STS – 2015 June – Finances Matter! Series

Finances Matter! Series

The Wonderful World of GST/HST
Lorn Stanners, CMA

Have you joined the queue of people trying to figure out what rate of GST/HST (Goods and Services Tax /Harmonized Sales Tax) to use when you are working or selling outside of your home province? Rest assured you aren’t alone.  

Canada Revenue Agency (CRA) calls these the place of supply rules.

GST applies across Canada, but some provinces, called participating provinces merged their provincial sales tax (PST) with GST to create a harmonized tax (HST). HST is managed by CRA on behalf of these participating provinces. The remaining provinces with PST continue to charge and administer their tax separately from GST. Alberta and the territories do not have PST, only GST.

The rate of GST/HST to charge is determined by the province in which the supply is made. This sounds simple, but it isn’t.

GOODS

The place of supply rules vary depending on the type of supply being made. For goods, the sale is deemed to have been made where the legal delivery occurs. If I send a product from Alberta to a customer in Ontario, then Ontario is the place of supply and the HST rate for Ontario applies. However, if the customer picks up the goods at my business location in Edmonton, the place of supply is Alberta.

If you sell outside of Canada, you are exporting goods which become a zero-rated supply - meaning you charge neither GST nor HST.

SERVICES

The place of supply rules for certain services are not as straight forward as the rules related to goods. There are three general rules that apply if you supply services in Canada:

Rule 1 – Do you have the address of the recipient?
If you have obtained the address of the recipient, the place of supply is considered to be that address and the corresponding tax applies. However, when the recipient has more than one home or business address, which address do you use? You use the address most closely connected with the recipient of the supply. For example, a Quebec web designer is hired to do the website of an Ontario company.  All the work is done in Quebec. The business address of the recipient is in Ontario and so the supply of the service is considered to have been made in Ontario and 13% HST will apply.

Rule 2 – What if there is no recipient address?
This rule applies where an address is not obtained and is therefore based on the location of the performance of the service. (Because an address is not obtained, Rule 1 does not consider the supply of the service to be made in a province.) When more than 50% of the service is performed primarily in a participating province the tax rate would be that of the participating province.

For example, an online business, located in Ontario, provides document editing over the Internet. Clients email the documents to the business. The documents are edited and emailed back to the clients. The services are performed by the business at its Ontario address. The service provider does not obtain addresses of its clients. The service is performed primarily for clients in participating provinces and the greatest proportion of the service is performed in Ontario. The supply is therefore made in Ontario and Ontario’s HST rate will apply.

Rule 3 - What about services for clients equally in one or more provinces having the same highest tax rate?

In this case the second general rule does not apply because the service is performed equally in two or more participating provinces having the same highest tax rate. Doesn’t this sound easy? Here is an example:

You are based in Ontario and supply monthly subscriptions to your website to clients worldwide. Clients get the unrestricted right to access and use your digitized content on the site anywhere in the world. Your Canadian clients are not primarily in either participating provinces or nonparticipating provinces.

You obtain the home address for the recipients. For recipients in a participating province, the supply is made in that province and subject to HST. If the recipients are in a nonparticipating province, the supply is made in that province and subject to GST. Where the recipient’s home address is outside Canada it is zero rated so nothing is charged.

Under Rule 1, if you obtain an Ontario business address for your customer, the supply of that service would be made in Ontario and subject to the Ontario HST rates.

Under Rule 2 for a location-specific event (for example, a convention, conference, or symposium), if the service is performed primarily (more than 50%) at the event location, the general rules for supply do not apply. The supply of the service will be considered as having been made in the province in which the service is primarily performed.

Consider two other examples:

A Québec based, audio-visual company provides sound and lighting at an event at the convention centre in Kingston, Ontario. The supply of the service is considered to have been made in Ontario and the Ontario HST rate applies.

An Ontario speaker does an event in Quebec. Approximately 35% of the service is performed at the event location, and 65% of the service is performed at the speaker’s location in Ontario. The only home address of the recipient obtained by the speaker, in the ordinary course of its business, is in Manitoba. With less than 50% of the service being performed at the Quebec location and the recipient address being in Manitoba, the supply of the service is deemed to be made in Manitoba and is subject to 5% GST.

In conclusion you can see how “easy” the rules are (NOT) and in many cases it comes down to a case by case examination of the information. You can check out other examples at: http://www.cra-arc.gc.ca/E/pub/gm/b-103/README.html.  

On a final note, for a booking which is cancelled and you have already received the nonreturnable deposit. Your services were deemed to have been provided at the location of the presentation and that location rate applies. I am in Alberta. If I had a booking in British Columbia cancelled last minute, the service is deemed to have been delivered in British Columbia.        

Lorn Stanners is a CMA and Past President CAPS Edmonton. As the Entrepreneurs & Estate Tax Guide, he has been keeping the jingle in his clients’ jeans for 30+ years. For more Tax Tips, join Lorn on Linkedin at the page ‘Joy of Tax, Keeping the Jingle in Your Jeans!

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