This post is part of a series on my story incorporating in Canada.
Once you have your business number you need to figure out whether you have to make a GST/HST account with the Canada Revenue Agency (CRA). In this post we will explore the CRA website to understand better GST/HST and its rules. I tried to gather everything related to it in one big post. Once again I am not an accountant or lawyer; the following is what I understood from my research.
What is GST/HST
The following is quoted from the CRA Glossary
The goods and services tax (GST) is a tax that you pay on most goods and services sold or provided in Canada. In New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island, the GST has been blended with the provincial sales tax and is called the harmonized sales tax (HST).
I’ll break it down:
|Goods and Services Tax||Harmonized Sales Tax|
|Federal tax||Federal + Provincial tax|
|5% Across Canada||5% + 8% (Ontario) = 13%|
For more on the different rates across Canada check the CRA GST/HST rates. Notice how the minimum is 5%, which is the federal tax (GST) applied across the board.
Now that we know what GST/HST means, it’s time to check on what it applies to, but before that here is my disclaimer.
Please note that I am not an accountant nor a lawyer, and this is what I understood from my research. Great, let’s continue on.
What is Taxable (Fully or Zero-Rated) and What is Exempt?
Goods and services may either be Taxable or Exempt. As for taxable goods and services some of them are zero-rated, meaning they are taxed but at 0%. What’s the point of the distinction? Let’s see what the CRA says:
According to the CRA Zero-rated (0%) goods and services page:
Some goods and services are taxable at 0% (zero-rated). This means the GST/HST is not charged on the supply of these goods and services.
However, a GST/HST registrant can claim an input tax credit for the GST/HST paid or owed on expenses made to provide zero-rated sales or supplies.
According to the CRA Exempt goods and services page
Some goods and services are exempt from the GST/HST. This means that no GST/HST applies to them.
If you provide only exempt goods and services, you cannot register for the GST/HST. This means that you do not charge the GST/HST on your supplies of your goods and services, and you do not claim input tax credits.
|GST/HST Fully Charged||GST/HST Not Charged||GST/HST Not Applied|
|Can Claim Input Tax Credit||Cannot Claim Input Tax Credits|
|Can Register for GST/HST||Cannot Register for GST/HST (If you only provide exempt goods and services)|
Now that we know the different categories it’s time to check where you fall.
Lists of Zero-Rated and Exempt Goods and Services
Best to get these lists directly from the source in case any thing changes.
International and Provincial Considerations
GST/HST is pretty straightforward when dealing within the same province; the buyer simply pays the GST/HST when paying for the good or service. What about buying from another country or selling to another country, which country gets the tax? Do they both get the tax or is there no tax. It turns out there is a general pattern when it comes to international taxation:
The country that is receiving the goods or service is the one that gets the tax. For example, if you are selling (exporting) to someone outside Canada then you don’t have to charge them GST/HST, the client may have to pay that in their country depending on their laws. If you are buying (importing) from outside Canada the seller may or may not charge you GST/HST (depending on their laws) but you will have to pay GST/HST to the CRA. This is the general rule but let’s look into more detail. First we need to understand some definitions:
What’s a Participating Province
Basically these are the provinces that have an HST, meaning they included the GST with the provincial part, as mentioned in the CRA Glossary:
Means a province that has harmonized its provincial sales tax with the GST to implement the harmonized sales tax (HST). Participating provinces include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island, but do not include the Nova Scotia offshore area or the Newfoundland offshore area except to the extent that offshore activities, as defined in subsection 123(1) of the Excise Tax Act, are carried on in that area.
Overview of Importing Goods and Services
Turns out Importation of goods and services can be a bit confusing so I tried to summarize everything in a table I made from the information on the CRA website. All the details will be explained in the upcoming sections.
|Federal or Provincial part of GST/HST||Actions||Importing Goods||Importing Services and IPP|
|The GST / Federal part of HST is||How to Calculate||On th Canadian dollar value of the goods, including duty and excise tax||The amount you were charged for the service or IPP in Canadian dollars|
|How to Pay||Registered||At the Border||Report the GST or the federal part of the HST on line 405 of your GST/HST return and remit the tax directly to the CRA.|
|Not Registered||Use Form GST59, GST/HST Return for Imported Taxable Supplies and Qualifying Consideration, to remit the tax|
|When to Pay||Registered||The reporting period in which the amount for the service or the IPP was paid or became payable|
|Not Registered||By the end of the month following the calendar month in which the amount for the services or IPP was paid or became payable|
|May claim input tax credit (ITC)||Yes, if you are the importer and meet the requirements|
|Exceptions||90% rule doesn’t apply, but many other exceptions||You use the imported services or IPP at least 90% in your commercial activities (100% in the case of a financial institution)|
|Provincial part of HST||How to Calculate||Bought at arm’s length||lesser of the amount paid for the good and the fair-market value of the property||The amount you were charged for the service or IPP in Canadian dollars|
|Not Bought at arm’s length||the fair market value of the goods when they are brought into a participating province|
|How to Pay||Registered||At the Border||Enter this amount on line 405 of your GST/HST return.|
|Not Registered||Use Form GST489, Return for Self-Assessment of the Provincial Part of Harmonized Sales Tax (HST).|
|When to Pay||Registered||Their regular GST/HST return for the reporting period in which that tax became payable|
|Not Registered||No later than the last day of the calendar month following the month in which that tax became payable|
|May claim input tax credit (ITC)||Yes, as long as you meet the requirement for claiming ITCs.|
|Exceptions||You are a registrant and the property or service is consumed, used, or supplied at least 90% in your commercial activities|
|The tax payable from all amounts to be self assessed in a calendar month is less than $25|
From the CRA Imported goods page
Goods you import into Canada are subject to the GST or the federal part of the HST, except for items specified as non-taxable importations. The GST/HST is calculated on the Canadian dollar value of the goods, including duty and excise tax, and is collected at the border at the same time as these duties and taxes.
The owner or importer of record is responsible for paying the GST/HST on imported goods. If you are registered for the GST/HST and you are the importer (the person who caused the goods to be imported into Canada), you may claim an input tax credit (ITC) for the tax you paid on the imported goods, as long as you meet the requirement for claiming ITCs.
Notice how they only mention the GST or the federal part of the HST. So what about the provincial part of the HST? Do we have to pay that as well? Luckily they mention that later in the page under
Imported goods into a participating province.
Importing Goods into a Participating Province
They mention two types of goods:
In summary HST fully applies to non-commercial goods (with some exceptions), and it is paid on the border. Here is the quote from the CRA Imported Goods page:
In most cases, the HST applies at the border to taxable importations of non-commercial goods imported by a resident of a participating province, regardless of the point of entry into Canada or customs clearance.
Taxable non-commercial goods imported into a participating province by a resident of such a province are subject to the HST on importation, except for motor vehicles required to be registered in a participating province, or a mobile home or floating home that has been used or occupied in Canada by an individual.
I found “commercial good” to be defined in the CRA Self-Assessment of the HST on Supplies Brought Into a Participating Province page as:
Commercial goods are goods that are for sale or for any other commercial, industrial, occupational, institutional or other like use.
From the CRA Imported Goods page:
Although the provincial part of the HST is not payable when you import commercial goods that are destined for the participating provinces, the goods may be subject to the self-assessment rules discussed under Goods, intangible personal properties (IPP) and services brought into a participating province. Generally, the value on which tax is required to be self-assessed is the lesser of the amount paid for the good and the fair-market value of the property.
So you don’t pay for the provincial part of HST on the border (the way non-commercial is paid) if it’s a commercial good being imported, but the self-assessment rule may (will probably) apply, which means you have to pay it by entering the amount on line 405 of your GST/HST return if you are registered. If you are not registered then pay by filling out a form. The way to figure out how much to pay tax on is explained in more detail in the CRA page on Goods brought into a participating province:
If you purchased the goods (other than a motor vehicle) from someone with whom you are dealing at arm’s length, you have to remit the provincial part of the HST on the lesser of:
- the amount paid or payable for the goods; and
- the fair market value of the goods when they are brought into a participating province.
If you purchased goods (other than a motor vehicle) from someone with whom you are not dealing at arm’s length, you have to remit the provincial part of the HST on the fair market value of the goods when they are brought into a participating province.
Let’s understand what the self-assessment rule is.
You may have to self-assess the provincial part of the HST if you buy goods, services or intangible personal properties (IPP) in a non-participating province, but you use, consume, or supply them within the participating provinces.
You may also have to self-assess if you use, consume, or supply goods, services or IPP in a participating province with a higher HST rate than the participating province where you acquired them.
But there are some exceptions:
Exception – Used in 90% of your commercial activities.
You do not have to self-assess the provincial part of the HST if you are a registrant and the property or service is consumed, used, or supplied at least 90% in your commercial activities. This exception does not apply to motor vehicles required to be registered in a participating province and to persons using simplified accounting.
Exception – Tax Payable is less that $25 in a Calendar Month
You will not have to self-assess the provincial part of the HST if the tax payable from all amounts to be self assessed in a calendar month is less than $25.
How to Self-Assess
Non-registrants who are required to self-assess the provincial part of the HST by filing Form GST489, Return for Self-Assessment of the Provincial Part of Harmonized Sales Tax (HST), no later than the last day of the calendar month following the month in which that tax became payable.
Registrants who are required to self-assess the provincial part of the HST should account for that tax in their regular GST/HST return for the reporting period in which that tax became payable.
Importing Services and Intangible Personal Property
From the CRA Imported services and intangible personal property page
If you buy services (such as architectural services for a building in Canada) or intangible personal property (IPP) (such as the right to use a patent in Canada) from an unregistered non-resident person outside Canada, you do not pay the GST or the federal part of the HST if you acquire them to use at least 90% in your commercial activities (100% in the case of a financial institution).
If you do not use the imported services or IPP at least 90% in your commercial activities, you have to report the GST or the federal part of the HST on line 405 of your GST/HST return and remit the tax directly to us.
The tax is calculated on the amount you were charged for the service or IPP in Canadian dollars, and the tax is payable in the reporting period in which the amount for the service or the IPP was paid or became payable.
If you are not registered for the GST/HST, you still have to pay tax on imported services or IPP. Use Form GST59, GST/HST Return for Imported Taxable Supplies and Qualifying Consideration, to remit the tax. The tax is due by the end of the month following the calendar month in which the amount for the services or IPP was paid or became payable.
Apparent Inconsistencies regarding importing goods and services into participating provinces
Notice that in the CRA Imported goods page they make a distinction between commercial and non-commercial imports into participating provinces. In the CRA Goods, intangible personal properties, and services brought into a participating province page that distinction is not made. Since the first page is more specific I decided to go with it when making the summary table.
This one is pretty straightforward. If you are exporting a taxable good then you zero-rate the GST/HST. If the person you are selling to is present in Canada then you need to show some evidence that they are exporting it. Here are the quotes from the CRA Exported goods page:
Goods (other than excisable goods such as beer and tobacco) that are ordinarily GST/HST taxable supplies may be zero-rated if they are exported from Canada. This means that you do not charge the GST/HST on taxable sales if you deliver the goods or make them available to a purchaser outside Canada.
When the purchaser takes delivery of the goods in Canada, you do not charge the GST/HST if the following conditions are met:
- the purchaser is not a consumer (a consumer is usually an individual who is buying the goods for his or her personal use);
- the purchaser exports the goods as soon as is reasonable in the circumstance after you deliver them;
- the purchaser does not buy the goods to consume, use, or supply in Canada before exporting them;
- after buying the goods and before exporting them, the purchaser does not further process, transform, or alter the goods in Canada, unless it is reasonably necessary or incidental to transport them;
- you keep satisfactory evidence, for audit purposes, that the purchaser has exported the goods; and
- if the property being exported is electricity, crude oil, natural gas, or any good that can be transported by means of a wire, pipeline, or other conduit, the purchaser is not registered for GST/HST purposes.
If the above conditions for zero-rating are not met, you have to charge and the purchaser has to pay the GST/HST on taxable supplies.
Once again, it’s pretty straightforward, like the exportation of goods. The services provided outside Canada are zero-rated. If you are inside Canada and provide it to non-residents then there are some issues that I will discuss after the quote. Here is the quote from the CRA Exported services page:
You do not charge the GST/HST on services you perform totally outside Canada, or on services that relate to real property situated outside Canada.
Services, other than transportation services, that you perform on temporarily imported goods are zero-rated. The goods must be brought into Canada for the sole purpose of having the service performed on them and must be exported as soon as possible. Any parts supplied along with these services are also zero-rated.
Certain services provided to a non-resident person, but not to an individual while the individual is in Canada, that are performed all or partly in Canada may be zero-rated, such as:
- certain advisory, professional, or consulting services;
- advertising services to an unregistered non-resident person;
- advisory, consulting, or research services to help a non-resident person establish a residence or business in Canada;
- services and parts for goods or real property acquired to fulfill an obligation under warranty for an unregistered non-resident person;
- custodial or nominee services for the non-resident person’s securities or precious metals;
- training services to an unregistered non-resident person (other than an individual) to teach non-resident individuals or to give examinations for courses leading to certificates, diplomas, licences, or similar documents, or classes or licence ratings that attest to the individuals’ competence or to give an exam to practise or perform a trade or vocation;
- services to an unregistered non-resident person of destroying or discarding goods, or the services of dismantling goods for the purpose of exporting them;
- services to an unregistered non-resident person of testing or inspecting goods acquired or brought into Canada for this service and the goods are to be destroyed or discarded in the course of providing the service or on its completion;
- services of acting as an agent for a non-resident person or services of arranging for, procuring, or soliciting orders for supplies by or to the person when the service relates to a zero-rated property or service, or if the supply to or by the non-resident person is made outside Canada; and
- services made in Canada to a non-resident person by electronic means, may be zero-rated. For more information, see GST/HST Technical Information Bulletin B-090, GST/HST and Electronic commerce.
Remember that you can claim input tax credits to recover the GST/HST you paid or owe on purchases and expenses related to your zero-rated goods and services. See Input tax credits for more information.
Let’s dissect the following part:
Certain services provided to a non-resident person, but not to an individual while the individual is in Canada, that are performed all or partly in Canada may be zero-rated, such as
The Situation: You are in Canada and you are providing a service for a non-resident person.
The Variables: Is the service to an individual who is in Canada?
If so then you charge GST/HST.
If not then it may be zero-rated.
Why did they distinguish between
individual? The CRA Glossary tells us what a person is:
A person means an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or any organization such as a society, a union, a club, an association, or a commission.
So they excluded an individual who is in Canada from the zero-rated tax. The following is how I understood it: Imagine a tourist goes to a tour bus agency, the agency would charge him GST/HST because the person is in Canada. If a corporate representative of a non-resident corporation was to go to the same agency they would be charged at zero-percent because the corporation is outside Canada.
Exporting Intangible Personal Property
First, what is an intangibe personal property? Accroding to the CRA Glossary:
Intangible personal property is generally a right rather than a physical object. It includes such things as contractual rights, options, intellectual property, rights in relation to goods that are not in possession, and other rights that are enforceable by the courts.
So it makes sense that some IPP may not be usable in Canada because of certain laws for examples. Hence the following is mentioned in the CRA Exports of intangible personal property page:
Supplies of intangible personal property (IPP) that may not be used in Canada are considered to be made outside Canada, and are therefore not subject to the GST/HST.
As for usable supplies the following is mentioned:
Also, supplies of intellectual property (such as a patent or trademark) and rights to use such property are zero-rated if they are made to non-registered non-residents.
Most supplies of IPP (other than intellectual property) made to persons who are non-registered non-residents are zero-rated except for the following:
- a supply made to an individual unless the individual is outside Canada when the supply is made;
- a supply of IPP that relates to real property that is situated in Canada or to tangible personal property that is ordinarily situated in Canada;
- a supply of IPP that relates to a supply of a service that is made in Canada and is not zero-rated as an export, a transportation service or a financial service;
- a supply of IPP that may only be used in Canada; or
- a supply of making a telecommunications facility that is IPP available for use in providing a telecommunication service.
For supplies of IPP to qualify for zero-rating, suppliers must verify and maintain satisfactory evidence of the registration status and residency of their customers at the time the supply is made. In addition, for supplies of IPP other than intellectual property, suppliers must verify and maintain satisfactory evidence of the physical location of their customers at the time the supply is made.
When working online the same considerations above should be observed. The CRA GST/HST and e-commerce page says the followning:
All of the rules related to GST/HST also apply to business conducted through the Internet.
If you make a taxable supply of goods or services in Canada in the course of a commercial activity you must register for GST/HST purposes, unless you qualify as a small supplier, or you are a non-resident person who does not carry on any business in Canada. See GST/HST Memoranda Series Chapter 3-4, Residence.
For more information on the GST/HST and electronic commerce, see GST/HST Technical Information Bulletin B-090, GST/HST and Electronic Commerce.
- The CRA Glossary
- The CRA GST/HST rates
- The CRA Zero-rated (0%) goods and services page
- The CRA Exempt goods and services page
- The CRA Imported goods page
- The CRA Goods brought into a participating province page
- The CRA Self-Assessment of the HST on Supplies Brought Into a Participating Province page
- The CRA Goods, intangible personal properties, and services brought into a participating province page
- The CRA Imported services and intangible personal property page
- The CRA Exported goods page
- The CRA Exported services page
- The CRA Exports of intangible personal property page
- The CRA GST/HST and e-commerce page