Federal Sales Tax Reform Aggravates Industry''s Indigestion

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Abstract The incredible scalpels and bedpans of Ottawa's undaunted fiscal medics know no rest! As if the far-reaching measures of the NEP were not enough for Canada's petroleum industry to absorb with that program's prescription of new rules for income taxes, royalties, excise taxes, prices, incentives, ownership, etc.-the industry is now confronted with a total reform of this country's federal sales tax system. It is now intended that the government's proposed reform of the system, which was announced in the federal budget on November 12, 1981, would be Implemented with effect from January 1, 1983. (Of course, the oil and gas sector had an early dose of the reform in 1981, when the federal sales tax on gasoline, diesel and aviation fuel was shifted from the producer stage /0 the distributor stage). Although the proposed new rules will affect the integrated producers and distributors more than others in the industry, the effects of the changes will be felt by all enterprises in varying degrees. This month, Tax Topics describes very briefly the thrust of the new system and its possible effects on doing business in Canada.* Price Waterhouse has published a comprehensive, fully illustrated booklet on the federal sales tax reform. Complimentary copies of the booklet may be obtained from any Price Waterhouse office. Introduction The long-awaited changes to the federal sales tax system, as well as some changes in excise taxes, were announced by Finance Minister MacEachen in the federal budget of November 12, 1981, when it was proposed to shift the incidence of these taxes from the manufacturer to the wholesaler level. This announcement was followed up with the release of a Federal Sales Tax Reform Discussion Paper and related draft legislation on April 30, 1982, thereby giving taxpayers some insight into how the new system may affect them. However draft legislation dealing with administrative matters such as refunds, assessments and appeals has yet to be released. This article introduces very briefly the main features of the new tax system in order to provide some guidance to readers for obtaining an understanding of the implications of the new provisions and some insight into the potential impact on their businesses. It is, of course, not intended to provide an all-inclusive and definitive commentary on all facets of the new federal sales tax system. The information in this article is based on the draft legislation, the discussion paper and other government information available at the date of publication. However, there will undoubtedly be numerous changes made to the draft legislation as submissions from taxpayers and others are considered. The main features of the proposals are summarized in Table 1. Background The federal sales tax is a tax on the provision or consumption of finished goods in Canada. The tax is one of general application, imposed under the Excise Tax Act on all domestic manufactured goods or imported goods, other than those exempted by specific legislative provision.