Place of Supply Rules For GST & HST

If you are shipping goods inside of Canada that were ordered online over the internet, GST/HST applies. 

After April 30, 2010, the general rule if you are electronically selling services or intangible property to a Canadian resident is ... the GST/HST rate applies according to the location of the end user/customer. As of May 1, 2010, it is no longer based on the location of the where the service originated.

That means these rules apply to the purchase of digitized products like eBooks and services such as web hosting and web design.

If you are shipping goods outside of Canada that were ordered online over the internet, the goods are zero rated (which is different than exempt) and therefore NO GST/HST is collected.

The general rule if you are electronically exporting services or intangible property to a non-resident person (defined as the billing address is outside of Canada without a permanent establishment in Canada) who is not a GST/HST registrant, you do NOT charge GST/HST as it is zero rated.

I understand this to mean electronic supplies (intangible property and services) are zero rated if exported.

Check CRA's GST/HST Technical Information Bulletin B-090 GST/HST and Electronic Commerce for more details.

It is worth mentioning that eBay sellers were selected for audits in the fall of 2009. Their online income should have been reported on Form T2125 when filing their personal tax returns ... and applicable GST/HST should have been collected and remitted.

Place of supply rules are complex ... you don't know what you don't know. No one said small business taxes in Canada would be simple. If you feel you need specialized advice in this area, you may want to visit the website of David Sherman, Canadian tax lawyer.

Reference: CRA GST/HST on imports and exports

A forum question stated the following: I was wondering if we can claim the GST input tax credit for business goods & services purchased from the US? Some places do charge it to Canadian customers and it's visible on their receipts, but others do not. 

Secondly, if we earn an income from a US source, do we claim GST on that as well?

Yes you can claim your GST ITCs on U.S. purchases. Just check out that they are a valid GST/HST registrant first. The amount you can claim should be clearly shown on the invoice / receipt and show their registration number. If it doesn't I email them and request the information for my business records.

As you noticed, not all your U.S. purchases are charged GST/HST. That is because only U.S.businesses with a permanent establishment or presence in Canada must register and charge the tax. I talked about this when discussing online / electronic income above.

Generally, U.S. income is zero rated, so you don't charge GST/HST ... but you need to make this decision pertaining to your business under the new place of supply rules. That means most, not all, of your affiliate / commission income from the U.S. is zero rated.

Here is the general rule again for digital sales originating in Canada and exported to the U.S.

If you are electronically exporting services or intangible property to a non-resident person who is not a GST/HST registrant, you do NOT charge GST/HST as it is zero rated. A non-resident is defined as the billing address is outside of Canada without a permanent establishment in Canada.

Effective July 1, 2021, digital sales imported to Canada changed. See information on this presented earlier in this article.

If physical goods are exported, Customs will charge all duties and taxes when it crosses the border. If physical goods are imported, Customs will charge the applicable taxes and duties necessary.

If you are exporting goods outside Canada, review this checklist for exporting commercial goods from the Canada Border Services Agency (CBSA) before you export. It was designed to be used with their step-by-step exporting guide.

If you export to the U.S. The Canadian Trade Commissioner Service has a guide for Canadian businesses exporting to the U.S.. This is an archived publication so be sure to also click on the CUSMA link.

The Global Affairs Canada website states "Canada believes that electronic commerce provides new ways of doing business, opens new business opportunities and that it is still commerce rather than a new sector. Canada considers that existing multilateral agreements and frameworks already apply to electronic commerce" ... "From an international trade policy perspective, what is needed is greater clarity in applying existing international trade rules to electronic transactions."

I started out this research trying to determine if any of the states in the U.S. had eCommerce sales/use tax on Canadian internet transactions. Check out this 2019 US Sales Tax Guide for Canadian eCommerce Sellers published by Baranov CPA.

You may be interested in this chat about CBSA Duties and GST Payable.

If you sell remote assistance for software services to US do you charge HST, state taxes or nothing?

Remote selling refers to digital or remotely provided products, services, and intangible personal property such as consulting services, digital products, and online platform services. They  include but are not limited to:

• Accounting, advertising, consulting, and legal services, etc. delivered remotely
• Investment management services
• Memberships in non-profit organizations
• Mobile apps
• Music and video streaming
• Online courses
• Video games

It is my understanding that when you export your services to the US, sales tax is zero rated. The July 1, 2021 digital business economy changes (discussed earlier) applied to importing to Canada. 

The rules may be slightly different if the US business has a permanent establishment in Canada.

If you have a business presence in the U.S., the rules are different. I have no experience with or knowledge of U.S. state tax requirements. However, it is my understanding that use tax applies only to tangible personal property for U.S. businesses / residents at this time. I believe all sales from outside the U.S. fall under international tax treaties.

I recommend that you seek the professional advice of a CA or CGA to ensure correct treatment of your revenue stream ... preferably a cross border specialist.

Effective January 2019, Quebec introduced new QST registration rules for Foreign Specified Suppliers (FSS) and Specified Digital Platform (SDP) operators. Canadian Specified Suppliers (CSS) went into effect September 2019 .

These rules affect businesses that do not have a physical presence in Quebec, are not QST registered and sell Quebec consumers services, certain goods or intangible goods such as downloads of digital music, software, movies, TV shows or games.

Three QST Suppliers Criteria* 

1. An FSS is a supplier who:

1. does not carry on a business in Canada;
2. does not have a permanent establishment in Canada;
3. is not registered for GST/HST purposes; and
4. is not registered for QST purposes under the regular QST system.

2. A CSS is a supplier who:

1. does not carry on a business in Québec but does in other provinces;
2. does not have a permanent establishment in Québec;
3. is a GST/HST registrant; and
4. is not registered for QST purposes under the regular QST system.

A non-resident supplier who is a GST/HST registrant is a CSS and not an FSS, since as a registrant it is considered to be carrying on business in Canada.

3. An SDP is a digital platform where an operator:

1. enables another person who is an FSS or a CSS to make a taxable supply in Québec of an intangible product or service through the use of a digital platform; and
2. controls the essential elements of the transaction between the non-resident supplier and the Québec customer such as billing, the terms and conditions of the transaction and the terms of delivery.

The small supplier rule applies. This means the threshold for registration is $30,000 based on sales made to individual consumers in Quebec in the preceding 12-month period.

A December 2018 KPMG Tax NewsFlash pointed out, "Although the new rules will no longer require specified Quebec consumers to self- assess QST on supplies received from suppliers outside Quebec, these self- assessment rules will continue to apply to other customers in Quebec that purchase supplies from suppliers outside Quebec, including suppliers registered under the new QST registration system. For example, an entity that is registered for QST purposes will not qualify as a specified Quebec consumer and may still be required to self-assess QST on supplies purchased from non-resident suppliers if those supplies are not inputs into the entity’s commercial activities."

If you have Quebec sales, contact your accountant on how to implement these place of supply rules.

*Reference: BDO's article "Tax Alert - Application dates approaching on new QST registration rules for non-residents" is a still a good read for those needing more information. The BDO article explained this system is strictly a QST collection system on sales made to consumers in Quebec so there are no offsetting ITCs.

Yes.

Place of supply rules for goods are still based on where the good is delivered to your customer ... they did not change. This means if your customer was in your store purchasing goods, the customer is located where your store is.

New place of supply rules for services and intangible personal property are now based on the province of the customer ... which may not be the same place as where the work is performed. This means if your customer is in a non-participating province (GST), you would charge GST only. If your customer is in a participating province (HST), you would charge HST.

It is my understanding that any purchase that includes GST/HST, which was made to run your business with the expectation of making a profit, is eligible for claiming ITCs ... as long as you are a GST HST registrant.

However, with the new place of supply rules, if your business is established in Alberta, the services purchased in the other HST province should no longer charge you harmonized sales tax. You should be charged only GST as the tax is now based on where the customer is located and/or receiving the service.

 It depends on whether the Alberta resident is physically in your store or you are shipping goods to them. Take a look at GST/HST Out of Province Sales and GST/HST Electronic Sales in Canada.

Depends. If they purchase goods or services while in BC, then you charge BC sales tax. If you ship the goods or deliver the service online to the consumer in Ontario, then you charge ONT HST.

Read my overview of the HST place of supply rules where you will find the different supply categories to help you decide what amount to apply.

See CRA GST/HST Technical Information Bulletin B-103 Harmonized Sales Tax Place of Supply Rules for determining whether a supply is made in a province.

You may also want to check out the CRA GST/HST Info Sheets GI-053 to 084 dealing with specific place of supply rules that do not fall under the general rules.

I summarized the general rule for out-of-province sales tax rates earlier in this article.

If you have internet sales, you can may be interested in CRA's views on virtual income and expenses discussed earlier in this article especially with the new digital business economy rules that comes into effect July 1, 2021..