An analysis with huge impact
If your business is determined to be resident in Canada or carrying on business in Canada for GST/HST purposes, you will have to establish your GST/HST obligations and your eligibility to claim credits, which may include:
- registration for GST/HST purposes
- collection of GST or HST on your sales in Canada
- posting security with the tax authorities
- paying GST/HST on goods and services previously zero-rated as a non-resident purchaser
- claiming credits for GST paid on imports into Canada and determining the appropriate documentation rules
- claiming credits for GST/HST paid on your purchases in Canada.
If you make an error in determining your business’ resident status or in determining whether your business is carrying on business in Canada, you could be left vulnerable to GST/HST assessments for tax not collected and could miss out on opportunities to claim credits for GST/HST paid. A late determination could also be costly if you are unable to claim missed credits retroactively.
While your business may see an increase in compliance requirements as a resident in Canada, these requirements can be managed effectively. Indeed, some qualifying non-resident businesses choose to voluntarily register for GST/HST purposes. For some of these businesses, registration provides an opportunity to claim GST paid on their imports into Canada and other expenses, and also reduce their costs and risks.
Is your corporation resident in Canada?
For GST/HST purposes, a person may be determined to be resident in Canada based on various rules. Different residency rules may apply for different types of taxpayers (e.g., corporations, individuals, trusts, partnerships). For example, a corporation is deemed to be a resident if it is incorporated or legally continued in Canada and not continued elsewhere. However, a corporation not incorporated in Canada may still be considered by the tax authorities to be a resident in Canada under general legal principles if the central management and control of the corporation are determined to be in Canada. Various factors apply to make this determination.
Is your corporation carrying on business in Canada?
A non-resident that carries on business in Canada is generally required to register for GST/HST purposes and follow most of the same rules as other businesses in Canada. The tax authorities have published interpretive guidance that outlines various factors that are considered to make this determination. However, ultimately this determination is based on the specific facts and circumstances of each non-resident business. The two concepts for non-residents summarized in this article are important but many other rules will play a role in determining the impact of the GST/HST on a non-resident’s operations. A non-resident corporation that plans to expand its operations to Canada should determine its GST/HST obligations early, as well as other indirect tax and income tax obligations, to help limit missed tax opportunities and to manage tax liabilities.