Government Adjusts GST/HST Rules for Carbon Emission Allowances

June 27, 2018 – Ottawa, Ontario – Department of Finance Canada

A fair and efficient tax system is an important part of the Government’s commitment to help the middle class and to build an economy that works for everyone. To ensure fairness and efficiency, ongoing adjustments are needed to ensure the rules are functioning effectively.

The Department of Finance Canada today released draft technical changes to the Goods and Services Tax/Harmonized Sales Tax (GST/HST) rules for sales of carbon emission allowances, such as those traded in cap-and-trade systems.

Effective today, when the GST/HST is payable on such a sale, the purchaser of carbon emission allowances 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 (CRA). This brings the Canadian rules in line with how these allowances are treated internationally. 

These technical changes will generally only apply to the secondary market of carbon pollution pricing instruments in which businesses with spare allowances typically sell their surplus to companies that have exceeded their emission targets. Purchasers will report the GST/HST amount to be paid in their tax return and, if entitled, claim an input tax credit in the same tax return. This does not affect the imposition of the GST/HST, but rather how it is accounted for and remitted to the CRA.

The initial supply of emission allowances by a Canadian government entity generally remains exempt from the GST/HST.

Note that references to “Announcement Date” in the draft legislative proposals and the explanatory notes refer to today’s date. The proposed amendments, as well as explanatory notes that describe the proposed amendments in detail, are included with this release.

Interested parties are invited to provide comments on the draft legislative proposals by July 27, 2018. Please send your comments to fin.gsthst2018-tpstvh2018.fin@canada.ca. Comments can also be mailed to:

Tax Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5