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Canadian Energy Traders & GST/HST Collection Obligations

Jeremy Scott Tax Law | Canadian Energy Traders & GST/HST Collection Obligations

Over the past few years, there have been many misunderstandings surrounding Canadian energy traders & GST/HST collection obligations. A few of the issues stem back to a 2014 administration’s decision by the Canadian Revenue Agency to take a more restrictive approach to Section 144 of the Excise Tax Act. As a result, it changed how the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) applied to those Canadian energy transactions. Today, many energy traders still do not understand the basics of these tax obligations. For questions about these tax obligations on energy traders in Canada, schedule a consultation with Jeremy Scott Law by calling 902-403-7201 or visiting the website.

Understanding the GST/HST

The Goods and Services Tax (GST) is a tax applied to most goods and services made in Canada. In addition to that, the GST can also be levied on imported and exported goods and services. Some provinces merged their provincial sales tax into the federal GST, resulting in the combined tax known as the Harmonized Sales Tax (HST). Generally, the HST applies to the same transactions as the GST. All GST/HST registrants collect a tax at the current 5% GST rate, while the HST rate does vary from province to province. Any imported or exported goods or services may be subject to the GST/HST, including those involving energy traders.

Almost everyone pays GST/HST on purchases of a taxable supply. A few groups and organizations are exempt from these taxes. The GST/HST registrant must collect taxes on their goods and service provided to customers. Some supplies are considered “zero-rated,” meaning they have a 0% GST/HST rate. Some of those businesses will not have to charge GST/HST and could be eligible to claim Input Tax Credits (ITCs).

Exported Goods from Canada and Taxes

Generally, goods exported from Canada by a Canadian vendor were considered zero-rated. That meant the goods were made available or delivered outside of Canada, and therefore no GST or HST was charged on the items. If the recipient took possession of the goods in the country and they had the intention to export them, the goods could be zero-rated by meeting certain conditions, such as:

  • The vendor must export goods as reasonably expected.
  • The exporter is not a consumer of the goods or services.
  • The individual did not acquire goods for personal use, consumption, or supply before exporting them.
  • Before exportation, goods cannot be processed, altered, or transformed in while waiting in Canada.
  • The vendor has sufficient proof they exported the goods.

Concerning Canadian energy traders & GST/HST collection obligations, gas and oil were considered “zero-rated” goods where the above conditins were met.

Section 144 of the Excise Tax Act

Many traders relied on Section 144 of the Excise Tax Act for their tax obligations. According to Canada’s Justice Law Website, commodities bonded in Canada, meaning not released from the control of Customs, were not subject to the GST/HST until the trader imported those goods into the country. After that point, the GST/HST would apply. For the most part, many individuals believe that goods delivered under the Incoterms, which required a purchaser to import the goods, meant that there is no requirement to charge GST or HST on the sale.

Changes to the Administrative Policies and the Excise Tax Act

However, there has been a policy change with the CRA’s rules. Effectively, Section 144 no longer applies to those goods with supply agreements that are considered long-term agreements. 

All Delivered at Terminal (DAT), Delivered at Place (DAP), and Delivered Duty Unpaid (DDU) Incoterms transactions must meet all GST and HST collection obligations. Tax obligations still apply if the concluded transactions occurred before the goods were imported and remained in the country. According to the CRA, Section 144 specifically applies to those one-time deals that have been subsequent to the importation of goods, with the majority of those goods still considered to be in bond. In reality, those perceived situations by the CRA are not common in the country, leaving many energy exporters with more questions than answers. 

Under the current policy by the CRA, most energy commodities remain subjected to taxes. If the sold goods remained physically in Canada, then the energy trader should charge the GST and HST to the transaction. Some transactions could be exempt. However, energy traders should charge the appropriate GST/HST to avoid penalties from the Canadian Revenue Agency. The changes surrounding the current GST and HST rules and energy traders’ obligations remain complicated. Learn more about these tax obligations by speaking with an experienced lawyer at Jeremy Scott Law. 

Avoiding a Complicated Situation

Energy traders must look at remaining compliant with current GST/HST laws. Some exporters feel that the Excise Tax Act does not act in accordance with the current interpretation of the CRA, meaning that they will continue not to charge GST or HST. With those actions comes the chance of an audit. The current CRA policy focuses on compliance by examining the net tax amounts of energy traders’ GST and HST returns. If non-compliance is determined, it may mean significant consequences in terms of penalties and fees for the exporter. 

The CRA does offer tax amnesty option under the GST/HST Voluntary Disclosure Program to correct any non-compliance in the past. Traders may get a break in the current penalties issued by the CRA, but these voluntary disclosure programs do not fix the current tax obligations. Unfortunately, there is no one specific answer to correct the current situation or remedy any missed tax applications.

Speak To an Experienced Tax Lawyer Today To Learn More

The complication between Canadian energy traders & GST/HST collection obligations remains a massive issue. Many traders still do not clearly understand the law, with some refusing to follow the current administrative policy. The Canadian Revenue Agency remains insistent that Canadian energy traders must make GST and HST on these transactions. Failing to properly apply tax can lead to reassessments of not only the outstanding tax, but also penalties and interest. If you have questions about tax obligations as a Canadian energy trader, contact an experienced tax lawyer at Jeremy Scott Law by calling 902-403-7201. Schedule your consultation today to learn more about your legal rights and obligations.

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The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.