If you sell goods or provide services in Canada, you likely need to register for and charge customers the Goods and Services Tax ( GST) or the Harmonized Sales Tax ( HST), unless your business has a low sales volume or qualifies for an exception. Navigating the complex Canadian rules and regulations for charging GST/HST can be time-consuming and challenging. As a business owner, it's crucial to understand when you need to register for GST/HST, when to charge and collect it, and the appropriate amounts to charge.
It's also important to know that certain supplies are exempt from GST/HST, such as most health and medical services, certain educational services, and most financial services. Additionally, some supplies are zero-rated, meaning they are subject to GST/HST at a rate of 0%. Examples of zero-rated supplies include exports and certain basic groceries.
The tax status of a particular supply usually relies on its categorization of supplies, either taxable, zero-rated or exempt, under the Excise Tax Act. A vendor or supplier may be offering mixed supplies at different GST rates so it's necessary to determine if the supplier is offering single or multiple supplies because it impacts the GST liability and the Input Tax Credit claim.
A key challenge is determining whether these combined offerings constitute a single supply or multiple supplies. The Excise Tax Act does not provide clear guidance on handling such cases, making it difficult to ascertain the exact nature of what is being supplied.
Canada Revenue Agency's position
The Canada Revenue Agency (CRA)'s stance on this issue is outlined in GST/HST Policy Statement P-007R2. The CRA employs the following principles to determine whether a transaction with multiple elements should be considered a single supply or multiple supplies:
- Each supply should be treated as distinct and independent.
- A supply that is economically a single supply should not be artificially divided.
- A single supply exists when one or more elements constitute the main supply, and the remaining elements only serve to enhance it.
Essentially, the CRA believes that when elements can be separated, multiple supplies are provided. The CRA also offers a list of questions to help distinguish between single and multiple supplies:
- Is the property or service provided by two or more suppliers?
- Is there more than one recipient?
- What did the supplier provide for the consideration received?
- Is the recipient aware of the elements included in the package?
- In the context of the transaction, can the recipient choose to acquire the elements separately or substitute them?
If the CRA determines that multiple supplies exist, the next step is to assess whether one supply is incidental to another and if it should be considered part of a single supply according to section 138 of the Excise Tax Act. In this context, "incidental" typically means that a supply plays only a minor or subordinate role in relation to another supply.
Case law focuses on the nature of the supply
A key factor to consider is whether the alleged separate supply can realistically be omitted from the overall supply. This is not definitive but helps in assessing the substance of the transaction.
In City of Calgary v The Queen, 2012 SCC 20, the Supreme Court of Canada (SCC) affirmed this approach in analyzing single versus multiple supplies. The SCC determined that the true nature of the city's transit facilities services was preparatory work for the municipal transit service. Therefore, the Court ruled that these services were part of the overall supply of public transit services to the public.
In Club Intrawest v The Queen, 2017 FCA 151, the Federal Court of Appeal (FCA) held that even when a single consideration is charged, there can be multiple supplies. Club Intrawest, which provides vacation accommodations across North America, charged its members an annual resort fee for services offered at resorts both inside and outside Canada. Although both the appellant and the CRA agreed that GST/HST should apply only to the portion related to properties in Canada, the Tax Court of Canada initially ruled that the tax should apply to the entire consideration, including properties outside Canada.
The FCA concurred with the TCC's decision that a single supply would either be taxed based on the entire consideration or not taxed at all. However, the FCA disagreed with the TCC's solution and instead split the supply into two separate supplies. The FCA also adopted Club Intrawest's suggestion to allocate the resort points according to the ratio of membership costs associated with the operation of vacation homes to the total cost of operating all vacation homes, as this more accurately reflected the nature of the taxable supply.
Pro tax tips – parties should always clarify their true intentions when entering into a contract
The FCA's decision underscores the importance of clearly outlining the true intentions of the parties when drafting a legal document. If Club Intrawest had consulted with an experienced Canadian tax lawyer to explicitly state in the legal document that it was acting solely as an agent, litigation could have been avoided. If you need help with single supply vs multiple supplies clarifications, feel free to reach out to us to speak with a top Canadian GST/HST tax lawyer.
FAQ
How to differentiate between single supply vs multiple supplies?
Case law indicates a key factor to consider is whether the alleged separate supply can realistically be omitted from the overall supply, which is often based on the true intention of parties involved.
What is the CRA's position regarding single supply vs multiple supplies?
The CRA believes that when elements can be separated, multiple supplies are provided. Once that's determined, the next step is to assess whether one supply is incidental to another and if it should be considered part of a single supply.
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.