Bringing taxes into harmony

The Honourable François-Philippe Champagne
Minister of Finance and National Revenue
Government of Canada
90 Elgin Street
Ottawa, ON K1A 0G5

Dear Minister:

Re: Recommendations for Sales and Commodity Tax Simplification

The Commodity Tax, Customs, and Trade Section of the Canadian Bar Association (the “CBA Section”) appreciates the opportunity to provide the following recommendations for sales and commodity tax simplification, arising from the CBA-Finance Roundtable discussion held on June 22, 2026 (the “Finance Roundtable”) and the CBA-CRA Roundtable discussion held on June 23, 2026 (the “CRA Roundtable”).

The Canadian Bar Association is a national association representing over 40,000 legal professionals, including lawyers, notaries, law professors, and students across Canada. Our mandate includes promoting the rule of law, improving access to justice, advocating for effective law reform, and providing expertise on how legislation impacts Canadians’ daily lives. The CBA Section comprises approximately 40 members and works to enhance awareness and understanding of legal and policy issues related to commodity tax, customs, and trade.

Building on the discussions at the Finance Roundtable and the CRA Roundtable, and on the CBA Section’s prior submissions, we are pleased to provide the recommendations set out below.

Submission

The CBA Section recommends the following simplification measures for sales and commodity tax:

1. Prioritize the sales tax harmonization measures as described in the CBA Section’s August 2025 submission.
2. Harmonize the provincial fuel tax regimes.
3. Further harmonize GST/HST and QST.
4. Increase existing GST/HST thresholds.
5. Allow the Tax Court to partially dispose of a particular issue for GST/HST purposes.
6. Introduce a definition of “property” for section 186 (holding company rule) that excludes near-cash assets.
7. Introduce e-invoicing for GST/HST.
8. Make more supplies taxable — either zero-rated or full-rate taxable — by eliminating exempt supplies. In this process, the Department of Finance should consult industry (especially financial institutions and insurance companies) on whether exempt supplies in their industries should be taxable and, if so, how to implement this efficiently and effectively.

These recommendations are explained in greater detail below.

Prioritize the sales tax harmonization measures from the CBA Section's August 2025 submission.

First, on August 28, 2025, the CBA Section submitted to the Department of Finance "Recommendations to Reduce Significant Internal Trade Barriers (Sales Tax Harmonization)." The recommendations for sales tax harmonization remain the most important change for simplifying sales and commodity taxes. Specifically, having British Columbia, Saskatchewan, and Manitoba harmonize their provincial sales taxes with the GST/HST would deliver the single most impactful and relevant simplification of Canada’s sales and commodity tax system, and significantly reduce internal trade barriers for companies operating in Canada.

Harmonize the provincial fuel tax and insurance premium tax regimes

Second, consistent with the recommendation on sales tax harmonization, the CBA Section recommends harmonizing the provincial and federal fuel tax and provincial insurance premium tax regimes.

Currently, both the provincial and the federal governments impose their own fuel taxes on refined fuels. Likewise, the provinces impose tax on insurance premiums. The rules differ significantly among the provinces and from the federal tax regime. Harmonizing these rules would reduce a material interprovincial trade barrier and simplify doing business in Canada.

Further harmonize GST/HST and QST.

Third, the CBA Section recommends further harmonizing GST/HST with the Québec Sales Tax ("QST”). The QST and the GST/HST are intended to be fully harmonized. However, material discrepancies persist and generate friction for businesses.

One such harmonization measure could be a mechanism that enables the Canada Revenue Agency and Revenu Québec to resolve remittances sent to the wrong tax authority between themselves without penalizing the taxpayer.

Currently, a business that collects and remits GST and QST when it should have collected and remitted HST is penalized with accrued interest on the HST, even though it remitted QST. Similarly, a business that collects and remits HST when it should have collected and remitted GST and QST is penalized with accrued interest on the QST.

For example, if a business mistakenly collects and remits GST and QST (14.975%) instead of Ontario

HST (13%), the CRA will assess interest on top of the 8% “provincial component” of the HST (13% - 5% = 8%) that the business did not remit.¹ That business also faces an increased compliance burden in navigating and addressing this issue with the two tax authorities.

Between truly harmonized provinces, if a business mistakenly collects and remits 15% HST for New Brunswick instead of 14% HST for Nova Scotia, the business is not penalized by CRA because the error is corrected “on the back end”,² This applies between the provinces under the Comprehensive Integrated Tax Coordination Agreements (CITCA). The same type of mechanism should work with Québec.

For businesses that are trying to comply with complex sales tax regimes, this is a significant cost of doing business. With further harmonization, a business that mistakenly collects GST and QST instead of HST (or vice versa) would be permitted to reduce its accrued interest for unremitted HST by taking into account the QST that was remitted. Businesses can internally reallocate these amounts without penalizing those operating in Canada.

This change will deliver one of the key benefits of harmonizing sales tax regimes: simplifying how much tax a business must collect and reducing the consequences of making the wrong technical choice.

Increase existing GST/HST thresholds.

Fourth, the CBA Section recommends increasing several key GST/HST thresholds, such as the small supplier threshold.

The CBA Section understands that the Department of Finance has increased thresholds for the informal procedure in the Tax Court of Canada, for input tax credit information requirements, and for transfer pricing penalties, because these thresholds have not changed since those provisions were introduced. The thresholds were increased to reflect current amounts, including inflation.

With respect to the GST/HST thresholds, most have not changed since the GST was introduced in 1990. Accordingly, a much larger proportion of economic activity is above these thresholds than previously determined to be appropriate, resulting in greater and unnecessary compliance costs and complications for these activities.

Increasing the small supplier threshold

The small supplier threshold for GST/HST³ has been set at $30,000 since 1991. According to the Bank of Canada inflation calculator, $0.99 in 1991 is worth approximately $2.00 in 2026,⁴ So, if the threshold had increased with inflation, it would be about $60,000 in 2026. Because the threshold remains at only $30,000, inflation has effectively lowered it by about 50% since the inception of the GST — and the $30,000 threshold was already perceived as low by CBA members in 1991.

Academic commentary has similarly suggested that many VAT registration thresholds are far lower than economists recommend.⁵ A 2012 study suggests that the thresholds should have been increased to $100,000 or even higher, and that a large proportion of businesses should optimally remain unregistered for VAT.⁶ A present-day equivalent of that $100,000 suggestion would be over $136,000 today once inflation is taken into account.

Raising the small supplier threshold is also consistent with the original policy of the small supplier rules. The small supplier threshold was one of several “special measures” adopted to “reduce the overall compliance burden for small businesses” that “may have more limited administrative resources at their disposal than their larger competitors.”⁷

In considering the small supplier threshold, it is essential to recognize that only registrants can claim input tax credits (“ITCs”). An unregistered small supplier cannot claim ITCs, so by simplifying compliance and not requiring registration, the lost tax revenue is less than the tax imposed on $30,000.

Increasing the electronic commerce threshold

The threshold for registration of electronic commerce businesses (sections 211.12 and 211.22 of the Excise Tax Act (“ETA”)) is also set at $30,000 and should similarly be increased.

This threshold is extremely low for platform operators, for whom it is generally measured by reference to third-party revenues rather than the platform operator's own revenues, which are typically lower (for example, a percentage of third-party sales).

Increasing thresholds for reporting frequency (annual/quarterly)

The thresholds for optional quarterly and annual reporting periods for smaller businesses should similarly be increased in line with inflation. These current thresholds are generally $1,500,000 - $6,000,000 for quarterly reporting and under $1,500,000 for annual reporting. These reporting periods also formed part of the "special measures" implemented to reduce the GST/HST compliance burden on small businesses and have remained unchanged since 1991.⁸

Increasing the de minimis financial institution thresholds

The rules for de minimis financial institutions should be modified so that only an entity with significant lending activity could be a de minimis financial institution.

Being a de minimis financial institution may have several unintended and unfavourable results for businesses. Unfortunately, the threshold is currently very low, and a large business engaged almost exclusively in commercial activity can become a de minimis financial institution.

For example, if a commodity trading company enters into derivative trades to hedge the risk of its trades, that entity can become a de minimis financial institution under paragraph 149(1)(b), based on the administrative policy of the CRA. Another example is where a large entity engaged 99.99% in commercial activity earns over $1 million in interest revenue from the making of an advance, the lending of money, or the granting of credit, in which case the entity can also become a de minimis financial institution under paragraph 149(1)(c). These entities may be disqualified from making the election under section 156 to simplify their GST/HST compliance (because "exclusive" means 100% for financial institutions) or from relying on the relief in section 185 of the ETA in certain circumstances.

Increasing the public service body and charity thresholds

For section 148, the $50,000 threshold for public service bodies has been in place since 1991 and should now be over $100,000 with inflation.

For section 148.1, the $250,000 threshold for charities and public institutions has been in place since about 1996/1997 and should be over $450,000 with inflation.

Allow the Tax Court of Canada to partially dispose of a particular issue for GST/HST purposes.

Fifth, the CBA Section recommends adding to the ETA a provision equivalent to subsections 171(2) and (3) of the Income Tax Act, which provisions expressly allow the Tax Court to partially dispose of a particular issue under an appeal while allowing the remaining issue(s) to proceed.

In the income tax context, this provision helps release funds and simplify the dispute. Where the parties agree that an issue should be resolved in the appellant's favour, the appellant can obtain a judgment on that issue while the remaining issue(s) proceed on appeal. The CRA can then reassess the appellant, which lowers the amount owing, including penalty and interest, and has favourable implications for dealing with CRA collections. The business or taxpayer can then deploy that capital or those funds for productive uses rather than continuing to act as an unwilling government creditor.

While the Tax Court of Canada has control over its own processes and will sometimes issue a partial judgment on a GST/HST appeal, the ETA does not have an equivalent provision to subsection 171(3) of the Income Tax Act for GST/HST purposes. As a result, the CRA will refuse to issue a reassessment to resolve an issue while the rest of the appeal is outstanding. The CBA Section recommends adding an equivalent provision to the ETA.

1. Introduce a definition of "property" for section 186 (holding company rule) that excludes near-cash assets.

Sixth, the CBA Section recommends simplifying the "holding company" rule in section 186 for claiming ITCs. Most importantly, the "property test" needs correction. The CBA Section sees two primary options to fix the test:

• Option 1: Introduce a definition of "property" for section 186 of the ETA that excludes not only "money" (as in the current definition), but also deposit accounts, other near-cash assets that generate financial services income below a certain threshold, and certain other intra-group financial instruments including upward loans (i.e., loans from a subsidiary to a parent).
• Option 2: Eliminate the “property test” altogether, and replace it with a revenue test that measures the extent to which the underlying operating company makes taxable supplies.

One of the most important purposes of the GST is to support Canadian productivity by preventing sales tax from becoming a cost of doing business that is “passed on” or embedded in the price of goods or services to consumers. To this end, all GST/HST incurred in a supply chain, including on overhead expenses, is intended to be refunded to a business wholly engaged in commercial activity and thus collecting GST/HST from its customers.

Section 186 of the ETA supports this purpose by allowing a parent company to claim ITCs in certain circumstances. While a parent company may have its own activities that qualify (or not) for ITCs, parent companies typically have activities, including financial service activities, that support an underlying operating company entitled to ITCs because it carries on a commercial activity. In these circumstances, the parent company should be entitled to ITCs.

However, the CRA considers bank deposits to be “property” for purposes of the ETA.⁹ While the interpretation properly acknowledges that “money” is excluded from the definition of “property,” it concludes that when money is deposited into a bank account, the amount represents the depositor’s right to be paid money, which would be a debt security and therefore property. The CRA further concludes that the parent entity does not meet the property test under paragraph 186(1)(c), since more than 10% of the property of the parent was bank deposits, which were neither manufactured, produced, acquired, or imported by the parent for consumption or use in the course of the parent’s commercial activities, nor the units or indebtedness of the operating corporations (or a combination thereof).

This interpretation, which is inconsistent with the purpose of section 186, raises important practical questions in applying paragraph 186(1)(c) of the ETA where money is held not to earn investment income but rather to facilitate the group’s commercial activities.

Consider the following examples in which ITCs should be allowed according to GST/HST policy, but not according to the CRA’s interpretation of the legislation:

• Example 1: If 11% of a parent’s assets is cash held on deposit and 89% are shares of an operating company engaged exclusively in commercial activities, the parent may not be able to rely on section 186 to claim ITCs. This does not appear to be affected by the fact that the cash is held on deposit for convenience, and not to earn financial services revenue. To claim ITCs, the parent would need to hold its cash as inconvenient physical "money" rather than deposits. This seems contrary to the government's current policy, which encourages companies to hold cash under their colloquial mattress rather than employ it effectively.
• Example 2: Where a subsidiary is engaged exclusively in commercial activities and made an upstream loan to its parent, and the loan represents 11% of the subsidiary's assets, the upstream loan can result in the subsidiary not meeting the property test. It is difficult to see the policy rationale for this result. It is notable that under subsection 186(3), an indebtedness to a related corporation is deemed to be property used in commercial activity if the relatedcorporation is itself engaged exclusively in a commercial activity. However, where the loan is to the parent, the rules no longer apply and appear to cause the parent to no longer qualify for section 186.¹⁰
• Example 3: The property test, which includes loan receivables, does not account for offsetting loan payables. Consider a circumstance where a parent company loans money to Subco 1, which loans the same amount to Subco 2. Subco 1 is engaged exclusively in commercial activity other than the loan to Subco 2. Assume Subco 2 is not engaged exclusively in commercial activities such that 186(3) does not apply.
  Given that Subco 1 has a loan receivable and a loan payable that are exactly equal, and that the loan to Subco 2 is not part of a lending business, it is unclear why, in the property test calculation, only the loan receivable should be taken into account. Particularly where the loans are between related parties, we believe the loan receivable should effectively be ignored for purposes of the property test.

Accordingly, it is an important simplification measure to correct the property test in the "holding company" rule in section 186, either by excluding near-cash assets from the definition of property (and certain other intra-group financial instruments), or by replacing it with a revenue test.

2. Introduce e-invoicing for GST/HST.

Seventh, the CBA Section recommends that Canada introduce e-invoicing for GST/HST.

At the Finance Roundtable, the Department of Finance suggested that the CRA was advancing the einvoicing portfolio and that the Department of Finance was not actively considering e-invoicing. However, the following day at the CRA Roundtable, the CRA indicated that it has no implementation date for e-invoicing and cannot implement e-invoicing without legislation.

We encourage the Department of Finance and the CRA to align on this initiative, and for Canada to introduce the enabling legislation the CRA believes is required to advance e-invoicing.

The Department of Finance should look at other countries that have successfully implemented einvoicing so that Canada is seen as a competent place to do business.

3. Make more supplies taxable — either zero-rated or full-rate taxable — by eliminating exempt supplies.

Eighth, the CBA Section recommends that, to simplify the GST/HST regime, the Department of Finance consider, in consultation with industry and stakeholders, making exempt supplies taxable (either zerorated or taxable at the full rate).

Removing the category of exempt supplies would require all businesses to charge GST/HST and would allow them to claim full ITCs.

There are a significant number of tax disputes, at audit, objections, and in the Tax Court of Canada, about whether supplies are exempt or taxable. This has led to circumstances where retroactive legislation has been enacted, an action that most countries do not employ.

In addition, many businesses that make exempt supplies face significant, onerous administrative GST/HST compliance burdens. In particular, for certain financial institutions, their ITC methodology must be preapproved, which generally takes almost a year, and the dispute resolution process is inadequate. In short, significant resources are being wasted instead of being employed to benefit the Canadian economy.

This simple measure of treating all supplies as taxable would significantly simplify the ETA by removing entire pages of legislation that would not be needed, as well as simplify the administration of the ETA. It would also provide the government with flexibility to determine which supplies are zero-rated (taxed at 0%) or taxable (taxed at the full rate), depending on policy objectives. Services such as health care services,¹¹ education services,¹² child and personal care services,¹³ legal aid services,¹⁴ supplies by charities,¹⁵ and supplies by public sector bodies (including the “MUSH” sector, or municipalities, universities, schools, and hospitals) may be zero-rated if the government so decides.

One of the goals of the GST was to remove hidden taxes from supply chains and to eliminate "tax on tax" or "cascading tax". A significant and growing exception to this goal is the hidden GST/HST embedded in supplies purchased by businesses that buy financial services. Since financial services in Canada are exempt, unrecoverable GST/HST remains embedded in the cost of those services.¹⁶ When another business acquires those financial services, it indirectly pays the unrecoverable GST/HST, even though the business will likely be taxable and need to collect GST/HST from its customers. This is contrary to the main policy behind the GST/HST.

When the GST/HST was initially introduced, the government indicated that it would have liked to impose tax on financial services:¹⁷

In concept, financial services should be taxed under a broadly based sales tax like the GST. They represent consumption by the purchaser—even though they are often purchased alongside savings or investment activities.

However, applying a sales tax to financial services is exceptionally difficult because many of these services are priced implicitly. For instance, the price a bank charges for accepting deposits and lending money is often implicit in the difference between the interest rates charged to borrowers and the rates paid to depositors—that is, the margin or spread. Because of these complexities, and because no other country has successfully included financial services in its sales tax base, the Technical Paper indicated that financial services will be exempt under the GST. As with all other goods and services, exported financial services will be zero-rated.

Since that time, financial services and related issues have become one of the most litigated areas of GST/HST. It has been over 35 years since the introduction of the GST/HST.

The CBA Section believes stakeholder dialogue is necessary to determine which supplies should be taxable, which should be zero-rated, and what other solutions are available to simplify compliance and audit of supplies that are currently exempt.¹⁸

4. Concluding Comments

The CBA Section appreciates the opportunity to contribute to simplifying Canada's sales and commodity tax system.

We would welcome the opportunity to discuss any of these recommendations in further detail.

(original letter signed by Noel Corriveau for Jesse Waslowski)

Yours sincerely,

Jesse Waslowski
Chair, Commodity Tax, Customs and Trade Law Section

End notes