GST/HST on Alberta TIER Emission Offsets and Credits

For years, there has been significant uncertainty as to whether a particular emissions offset or carbon credit meets the definition of "emission allowance" for GST/HST purposes. If an emission offset or carbon credit is "emission allowance", then the normal GST/HST rules don't apply—rather, the seller does not charge GST/HST and the purchaser is required to self-assess it.

The GST/HST consequences of getting this determination wrong between the parties can be severe.  Under normal GST/HST rules, if a commercial purchaser paid GST/HST in error to a supplier (e.g. the supplier charged GST/HST where it was not required to) then technically the purchaser is not entitled to claim an "input tax credit" (an ITC) for that amount. Rather, the purchaser is generally entitled to a "rebate for tax paid-in error" (a TPIE rebate). Practically, however, if a person claims an ITC on an amount paid in error (which frequently occurs), then—without any required action by the person—the CRA automatically sets off the ITC claimed in error by the amount of the available TPIE rebate to which the person would otherwise have been entitled, without any penalty and interest consequences. 

However, under the "emission allowance" regime, a purchaser of "emission allowance" that pays tax in error to the vendor is not entitled to a TPIE rebate. Therefore, any ITCs claimed in error on these payments would be denied with no set off. In this case, but subject to the specific contractual terms, the purchaser's only remedy would generally be to ask the vendor for a refund of the GST/HST paid. Although a vendor that collected GST/HST in error is permitted to make such refunds, there are a couple of important caveats: (1) under the Excise Tax Act (Canada) there is no obligation for the vendor to do so, and (2) the vendor is only permitted to pay it within two years of collecting it (while we note that the CRA may generally reassess a purchaser up to four years later). Accordingly, a purchaser that does not recover the amounts from vendor within two years is at risk of a total loss of the GST/HST paid in error to the vendor. 

A Problem – Emission Offsets

Although its evolution is not entirely clear, in our experience an industry practice has evolved with respect to the purchase and sale of credits under the Alberta Technology Innovation and Emissions Reduction (TIER) Regulation to treat EPCs and sequestration credits as "emission allowances", but to treat emissions offsets as though they are not "emission allowances". 

On January 15, 2026, the CRA released Excise and GST/HST News - No. 121, wherein it states—contrary to the above noted practice—that it considers emission offsets to meet the definition of "emission allowance". More specifically, the CRA states:

The CRA recently examined whether emission performance credits, emission offsets and sequestration credits generated under the TIER Regulation meet the definition of emission allowance in subsection 123(1) of the ETA. In reviewing the context of the Regulation (along with Alberta's Emissions Management and Climate Resilience Act, SA 2003, c. E-7. 8, and the Standards which form part of the TIER Regulation), the CRA has determined that emission performance credits, emission offsets, and sequestration credits generated under the TIER Regulation meet the definition of emission allowance in subsection 123(1) of the ETA.

Accordingly, parties that have treated emission offsets, EPCs or sequestration credits other than as "emission allowances" for GST/HST purposes should contact Bennett Jones to revisit their commercial agreements as soon as possible.

Further, those that have historically purchased emission offsets, EPCs or sequestration credits and paid GST/HST to the vendor should also discuss with Bennett Jones paths to mitigate the chances of being denied ITCs with no mechanism to otherwise recover the GST/HST paid to vendors.¹

¹Although we do note that Excise and GST/HST News - No. 121 states that the CRA will " … administer this revised position prospectively based on the specific facts of each case", this statement appears to be in reference to more general positions of the CRA described in Excise and GST/HST News - No. 113 and not specifically to any CRA positions made in respect of TIER Offsets. The last published CRA statement prior to Excise and GST/HST News - No. 113 we are aware of in respect of TIER credits was in response to a direct question from the Canadian Bar Association Commodity Tax section on February 15, 2024, to which CRA responded that "a CBA member wishes to receive confirmation of whether the instruments generated according to the requirements of the TIER of Alberta meet the definition of “emission allowance,” a ruling should be requested". Accordingly, how CRA will apply its assessing practices to historical Offset transactions is still unclear.