On November 4, 2025, the Government of Canada (“Government”) released its long-awaited budget (“Budget 2025”), which includes important sales and excise tax measures and confirms the Government’s intention to proceed with several other measures that had been announced previously.
The highlights of Budget 2025, from a sales and excise tax perspective, are set out below. See Stikeman Elliott’s Federal Budget Commentary 2025 for details of other budget measures.
Elimination of the Luxury Tax on Aircraft and Vessels
Budget 2025 proposes to eliminate the controversial luxury tax on subject aircraft and subject vessels effective as of November 5, 2025. The luxury tax is applicable to sales, importations, leases and certain improvements of subject vehicles and subject aircraft having a value higher than $100,000, and subject vessels having a value higher than $250,000.
Budget 2025 does not, however, propose to eliminate the luxury tax on subject vehicles, such as automobiles and SUVs having a value higher than $100,000.
By significantly limiting the scope of the luxury tax, the Government intends to provide relief to the aviation and boating industries and generally improve the efficiency of the luxury tax framework.
The proposed measure will be effective as of November 5, 2025, such that any luxury tax on subject aircraft and subject vessels would not be payable effective as of that date. Despite this relief, a final return would still need to be filed by registered vendors covering the reporting period that includes November 4, 2025.
New GST/HST Reverse Charge Mechanism (RCM)
Budget 2025 proposes to amend the Excise Tax Act (the “ETA”) to prevent certain carousel fraud schemes. Carousel schemes generally involve multiple “circular” transactions flowing through a fabricated supply chain where a so-called "missing trader" collects goods and services tax/harmonized sales tax (“GST/HST”) but never remits the taxes to the tax authorities. Certain specific industries have been targeted by sales tax auditors and investigators, such as scrap gold and other refined precious metals, media and telecommunications. In Québec, a system called Attestation de Revenu Québec was introduced back in 2016 and employment agencies and certain building contractors are obliged to obtain an Attestation from Revenu Québec certifying notably that such person or business filed all returns and reports required under Québec tax laws and does not owe taxes to the Québec government.
In light of the recent and continuous evolution of these fraud schemes that are said to undermine the Canadian tax system, the Government announced, in its 2024 Fall Economic Statement, its intention to explore options to combat such schemes. The 2025 Budget therefore introduces a first option to accomplish this, which is presented as being only a beginning and is similar to measures currently enacted in other VAT jurisdictions.
The current proposal only aims at certain telecommunications services, but it is likely that, if successful, such measure will be extended to other industries. As large carousel fraud schemes revolving around the scrap gold industry were identified as far back as 2011, one would have expected that that particular industry would have been targeted in Budget 2025, but the Government has not done so.
The proposed amendments introduce a new reverse charge mechanism (“RCM”) to be applied to the supply of specified telecommunication services. Specified telecommunication services are telecommunication services that enable:
- speech communication that is instant or with only a negligible delay between the transmission and the receipt of signals; or
- the transmission of writing, images and sounds or information of any nature when provided in connection with services that enable such speech communication.
Supplies of voice-over internet protocol (VoIP) minutes would be an example of such specified telecommunication services.
The RCM essentially shifts from the supplier to the recipient the responsibility of collecting GST/HST, with the recipient being responsible for self-assessing and reporting the tax payable in their GST/HST return. If eligible, such recipient would then be able to claim an input tax credit (“ITC”) for the GST/HST payable. Under the general GST/HST rules, ITC eligibility depends on whether recipients are registered at the time the tax becomes payable (or is paid without having become payable).
Under the RCM, a rebate for tax paid in error can only be provided when the recipient has already paid the tax to the Receiver General for Canada. Additionally, suppliers will be required to indicate on their invoices that a supply is subject to the RCM.
More importantly, under the RCM, suppliers must indicate on their invoices that a supply is subject to the RCM, and must therefore exclude the GST/HST.
The Government is currently inviting stakeholders to submit their comments on these proposals, which would be taken into account prior to presenting the enacting legislation.
Eliminating the Underused Housing Tax
Budget 2025 proposes to eliminate the Underused Housing Tax (“UHT”). The UHT imposes on owners of vacant or underused residential properties in Canada an annual 1% tax on the value of the property.
The Government indicates that it wishes to simplify the Canadian indirect tax system, reduce compliance costs for taxpayers and reduce administrative costs for the Government.
The proposed measure would apply as of the 2025 calendar year, such that no UHT would be payable and no return would need to be filed for 2025 and subsequent calendar years. All UHT requirements would nonetheless continue to apply in respect of the 2022 to 2024 calendar years.
GST/HST Exemption for Osteopathic Services
Budget 2025 proposes to clarify that osteopathic services are not exempt from GST/HST when provided by a non-qualified osteopathic physician. This proposed clarification would apply to supplies made after June 5, 2025, except where the supplier did not charge or remit any GST/HST in respect of the supply before November 4, 2025.
Previously Announced Measures
Budget 2025 states that “the government has considered each of the outstanding tax measures announced by the previous government and confirms that it intends to proceed with the following measures, as modified to take into account consultations and deliberations since their release”:
- legislative and regulatory proposals released on August 15, 2025, relating to GST/HST rules for the redemption of coupons and technical amendments relating to the GST/HST and excise levies.
- legislative and regulatory proposals released on November 19, 2024, to remove the GST on the construction of new student residences.
- legislative and regulatory proposals released on August 12, 2024, relating to regulations for the application of the Enhanced (100%) GST Rental Rebate to cooperative housing corporations and to technical amendments relating to the GST/HST, excise levies, and other taxes and charges.
- legislative proposals released on July 12, 2024 relating to implementing an opt-in Fuel, Alcohol, Cannabis, Tobacco and Vaping (FACT) value-added sales tax framework for interested Indigenous governments.
- tax measures announced in the 2024 federal budget to amend the ETA, the Air Travellers Security Charge Act, the Excise Act, 2001, and the Select Luxury Items Tax Act to give effect to the proposals relating to non-compliance with information requests and to avoidance of tax debts.
- legislative and regulatory proposals released on August 4, 2023, relating to amendments to GST/HST rules for financial institutions, tax-exempt sales of motive fuels for export, and revised luxury tax draft regulations.
- remaining legislative and regulatory proposals released on August 9, 2022 relating to the GST/HST, excise levies, and other taxes and charges.
It is noteworthy that Budget 2025 does not include the legislative proposals announced in the 2023 Fall Economic Statement that relate to the GST/HST joint venture election rules as was the case in the 2024 federal budget. Considering the clear wording used in Budget 2025, it is likely that the Government had really taken “into account consultations and deliberations since their release” and decided to drop them in their entirety. While the legislative proposals were initially intended to expand the scope of the joint venture election to all commercial activities and simplify GST/HST compliance for all joint venturers, many stakeholders warned the Government that the proposals would have had the exact opposite effect.
The authors would like to thank Kasia Johnson, stagiaire in the Montréal office of Stikeman Elliott, for her assistance with this article.
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