residential unit" is defined to include a suite or room in a hotel, motel, inn, boarding house, lodging house or similar premises. Therefore, a single-family dwelling that contains two or more rooms that are used for purposes of supplying short-term accommodation to the public, such as in the case of many bed-and-breakfast establishments, falls within the definition of a "multiple unit residential complex" and thus does not qualify for the New Housing Rebate since it contains more than two residential units.

The proposed amendments extend the definition of "single unit residential complex" for purposes of the New Housing Rebate provisions to permit homes used primarily as a place of residence of the owner or a relation of the owner to qualify for the rebate even if the dwelling is also partially used to provide short-term accommodation to the public in certain circumstances.

These amendments are proposed to be effective June 1, 1997. In particular, the amendment to subsection 254(1) applies to new residential complexes, the ownership of which is transferred after May 1997. The amendment to subsection 254.1(1) applies to new residential complexes, the possession of which is given after May 1997. The amendment to subsection 256(1) applies to newly constructed or substantially renovated residential complexes where the construction or renovation is not substantially completed until after May 1997.

The effective date of these proposed amendments corresponds to the relevant date in an earlier court case in which the court decided that the new house in question, for which a bed-and-breakfast licence was obtained, qualified for the New Housing Rebate. Since that decision was not precedential, the proposed amendment ensures that there is no uncertainty as to homeowners’ entitlement to the rebate in other similar circumstances.

Excise Taxes on Automobile Air Conditioners and Heavy Automobiles

The Notice of Ways and Means Motion tabled today includes proposed amendments to the Excise Tax Act to clarify the application of the existing excise taxes on automobile air conditioners installed as original equipment in imported motor vehicles and on new heavy automobiles.

Since the mid-1970s, excise taxes have been imposed on automobile air conditioners and heavy automobiles. These taxes are imposed on the manufacturer or deemed manufacturer of the goods at the time of delivery to a purchaser. Importers and wholesalers of new motor vehicles are included in the definition of manufacturer. Importers of new motor vehicles are deemed to be manufacturers of the goods and the goods are deemed to be manufactured in Canada.

The effect of these provisions is to defer payment of excise taxes to the time of delivery of vehicles to automobile dealers. Where vehicles are sold to another licensed manufacturer (whether an actual or deemed manufacturer), relief is provided from the tax that would otherwise be payable at the time of delivery, since the purchasing manufacturer will be liable for the tax at the time of the subsequent delivery to its customer.

Some manufacturers have challenged the operation of these provisions of the law in the case of automobile air conditioners installed in imported vehicles. They have suggested that the deferral of the excise tax at the time of importation is, in effect, a permanent exemption. The effect of this interpretation would be to exempt from excise tax air conditioners installed in imported vehicles while tax would continue to be imposed on all automobile air conditioners installed in Canada.

Importers, manufacturers and deemed manufacturers have applied these provisions in a consistent manner in accordance with the policy intent for more than a decade, since the old federal sales tax and excise taxes were amended to tax motor vehicles at the wholesale trade level in the mid-1980s. Clearly, the recently suggested alternative interpretation of the legislative provisions reflects neither the policy intent nor the long-standing interpretation and application of these provisions. Amendments are being proposed to remove any doubt as to the operation of the relieving provisions, including the provision dealing with the deferral of the excise taxes at the time of sale from one licensed manufacturer to another.

These amendments are proposed to be effective from January 1, 1994. Retroactive application of these amendments is consistent with the criteria the federal government laid out in the Response to the Seventh Report of the Standing Committee on Public Accounts in 1995.

Waiver or Cancellation of Interest or Penalties

An amendment is proposed to add to the Excise Tax Act new section 88, which would allow the Minister of National Revenue to waive or cancel interest, or a penalty calculated in the same manner as interest, that is otherwise payable under the non- GST/HST parts of the Act. Those parts of the Act deal with excise taxes on specific products. This measure would achieve greater harmonization of the administrative rules under the excise tax system with those under the sales tax and income tax systems, which already provide for this ministerial discretion.

Consistent with the manner in which this discretionary power has been exercised under the sales tax and income tax systems, the Minister would have the ability to waive interest in circumstances such as where, despite a taxpayer’s best efforts and as a result of extraordinary circumstances beyond the taxpayer’s control, the taxpayer has been prevented from complying with the legislation and has thereby incurred the interest and/or penalty.

It is proposed that the new provision apply with respect to amounts that would otherwise become payable on or after the day this legislation receives Royal Assent.