Canadian VAT Taxes – Large Business and specified energy used in the production of goods for sale for HST (BC, ON & PEI) & QST (QC) purposes
The HST rules applicable in British Columbia (from July 2010 to March 2013), in Ontario (since July 2010) and in Prince Edward Island (starting on April 2013) on specified energy used by large business in the production of tangible properties for sale are actually based upon rules under the Quebec Sales Tax Act and its ancestor, l’impôt sur la taxe de vente en détail du Quebec, that have been in used in Quebec for decades and are still effective.
Basically this specific fiscal measure alleviates the tax burden for energy used by large business directly in the production process.
You should note that there are various differences between QST and HST rules. For example, under the QST regime there is no such thing as using proxies. Another difference is the fact that, for QST purposes, there are no exclusion in the definition of large business for public service bodies.
Also under the QST regime, the tax amount on the non-eligible portion is not claimable while under the HST regime, the tax amount is claimed in the first place and then remitted in a second step as a recapture of input tax credit.
For further information on these rules you can consult:
- Guide RTG 186 (PEI) Temporary recapture of Certain Provincial Input Tax Credits issued by the Department of Finance, Energy and Municipal Affairs.
- CRA Technical Information Bulletin B-104 June 2010 Temporary Recapture of input Tax Credits in Ontario & British Columbia.
In many instances, it will be necessary to proceed with a study to determine the actual rate of energy used in such production. For instance, the use of a proxy is not always permitted, and in some cases the proxy is not the method providing the lowest cost.