Scope and rates
Generally, GST/HST applies to the value of the consideration for taxable supplies of goods or services made in Canada. While the consideration is usually expressed in money, the consideration, or part of the consideration, may be other than money, such as property or a service. In such case, the value of the consideration, or part of the consideration, is the fair market value of the property or service.
The word supply includes most forms of goods and services. The scope of the GST/HST is not restricted to the provision of goods and services by way of sale but also includes other types of transactions, including leases and rentals, barter transactions, the granting or assignment of a right, or even an agreement not to do something.
The payment of money and the provision of an employee's services to an employer are not supplies. However, certain actions carried out for no consideration may still cause GST to be exigible; for example, imports of services and intangibles by a Canadian branch from a foreign branch of the same person, or benefits provided to employees.
The standard rate of GST is 5 percent. Five Canadian provinces - British Columbia, Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador - impose the Harmonized Sales Tax (HST). The rate of HST varies from 12 percent to 15 percent (rates effective 1 July 2010). The HST is a combination of a federal component (i.e., 5 percent) and a provincial component (i.e., 7 percent to 10 percent). In all material respects (tax base and mechanics) the HST system is essentially identical to the GST system. British Columbia and Ontario which adopted the HST on 1 July 2010 have temporary recaptured input tax credit requirements of the provincial component of the HST on some expenditures.
In addition, the provinces of Saskatchewan, Manitoba, and Prince Edward Island levy retail sales taxes in their respective jurisdictions. The rates vary from 5 percent to 10 percent. The legislation and rules vary among the provinces (i.e., separate registration processes, returns, tax authorities, audits, etc.).
The province of Québec levies a 9.5 percent (rate effective 1 January 2012) Québec Sales Tax (QST) that is generally the same as the GST in application. One of the main differences is the treatment of financial services, which are exempt for GST but zero-rated for QST.
While there are no reduced GST/HST rates, there is an extensive list of zero-rated supplies, including:
- certain prescription drugs and medical devices
- basic groceries
- certain goods used in the agriculture and fishing industries
- exports of some goods and services
- certain international travel and transportation services.
There is also an extensive list of exempt supplies, including:
- used residential real property
- certain health care, educational, child, and personal care services
- many supplies made by charities and public sector bodies
- most domestic financial services.
Note: it is not possible to recover the GST/HST paid on inputs relating to exempt supplies.
The provinces of British Columbia, Ontario, and Nova Scotia have point-of-sale rebates of the provincial component of the HST for a few items.
Several provinces have proposed changes to their sales tax systems. Quebec will further harmonize the Quebec Sales Tax (QST) rules with the GST rules. Among other changes, Quebec proposes to increase the QST rate to 9.975 percent, apply the QST on prices before the GST, and treat financial services as exempt for QST purposes on 1 January 2013. British Columbia will transition back to 7 percent PST and 5 percent GST on 1 April 2013. Prince Edward Island proposes to adopt the HST on 1 April 2013 at a rate of 14 percent.
Several other indirect taxes apply in Canada, under federal and/or provincial jurisdictions, including:
- provincial sales taxes
- provincial real property transfer taxes
- various payroll taxes
- custom taxes
- industry specific taxes (insurance, fuel, tobacco, alcohol, and hotel room taxes)
- environmental levies.
Generally, if a business makes taxable supplies in Canada and the value of the taxable supplies made inside or outside Canada by your business (including any associated entities) exceeds CAD 30,000 in the last four calendar quarters or in a single calendar quarter in the course of a commercial activity, it will be required to register and account for Canadian GST/HST. If the value of taxable supplies made in Canada by the company and its associated entities is below this registration threshold, it is generally considered a small supplier, but can still choose to register voluntarily for GST/HST purposes. It should be noted that a commercial activity includes a business carried on by a person, an adventure or concern of a person in the nature of trade and the making of a supply of real property. However, a commercial activity excludes such activities to the extent they involve the making of exempt supplies.
Supplies of financial services and sales of capital property of the person or associated entities are excluded from the CAD 30,000 small supplier threshold calculation.
Other special rules apply to, among other entities, charities and taxi businesses.
The registration rules that apply to Canadian entities also apply to non-Canadian entities that make taxable supplies in Canada in the course of a business carried on in Canada.
Furthermore, anyone who enters Canada and charges admission to an event such as a show or a concert, a seminar or an activity must register for GST/HST before doing so.
Foreign book and magazine publishers that advertise in Canada for publications to be sent to their Canadian customers or subscribers via courier or post must also register.
Access Form RC1, Request for a Business Number (BN) on theCanada Revenue Agency web site: http://www.cra-arc.gc.ca/E/pbg/tf/rc1/README.html.
Penalties and interest may be charged for failing to register for GST/HST at the required time. These penalties and interest are generally calculated based on the net tax due for the period commencing when your business should have been registered. The net tax is the tax that should have been charged on supplies, less the input tax credits that your business would have been entitled to recover.
There is also a specific monetary penalty imposed for failure to file a document.
Yes, a non-resident who is not required to register under the general registration rules may voluntary register under one of the following situations:
- a non-resident person who in the ordinary course of carrying on business outside Canada regularly solicits orders for the supply by the person of goods for export to, or delivery in Canada or
- a non-resident person who in the ordinary course of carrying on business outside Canada has entered into an agreement for the supply by the person of services to be performed in Canada, or intangible personal property to be used in Canada or that related to real property situated in Canada, to tangible personal property ordinarily situated in Canada, or to services to be performed in Canada.
Generally, if a company is considered to be carrying on business in Canada and together with its associated entities make taxable supplies inside or outside Canada of a value exceeding CAD 30,000 in the last four calendar quarters or in a single calendar quarter in the course of a commercial activity, it must register for GST/HST. Supplies of financial services and sales of capital property of the person or associated entities are excluded when calculating this CAD 30,000 threshold.
However, in some cases, a business that is not required to register may voluntarily register for GST/HST. A business would generally submit such an application to be able to claim eligible credits for GST/HST paid on expenditures. However the Excise Tax Act provides some provisions for unregistered non-resident registration to help alleviate the cost of GST/HST paid without having to voluntarily register.
No, the Excise Tax Act does not provide for such a requirement.
No. GST/HST grouping for registration purposes is generally not permitted (special rules may apply for some investment plans). However, some members of closely related groups may elect to have some supplies made between them deemed to be made at nil consideration or to be deemed exempt financial services.
In order to make either election, various criteria must be met. Primarily, the members of the group must be closely related, which essentially means that one of the corporate members of the closely related group owns all of the others either directly or indirectly, or else they are all owned by the same corporate person. To qualify as closely related, members must be registered for GST/HST and resident in Canada. Some partnerships may qualify as members of a closely related group.
Members of a closely related group (other than financial institutions) can elect for most supplies made between them to be deemed to have been made for nil consideration, so that GST/HST is not payable on eligible supplies. Eligible input tax credits may still be recovered with respect to the costs associated with making those supplies.
Members of a closely related group that includes a listed financial institution can elect to have supplies of services, and leases/licenses of goods, made between them to be treated as exempt supplies, so that no GST/HST applies on eligible supplies. However, input tax credits cannot be recovered for the GST/HST incurred on the associated costs. Also, if a member of a closely related group makes the election to have supplies treated as exempt financial services, an election to have supplies made for nil consideration ceases to be in effect. Before making such an election, you may wish to carefully review the various rules and other related GST consequences.
Access Form GST 25, Election for Nil Consideration - Election or Revocation of the Election to Treat Certain Taxable Supplies as having been made for Nil Consideration on the Canada Revenue Agency's web site: http://www.cra-arc.gc.ca/E/pbg/gf/gst25/README.html.
Access Form GST 27, Election or Revocation of an Election to Deem Certain Supplies to be Financial Services on the Canada Revenue Agency's web site: http://www.cra-arc.gc.ca/E/pbg/gf/gst27/README.html.
In order to qualify as a member of a closely related group, a company must be a resident in Canada and must generally be registered for GST/HST purposes.
Reporting periods vary according to the total revenues from taxable supplies made in Canada by the particular business and any associates. Businesses with CAD 1.5 million or less in revenues from taxable supplies are assigned an annual reporting period, and businesses with over CAD 6 million annually in taxable supplies are required to file their GST/HST returns monthly. Businesses with revenues between these two thresholds are required to file GST/HST returns on a quarterly basis.
Businesses that are assigned annual or quarterly reporting periods can elect to file more frequently. If a person is in a net GST/HST refund position because its input tax credits exceed its tax collected, electing to file monthly GST/HST returns should ease its cash flow.
Failure to file GST/HST returns and/or to remit net tax owing on time may result in interest and penalty charges on the late-remitted tax.
For reporting periods after 31 March 2007, the penalty for under-remitted GST/HST has been replaced by a higher interest rate with respect to filed GST/HST returns.
GST/HST Return for Acquisition of Real Property
Under certain circumstances if a person is not registered for GST/HST purposes, or if a registered person cannot recover the GST/HST paid on costs, and the person purchases Canadian real property, the person may be required to file a Form GST 60, Return for Acquisition of Real Property and pay the GST/HST by the end of the month following the purchase.
Access Form GST 60, GST/HST Return for Acquisition of Real Property on the Canada Revenue Agency web site.
Most financial institutions are required to file the GST/HST Annual Information Return. In addtion, some financial institutions are required to file a Selected Listed Financial Institution Return.
Generally, taxes collected in foreign currency must be converted to Canadian dollars, using either a Canadian chartered bank exchange rate or the Bank of Canada exchange rate.
No. If an unregistered non-resident imports goods into Canada that will be processed by someone else, or sold to Canadian registrants, it may be able to transfer to them a credit to recover the GST that it paid to import the goods. As this process has commercial and tax considerations, it may wish to carefully review the rules before proceeding with it.
Yes. There are certain items that businesses cannot recover GST/HST on. For example, GST/HST paid on inputs attributable to exempt supplies.
Where a company incurs GST/HST-bearing inputs that relate to both taxable and exempt supplies, it generally needs to allocate the GST/HST between them by methods that are fair and reasonable and that are used consistently throughout a year. GST/HST paid on inputs that relate to exempt supplies cannot be recovered.
There are no prescribed methods for making this allocation, except for most financial institutions. For fiscal years that begin after March 2007, the government proposed more detailed input tax credit allocation rules for most financial institutions.
Recaptured Input Tax Credit Requirements
Under the British Columbia and Ontario HST, large businesses (annual taxable supplies exceeding CAD10 million, including such supplies of associated persons, and some financial institutions) are subject to recaptured input tax credit requirements that apply to the provincial component of the HST incurred on specific items, including energy (except for production use), road vehicles weighing less than 3,000 kilograms and most meals and entertainment expenses. These requirements are scheduled to apply for the first five years of the British Columbia and Ontario HST (starting 1 July 2010) and then will be phased out over three years.
Capital Personal Property Used Less than Primarily in Commercial Activity
Generally, if capital personal property is not used primarily (that is, less than 51 percent) for commercial activities, no input tax credit can be claimed to recover GST/HST paid on the property. However, if you use capital personal property primarily for commercial activities, you may be entitled to claim an input tax credit to recover the GST/HST paid on the property. This rule does not apply to financial institutions, which can claim input tax credits prorated to the extent the capital property is used for commercial activities.
Value of Passenger Vehicle over Capital Cost Allowance
Only the GST/HST payable on the capital cost of the vehicle for Canadian Income Tax purposes can be recovered as an input tax credit (see Recaptured Input Tax Credit Requirements above). Any GST/HST paid on the vehicle in excess of the capital cost cannot be recovered.
Meal and Entertainment Expenses
Generally, only 50 percent of the GST/HST incurred on food, beverage, and entertainment expenses can be recovered as an input tax credit (see Recaptured Input Tax Credit Requirements above).
Recreational Club Memberships
The GST/HST paid on memberships in dining, recreational or sporting clubs cannot be recovered, unless the purchaser is in the business of purchasing and re-supplying such memberships.
Home Office Expenses
The GST/HST paid on costs relating to an office in a person's residence cannot be recovered unless the office is either the person's principal place of business, or it is used exclusively to earn business income, and to meet customers or patients on a regular and continuous basis.
Personal Use by Employee or Shareholder
Generally, the GST/HST cannot be recovered on inputs that are exclusively for the personal use of an officer or an employee, or primarily for the personal use of a partner or shareholder, unless a charge is made at fair market value.
International supplies of goods and services
The GST/HST generally applies to taxable supplies made in Canada. The Excise Tax Act provides several rules to determine if a supply is made in Canada or elsewhere. Generally, supplies provided outside of Canada (such as goods delivered outside of Canada) are deemed to be made outside of Canada. Conversely, supplies provided in Canada (such as goods delivered in Canada) generally are deemed to be made in Canada. Where it is determined that a supply is made outside Canada, no GST applies on the consideration for that supply. The following analysis only relates to supplies made in Canada and exported out of Canada (that is, may qualify as zero-rated supplies).
If a supplier sells goods to a person (other than a consumer) for export, the supplier may not be required to charge and collect the GST/HST provided, among other conditions, that:
- the recipient exports the goods as soon as is reasonable
- the goods are not consumed, used, or supplied in Canada before export
- prior to export, the goods are not further processed, transformed, or altered in Canada except as required for transportation and
- the supplier retains official evidence that is satisfactory to the tax authorities of the exportation of the goods by the recipient. Such information may include the bill of lading, importation documents, etc.
Many services can be zero-rated when supplied to a business or individual customer outside of Canada. However, care must be taken because the criteria for each zero-rating provision are very specific. Entitlement to zero-rating can turn on a number of factors, including the residence and/or GST/HST registration status of the recipient, and whether there is a direct or an indirect relationship between the service and Canada.
The following are the general categories of services that may qualify for zero-rating when provided to a non-resident, depending upon the specific circumstances:
- general services, provided there is not a specific provision that excludes the services from zero-rating (e.g., services in respect of real property)
- supplies to unregistered foreign carriers
- services performed on goods temporarily imported into Canada
- certain agency, marketing, and sales solicitation services
- emergency repairs or storage of conveyances, railway rolling stock, or cargo containers
- advertising services
- advisory, consulting, or research services to assist a non-resident in establishing a business or residence in Canada
- certain intangible personal property (including intellectual property)
- services provided under a warranty extended by a non-resident
- custodial and nominee services
- training provided to non-residents, other than individuals
- testing, inspecting, destroying, discarding property, or dismantling it for export purposes
- postal and telecommunication services
- advisory, professional, or consulting services that do not relate to property or litigation in Canada.
When goods are imported into Canada, a business registration number is generally required from the Canada Revenue Agency.
If goods are allowed entry into Canada and all other government department requirements have been met, a 10-digit tariff classification number is assigned at the time of import by either the importer or customs broker. Once the tariff classification number has been assigned, the duty rate of the goods can be determined.
GST at 5 percent is applicable to most imported commercial goods and is calculated on the value of the imported commercial goods. However, GST does not apply to zero-rated or exempt goods when imported.
Duties and taxes are payable at the time of importation into Canada and can be paid directly to the Canada Boarder Services Agency (CBSA) by the importer at the time of importation by utilizing the Commercial Cash Entry Processing System (CCEPTS) that is available in certain customs offices.
Goods may also be released prior to the payment of duties and taxes if security has been posted with the CBSA. The posting of security will defer payment of the duty and GST until the last business day of each month for all import transactions occurring between the 24th of the previous month to the 25th of the current month. If using the services of a customs broker, payment of duties, and taxes will be arranged through them and the customs broker will pay CBSA on behalf of the importer of record.
If a business imports certain services or intangible goods from outside Canada, it may be required to self-assess the applicable GST/HST, unless it imported the services or intangibles exclusively for consumption, use or supply in the course of its commercial activities.
If a business imports services or intangibles for use in making exempt supplies, which do not give rise to input tax credit recovery, it will be required to self-assess GST/HST to the extent the imported services or intangibles relate to its exempt activities. No input tax credit is available to offset the self-assessed GST/HST on costs that relate directly to exempt activities. (See Head Office and Branch Transactions section for further information on imports.)
In addition to goods and intangibles, if a supplier is an unregistered non-resident of Canada and it sells goods located in Canada in certain drop-shipment situations, in which the goods will be used in exempt rather than commercial activities, its customer may be required to self-assess the GST/HST on the fair market value of the goods.
GST/HST registrants must comply with a number of tax disclosure requirements. See below for further information.
For the recipient of a supply to be able to claim an input tax credit, certain supporting documentation must be obtained. It can be in the form of an invoice, receipt, credit card receipt, book or ledger of account, a written contract or agreement, any record contained in a computerized or electronic retrieval or data storage system, and any other document validly issued or signed by a registrant in respect of a supply. However, in most commercial transactions this information would appear on the invoice or receipt.
The amount of detail required in the supporting documentation increases with the value of the purchase.
The following information is required for purchases of less than CAD 30:
- the vendor or intermediary's name or trading name
- the date of the invoice or the date the GST/HST is payable
- the total consideration paid or payable
Purchases from CAD 30 to less than CAD 150 require the above information, plus the following:
- the total amount of GST/HST charged, or a statement that the price includes GST/HST and showing the rate
- the tax status of each item, if the invoice or receipt covers both taxable and exempt/zero-rated supplies
- the vendor or intermediary's GST/HST registration number
Purchases of CAD 150 or more require all of the above information, plus the following:
- the purchaser's, or purchaser's representative's, trading name
- the payment terms
- a description of the supply sufficient to identify it
Note that the GST/HST registration number of the purchaser does not form part of the supporting documentation.
Yes, provided that the invoice, either alone or in combination with another eligible document or documents, contains the information required for the recipient to be able to claim the input tax credit.
Canada does not have a formal self-billing program.
Prices expressed in a foreign currency must be converted into Canadian currency using either the exchange rate on the day tax is payable or any other day as is acceptable to the tax authorities. Generally, tax is payable the earlier of the date of the payment, the invoice is issued, the day the supplier would have issued an invoice if not for an undue delay or the day the payment is required as per an agreement in writing.
Transfers of business
Yes. Subject to a number of conditions, a person may be able to sell the assets of a business or part of a business without charging or collecting GST/HST where the appropriate election is filed.
Options to tax
Real Property Supplied by Public Service Bodies
Certain public service bodies (charities, non-profit organizations, schools, and hospitals) can elect for GST/HST to apply to their otherwise exempt supplies of real property. There is no minimum period that this election must be in place. Such an election can be revoked at any time but may generate unrecoverable tax.
Access Form GST 26, Election or Revocation of an Election by a Public Service Body to have an Exempt Supply of Real Property Treated as a Taxable Supply on the Canada Revenue Agency's web site: http://www.cra-arc.gc.ca/E/pbg/gf/gst26/README.html.
Sale of Land by an Individual
In limited circumstances, an individual making an exempt sale of land may be entitled to elect for the sale to be taxable, allowing the individual to claim input tax credits or a rebate in respect of the original cost of the property.
Access Form GST 22, Real Property - Election to Make Certain Supplies Taxable on the Canada Revenue Agency's web site: http://www.cra-arc.gc.ca/E/pbg/gf/gst22/README.html.
Professional or Trade Accreditation Courses, Examinations, and Certificates
Some professional or trade accreditation courses, examinations and certificates are exempt supplies but eligible suppliers can elect to make them taxable. Electing to make the supply taxable would enable the supplier to recover input tax credits on costs.
Access Form GST 29, Educational Services - Election and Revocation of the Election to Make Certain Supplies Taxable on the Canada Revenue Agency's web site: http://www.cra-arc.gc.ca/E/pbg/gf/gst29/README.html.
Memberships in Certain Public Sector Bodies and Professional Organizations
Generally, memberships in certain public sector bodies and professional organizations are exempt, but an eligible organization can elect for them to be taxable, enabling the organization to claim input tax credits on its costs.
Access Form GST 23, Election by a Public Sector Body to Have Its Exempt Memberships Treated as Taxable Supplies and Form GST 24, Election to Tax Professional Memberships on the Canada Revenue Agency's web site:
Head office and branch transactions
If a head office makes a charge to its branch or vice versa, that charge is not treated as a supply for GST/HST purposes if both the head office and the branch are located in Canada.
However, transactions between a head office and a branch where only one of them is situated in Canada are treated as transactions between two arm's-length parties. Generally, if a supply of a service (that is not exempt or zero-rated) is made to the Canadian establishment by the foreign establishment, the Canadian establishment would have to self-assess the GST/HST. As such, the cost allocations to Canadian branches may be subject to GST/HST self-assessment if the Canadian branch could not have fully recovered the GST had the branch purchased the same supply in Canada. In addition, financial institutions may have to self-assess GST/HST on certain types of exempt financial services acquired from a foreign head office or branch.
If a supplier has written off an amount in its books as a bad debt, the supplier can generally deduct the GST/HST portion of the bad debt on its GST/HST return. If the supplier subsequently receives payment for the supply, it must pay back the GST/HST component in the same way.
There are specific anti-avoidance provisions that apply to parties not dealing at arm's length. These include:
- a provision to deem the consideration of a supply between the parties to be equal to the fair market value if the recipient of the supply is unable to recover all of the GST/HST paid and
- a provision to deem supplies made between permanent establishments of the same person inside and outside Canada as being made between separate persons dealing at arm's length.
In addition, the Excise Tax Act provides that a tax benefit may be denied if a transaction is entered into for the purpose of avoiding or deferring GST/HST or increasing a refund amount, and not for legitimate business reasons.
Interest is compounded on a daily basis and is calculated on non-remitted net tax. Some penalties may also apply.
How often do tax audits take place?
There are no specific guidelines as to how often the tax authorities do tax audits.
Are there audits done electronically in your country (e-audit)? If so, what system is in use?
The tax authorities may request data in electronic format during an audit.
Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?
Are rulings and decisions issued by the tax authorities publicly available in your country?
Generally, some severed interpretation letters issued by the tax authorities are available through publishers.
In Canada, there are several indirect taxes governed by provincial governments and the federal government each with their own rules and obligations. Some of these indirect taxes including GST/HST, some provincial sales taxes, payroll taxes, and environmental levies.
No. However, see comments under Scope and Rates.