Top 5 need-to-know Canadian GST/HST cases from 2025

AS THE new year begins, it is an opportune time to reflect on the decisions that have shaped the GST/HST landscape. In 2025, the Federal Court of Appeal and the Tax Court of Canada issued several significant rulings with implications for businesses and tax practitioners. This post highlights the top five GST/HST cases from 2025, providing key insights and considerations that may influence tax planning and compliance strategies in 2026.

1. No GST/HST Applicable on Tobacco Products Purchased by an Exempt Taxpayer for Resale

Canada v. LBL Holdings Limited, 2025 FCA 186

The taxpayer did not charge GST/HST on tobacco products sold to status Indians, who were exempt from tax pursuant to the statutory exemption from taxation for personal property of an Indian or Indian band situated on a reserve. The products were immediately resold to customers. The CRA assessed on the basis that the arrangement was a sham and that the ultimate customers were liable to pay for the products and thus were the recipients of the products for GST/HST purposes. The Federal Court of Appeal (FCA) found that there were no overriding and palpable errors with the factual findings of the Tax Court of Canada (TCC) that the status Indians were liable to pay for the products, and not the ultimate customers.

2. To the Extent That an Insurance Policy Covers Risks That Were Ordinarily Situated Outside Canada, the Supply is Zero-rated

Northbridge Commercial Insurance Corporation v. The King, 2025 FCA 83

The taxpayer issued fleet insurance policies to trucking companies, who operate vehicles in Canada and the United States. The taxpayer claimed input tax credits on the basis that its supplies of insurance policies were zero-rated. In 2024, the FCA concluded that the supply of an insurance policy is zero-rated to the extent that the policy insures against the risk of a claim arising from an accident or other insurable event that is ordinarily situated outside Canada and sent the matter back to the TCC. The TCC concluded that there was insufficient evidence regarding how each policy was priced to determine the extent to which the policies were zero-rated. The FCA allowed the appeal concluding that the taxpayer was entitled to input tax credits on GST/HST paid for general head office and overhead costs in relation to all insurance policies issued by the taxpayer and not solely in relation to a particular insurance policy. As the TCC had not determined the allocation method that would be applicable because it failed to analyze the classification of the general head office and overhead costs, the matter was sent, yet again, back to the TCC.

Following the decision of the FCA, the parties appeared to have agreed on the quantum of the input tax credits and a consent to judgment was issued.

3. Medical Sleep Services Are Exempt Supplies and Not Separate Supplies of Administrative Services

MedSleep Inc. v. The King, 2025 TCC 70

MedSleep operates sleep clinics in which it offers services to patients for medical sleep testing. The compensation is generally allocated 80% to the sleep physician and 20% to MedSleep. The CRA assessed MedSleep on the basis that it made a taxable supply of administrative services to the sleep physicians and should have charged GST/HST. The TCC concluded that, based on the contractual agreements, the medical sleep testing services are a single compound supply of exempt medical services made to the patients and the fee sharing arrangement did not result in separate services being provided by MedSleep to the sleep physicians.

4. Payment for Option Extension is a Separate Taxable Supply and Not for Modification of an Agreement

British Columbia Hydro and Power Authority v. The King, 2025 TCC 61

BC Hydro entered into an electricity purchase agreement ("EPA") with an independent power producer for the supply of electricity at separate locations in British Columbia. An amended and restated EPA was subsequently entered into that provided for an optional term extension for an additional period of 16 years. The agreement provided that BC Hydro would pay $8.5 million in consideration for the opportunity provided to BC Hydro to extend the term. BC Hydro claimed input tax credits on the basis that the $8.5 million was inclusive of GST/HST on the basis that the payment was made as a consequence of a breach, modification or termination of an agreement and the payment was made otherwise than as consideration for the supply. The TCC disagreed with BC Hydro's position and concluded that the payment was for an optional term extension, which was a new supply on which separate GST/HST applied.

This decision is currently under appeal to the FCA.

5. Sale of a Condo Listed on Airbnb is Subject to GST/HST

1351231 Ontario Inc. v. Canada, 2025 FCA 53

In 2008, the taxpayer purchased a condo unit in Ottawa which it leased to persons under a long-term lease until February 2017. After February 2017, the taxpayer listed the condo unit on the Airbnb platform and rented out the property under short-term leases. In December 2017, the taxpayer sold the condo unit and did not charge GST/HST on the basis that the condo unit was a residential complex and exempt from GST/HST. The FCA upheld the TCC decision that the sale was not exempt because the property was similar premises to a hotel, a motel, an inn, a boarding house, or a lodging house, and all of substantially all of the leases under which the property was supplied for periods of continuous possession or use or less than 60 days such that it did not qualify as a "residential complex".

Simon Douville, Al-Nawaz Nanji, and Randy Schwartz are Partners at McCarthy Tétrault LLP in Toronto. This article was originally published in Tax Perspectives. Author photos courtesy: McCarthy Tétrault. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.