Foreign companies, individuals and organizations who provide goods and services to customers in Canada should consider whether their business activities in Canada invoke a requirement to register for the Goods and Services Tax / Harmonized Sales Tax (GST/HST).

GST/HST applies to most supplies of goods and services made in Canada. Registrants for GST/HST are required to collect the tax at the applicable rate (5%, 13% or 15%) on their taxable supplies made in Canada. However, registrants generally are entitled to claim refunds of GST/HST paid on costs incurred in Canada. Consequently, only the net amount of tax is payable (or refundable) when GST/HST returns are filed with the Canada Revenue Agency (CRA).

GST/HST registration

The GST/HST is a value-added sales tax levied under the Excise Tax Act (ETA). The ETA provides that every non-resident person who makes a taxable supply in Canada in the course of carrying on a business in Canada must be registered for GST/HST purposes, except where the person is a small supplier (i.e. annual worldwide taxable sales, including those of the person's associates, do not exceed CAD $30,000). For the purposes of this article, we will assume that most foreign entities making sales to Canadian customers have annual global sales exceeding CAD $30,000 and are therefore not small suppliers.

Supply made in Canada

GST/HST applies only to supplies (or sales) made in Canada. The ETA deems a sale made by a non-resident to be made outside Canada as long as the non-resident is not carrying on business in Canada. This deeming provision allows non-residents to make occasional sales to Canadian customers without becoming registered. However, GST/HST registration is required where the level of activity in Canada is sufficient for the non-resident to be viewed as carrying on business in Canada. A non-resident who is not carrying on business in Canada may choose to become registered for GST/HST on a voluntary basis.

Carrying on business

As discussed above, GST/HST registration is required where a non-resident makes a taxable supply in Canada in the course of a business carried on in Canada. A non-resident may be viewed as carrying on business in Canada for GST/HST purposes even without a permanent establishment in Canada.

The term "carrying on business" is not defined. Rather, it requires an analysis of several factors. The CRA set out its administrative position regarding the relevant factors in a policy statement issued in 2005. The CRA suggests that the importance of each factor may vary depending on the circumstances and the nature of the supplies being made (e.g. goods, services, intangible personal property).

The CRA further indicates that a non-resident person must have a significant presence in Canada to be viewed as carrying on business in Canada. Where only some of the factors are present, their weight and importance must be assessed.

The factors relevant to determining whether a non-resident person is carrying on business in Canada for GST/HST purposes include:

  • the place where agents or employees of the non-resident are located;
  • the place of delivery;
  • the place of payment;
  • the place where purchases are made or assets are acquired;
  • the place from which transactions are solicited;
  • the location of assets or an inventory of goods;
  • the place where the business contracts are made;
  • the location of a bank account;
  • the place where the non-resident's name and business are listed in a directory;
  • the location of a branch or office;
  • the place where the service is performed; and
  • the place of manufacture or production.

Obligations of a registrant

Non-residents who register for GST/HST purposes are subject to the following obligations:

  • They are required to charge and collect applicable GST/HST on taxable supplies made in Canada.
  • They must file periodic GST/HST returns with the CRA. Reporting periods may be annual, quarterly or monthly, depending on the level of sales in Canada.
  • They must remit to the CRA the net amount of tax, being the total GST/HST on sales less total GST/HST payable during that particular reporting period that may be claimed as refunds.
  • If a registrant is an annual filer, they might also be required to make quarterly installments starting in the second year of registration.
  • Registrants must satisfy information requirements on sales invoices.
  • They must update their accounting systems to record the GST/HST collected, collectible and/or paid or payable, as the case may be.
  • They must maintain books and records in accordance with the CRA's policy.

Voluntary registration

If GST/HST registration is not required, non-residents of Canada may become registered on a voluntary basis. The benefit of registration is that registrants generally are entitled to claim refunds of GST/HST paid on costs such as warehousing, shipping and the importation of goods into Canada. Thus, GST/HST paid does not represent a true cost.

Questions?

In order to minimize any potential future risks with the Canadian tax authorities, it is important for any organization making sales in Canada to determine if they are "carrying on business in Canada," with a corresponding requirement to register for the GST/HST.

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.