Tax Alert: Navigating transitional rules for Nova Scotia’s HST rate decrease

In October 2024, the Nova Scotia government (Government) announced plans to roll back the HST rate from 15 percent to 14 percent, effective April 1, 2025.

While this change is welcomed news for businesses, especially those operating at a retail level, it also presents the challenge of navigating transitional rules. These rules aim to help businesses adapt to the changes while limiting operational disruption. However, experience suggests this is not necessarily as easy as it appears.

As with previous HST rate changes, businesses should review these rules carefully and consider how they apply to their business.

General transitional rule

Under the general transitional rule, the applicable rate of HST regarding taxable supplies made in Nova Scotia will depend on the date payment is due or payable regarding a particular transaction:

• HST at a 15 percent rate will apply if payment becomes due before April 1, 2025.
• HST at a 14 percent rate will apply if payment becomes due on or after April 1, 2025.

The Excise Tax Act (ETA) establishes when HST is payable on consideration for a supply. HST becomes payable at the earliest of the following:

1. the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice,
2. the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part, and
3. the day the recipient is required to pay that consideration or part to the supplier, pursuant to an agreement in writing.

Canada Revenue Agency has very few published guidelines or interpretations relating to what it considers an undue delay. The 1989 Goods and Services Tax Technical Paper mentions the following:

If there is an undue delay in issuing an invoice for a taxable supply ("undue delay" being determined with reference to the usual invoicing practices of the supplier), the date that the invoice would have been issued will be used to determine the time at which a liability for GST arises. This test will be similar to the one contained in paragraph 12(1)(b) of the Income Tax Act. (emphasis added)

This suggests that one should consider their regular invoicing practices, from the supplier’s perspective to determine if there is an undue delay in invoicing.

Property supplied by way of lease

Where property is supplied under a written lease agreement, the ETA provides that HST is payable on the day the recipient is required to make the lease payment.

Real property and fair market value

A supply of real property, including the deemed supplies provisions, will be subject to the following transitional rules:

• HST will apply at a 15 percent rate if the sale occurs before April 1, 2025.
• HST will apply at a 14 percent rate if the sale occurs on or after April 1, 2025.

For newly constructed or substantially renovated housing, the sale takes place on the date of transfer of ownership or possession.

In the case of a deemed supply, the date on which the deemed supply takes place will determine the applicable rate of HST. For example, in certain circumstances, the ETA may indicate that a deemed supply of a residential complex occurs when the complex is substantially complete and a unit is given for rental. Such timing will inform the rate of HST applicable to the deemed supply of the multiple-unit residential complex.

Taxable benefits

HST is calculated based on amounts determined for income tax purposes for certain taxable benefits for employees and shareholders. In such cases, the amount of tax is calculated using an amount determined for income tax purposes and a rate specified in the ETA or its related regulations. These rates would be adjusted to reflect the decreased rate of HST.

The applicable rates on taxable benefits for employees reporting to work in Nova Scotia are the following for the corresponding taxation years:

Quick method of accounting

Registrants using the quick method of accounting will need to validate the new remittance rates to use. For supplies made in Nova Scotia by a business’ permanent establishment in the province, the following rates apply after March 31, 2025.

For other applicable rates consult the various annexes in the province’s transitional rules.

Other considerations

Special attention is required in the following situations:

1. Property and services brought into Nova Scotia;
2. Imported goods;
3. Imported taxable supplies; and
4. Financial institutions and pension plans.

While a rate reduction is always welcomed, rate changes and the related transitional period and rules can be difficult for business owners to comply with. If not considered properly, planning for the rate change can go awry. This advanced planning is essential to ensure internal systems can accommodate the rate change while minimizing disruption and ensuring compliance. Being aware of the transitional rules will also help ensure customers fully benefit from the reduction to the HST rate, where appropriate.

For more information and clarification on specific transactions, contact your MNP tax advisor.