Creative AI depicting ETA Divisions II, III, and IV.
Article Contents
1. GST/HST and QST Registration
1.1. Entities eligible for GST/HST, and QST, registration
1.2. When is registration required?
1.3. Resident and non-resident persons
1.4. Carrying on business in Canada
2. When does a person pay GST/HST, or QST?
2.1. Under Division II of the ETA
Example 1
Example 2
Example 3
2.2. Under Division III of the ETA
Example 7
2.3. Under Division IV of the ETA
2.3.1. Self-assessment on supplies made between-branches
2.3.2. Self-assessment on transfers between provinces
2.3.3. Self assessment on purchased intangible properties and services
Works Cited
1. GST/HST and QST Registration
GST/HST
and QST are paid by registrants and non-registrants persons. The implementation
of the value-added tax in 1991 led to a substantial expansion of the federal
commodity tax base, as products and services that were previously not directly
taxed under the federal sales tax became subject to taxation. Additionally, the
multi-stage application of value-added taxes in Canada contributed to an
increase in tax revenues, generated from the greater number of taxpayers.
The registration of persons obligated to collect tax under both the federal and Québec legislations is central to the administration of GST/HST and QST. The stipulations are comprehensive and thorough, intended to establish a framework for those responsible for collecting tax on taxable supplies in Canada. This framework facilitates the remittance of that tax and allows for the claiming of input tax credits (ITCs), or refunds (ITRs), for taxes paid on supplies used as inputs for their commercial activities.
The federal and Québec laws characterize a person as an individual, partnership, corporation, trust, estate, or any entity such as a society, union, club, association, commission, or other type of organization. According to these laws, an individual is referred to as a "natural person." For example, an individual engaging in one or more commercial activities as a sole proprietor is considered a person obligated to register, unless that individual qualifies as a "small supplier."
Another example is a partnership. A partnership is also recognized as a distinct entity separate from its partners. According to the legislation, any activity performed by an individual as a member of a partnership is typically regarded as an activity of the partnership itself, rather than that of the individual member. Nevertheless, a partner, excluding individual partners, has the right to claim input tax credits and refunds for GST/HST and QST that have been paid on goods or services obtained for their own use, consumption, or supply in relation to partnership operations. In this context, a partner, other than an individual, may voluntarily register for GST/HST or QST, even if they were not engaged in any commercial activities outside of their role within the partnership.
The following CRA policy statements, technical information bulletins, notices, and Revenu Québec interpretation bulletin provides more information on persons eligible to register for GST/HST and QST:
· GST/HST Policy Statement P-216 “Registration of a Partner” provides information on the eligibility of a partner that is not an individual to voluntarily register for GST/HST.
· GST/HST Technical Information Bulletin B-068 “Bare Trusts” explains CRA’s view on bare trust eligibility for GST/HST registration and the registration implication on the bare trust.
· GST/HST Policy Statement P-015 “Treatment of Bare Trusts under the Excise Tax Act” provides information on whether the beneficiary or the bare trust must register for GST/HST when carrying on commercial activities.
· GST/HST policy statement P-138R “The Effect of Making a Joint Venture Election on a Participant's Eligibility to Register and Claim Input Tax Credits” explains why a joint venture cannot register for GST/HST.
· GST/HST policy statement P-139R “Tax Liability and Input Tax Credit Entitlement of Non-Electing Joint Venture Participant” explains GST/HST liability and input tax credit entitlement of a non-electing joint venture participant.
· GST/HST policy statement P-171R “Distinguishing Between a Joint Venture and a Partnership for the Purposes of the Section 273 Joint Venture Election” provides information on why the participants in a joint venture may register for GST/HST in respect of joint venture activities, but not the joint venture.
· GST/HST Notices - Notice 284 “Bare Trusts, Nominee Corporations and Joint Ventures” provides information on why a bare trust or nominee corporation should not be designated as the operator under a joint venture election.
· GST/HST Policy Statement P-106 “Administrative definition of a "participant" in a joint venture” explains administrative definition of a "participant" in a joint venture.
· TVQ. Interpretation Bulletin 1-4/R2 “Nominal Partnerships” explains why Revenu Québec does not consider a nominal partnership to be a “person” under section 1 of the QSTA.
1.2. When is registration required?
All persons
making taxable supplies in Canada while conducting business are required to
register for the GST/HST, unless the person is a small supplier, or their sole
commercial activity is the sale of real estate other than in the course of a
business, or they are a non-resident individual who does not carry on business
in Canada
1.3.
Resident and non-resident
persons
Excise
Tax Act (ETA) section 132 set out a number of rules to determine a
person's status as a resident or non-resident of Canada or Québec, including
the GST/HST and QST registration requirements. When the person is an
individual, they are considered resident in Canada, or Québec, if deemed to be
resident there under the provisions of the income tax act or Québec Taxation
Act
When
the person is a corporation, it is deemed to be resident in Canada, or Québec, at
any time if incorporated in Canada, or Québec, or continued in Canada, or
Québec. In the case of a partnership, an unincorporated society, a club, an
association or an organization, or a branch of any of the preceding types of
persons, is deemed to be resident in Canada, or Québec, if the member, or a
majority of the members, having management and control thereof, is or are
resident in Canada, or Québec, at that time (e.g., non-profit organizations,
charities, professional and trade associations). In the case of a labor union,
it is deemed to be resident in Canada, or Québec, if it is carrying on labor
union activities in Canada, or Québec, and has a local union or branch in
Canada, or Québec, at that time
A
non-resident person is considered to be a resident of Canada, or Québec
1.4.
Carrying on business in
Canada
Even
if a person does not have a PE in Canada, they can still be considered to be
carrying on business there. The question of whether a person is conducting
business in Canada is factual and necessitates taking into account all
pertinent information. The factors determining whether a non-resident person is
carrying on business in Canada for GST/HST purposes in a particular situation
are several that include not only the business activities but also the person’s
intentions
Any
occupation, trade, manufacturing, or project of any type is considered a
business, regardless of whether it is carried out for financial gain. Any
regular or ongoing action involving the provision of property through a lease,
license, or other such arrangement is also included. An employee is not
included in this definition
The definition of business encompasses not just the above mentioned examples but also the widely recognized definition of business. Operating a business entails conducting operations on a regular or continuous basis. Every case is assessed according to its unique facts, including the person's background and goals. GST/HST Technical Information Bulletin B-090 “GST/HST and Electronic Commerce” published in 2002, offers a thorough examination of the nature of products supplied online, and the application of the place of supply rules, zero-rating of supplies to non-resident, and non-resident registration requirements.
2.1.
Under Division II of the
ETA
Under
this division, any recipient of a taxable supply in Canada is required to pay
GST/HST on the supply, computed at the province's tax rate on the value of the
consideration for the supply. The HST was implemented in the participating
provinces by harmonizing their provincial sales tax with the GST. Obviously, for
a taxable supply that is a zero-rated supply, the tax rate is zero percent.
It
is under this division that a person pays GST/HST when buying donuts, a car, clothing
and footwear, computers for personnel, a factory, and everything that is
taxable (and not zero-rated). The majority of supplies of goods and services
produced in Canada are subject to GST/HST. Supplies are generally divided into
supplies of tangible personal properties (TPPs), services, and intangible
personal properties (IPPs, such as trademarks, patent rights, and digital goods
purchased separately from the Internet).
In
Canada, sales taxes come in three different forms: provincial sales tax (PST), goods
and services tax (GST), and harmonized sales tax (HST). An overview of the
sales tax rates for each province and territory are presented in the table
below.
|
Province |
Type |
PST |
GST |
HST |
Total
Tax Rate |
Notes |
|
Alberta |
GST |
|
5% |
|
5% |
|
|
British Columbia |
GST +
PST |
7% |
5% |
|
12% |
Deharmonized April 1, 2013 |
|
Manitoba |
GST +
RST |
7% |
5% |
|
12% |
As of July 1, 2019 the PST rate was
reduced from 8% to 7%. |
|
New Brunswick |
HST |
|
|
15% |
15% |
As of July 1, 2016 the HST rate
increased from 13% to 15%. |
|
Newfoundland and Labrador |
HST |
|
|
15% |
15% |
As of July 1, 2016 the HST rate
increased from 13% to 15%. |
|
Northwest Territories |
GST |
|
5% |
|
5% |
|
|
Nova Scotia |
HST |
|
|
15% |
15% |
Effective April 1,2025 the HST rate will decrease to 14%. |
|
Nunavut |
GST |
|
5% |
|
5% |
|
|
Ontario |
HST |
|
|
13% |
13% |
|
|
Prince Edward Island |
HST |
|
|
15% |
15% |
|
|
Québec |
GST +
QST |
9.98% |
5% |
|
14.98% |
|
|
Saskatchewan |
GST +
PST |
6% |
5% |
|
11% |
|
|
Yukon |
GST |
|
5% |
|
5% |
|
–
Table 1.
Canadian Sales Tax Rates by Province as of 2024. –
A
supply made in Canada by a registrant to another registrant is captured under
this Division of the ETA[1]. Provision is made for suppliers to register,
collect, and remit the GST/HST, moreover. If the recipient of the supply is a
GST/HST, or QST, registrant, the person may then claim an input tax credit, or
refund, for the paid GST/HST, or QST, to the extent that the supply was
acquired for consumption, use, or supply in the course of their commercial
activities.
Example 1
An
individual buys donuts in Ontario for $100.00. The individual will pay 13% HST
under Division II of the ETA. The paid HST will be $13.00, and the invoice
total will be $113.00.
Example 2
A
car dealership in Nova Scotia buys a photocopy machine from an office supplies
retailer for use in its commercial activities for $1,000.00 after April 1, 2025.
The car dealership must pay 14% HST on the invoice’s subtotal under Division II
of the ETA. The paid HST will be $140.00, and the invoice total will be $1,140.00.
Example 3
A plastic factory in Québec purchases central fusion machine from a manufacturer in Ontario for $10,000.00. The plastic factory in Québec must pay 5% GST on the invoice subtotal under Division II of the ETA and %9.975 QST under section 16 of QSTA. The paid GST will be $500.00 and the paid QST will be $997.50. The invoice total will be $11,497.50 ($10,000 + $500 + $997.50).
2.2.
Under Division III of the
ETA
Under
this Division (or section 17 of the QSTA), a person would pay GST on
imported TPP at the border. A person who is required by the Customs Act to pay
duty on imported goods into Canada, or who would be required to do so if the
goods were subject to duty, is required to pay GST, calculated at a rate of 5%
on the imported goods' value. The GST is
collected by the Canada Border Service Agency (CBSA) as part of the
administration of imports into Canada. Additionally,
when non-commercial goods are imported to a participating province for
consumption, use, or enjoyment, by a person, the CBSA will collect the provincial
portion of the HST.
GST
paid under this Division that relates to commercial activities is eligible to
be claimed as an ITC. The Importer of Record listed on the importation
documents may not be the same as the de facto or constructive importer, even though the Importer of Record is
the one responsible for paying duty on the imported goods and is subject to
taxation. The CRA will typically allow the constructive importer to claim the ITC for the GST paid
under Division III if the Importer of Record is unable to do so. It should also
be noted that GST paid at the border may be passed on to a Canadian buyer if a
non-resident serves as the Importer of Record but is not a GST/HST registrant.
To the extent that the goods were purchased for use in commercial activities,
the Canadian buyer may be eligible to claim an ITC if they can provide proof
that the non-resident importer paid the GST.
When
taxpayers import goods into Québec solely for use in commercial activities, no
QST is collected at Québec entry points on the Canadian border, since full
input tax refund is available, negating the need for self-assessment. When the
goods imported into Québec for consumption or use, self-assessment of 9.975%
QST is required under QSTA section 17. Furthermore, a non QST registrant
importing a road vehicle or a small supplier importing property to the province
of Québec, must also remit QST on the value of the imported property.
Example 4
A personal computers-retailer in British Columbia purchases 40’ shipping container from a Chinese wholesaler for $10,000.00. Upon the merchandise arrival to Vancouver seaport and obtaining the B3 form, the BC computers-retailer will pay 5% GST under Division III of the ETA. The B3 form will indicate a $500.00 paid GST ($10,000.00 X %5).
2.3.
Under Division IV of the
ETA
In
certain situations, when taxable personal property imported from outside of
Canada into a participating province, or when property and services brought
into a participating province for consumption, use, or supply in a
participating province after having been supplied in a province with a lower
provincial rate (if the province in which the supply is made is a
non-participating province, the provincial rate is equal to 0%), the provincial
part of the HST may be subject to self-assessment regulations as outlined in
Division IV.1. In general, Division IV.1 requires self-assessment of the
provincial portion of the HST with regard to property or services brought into
a participating province in one of the following four circumstances:
1.
Intangible personal
property (IPP) and services obtained by a resident recipient in a participating
province for consumption, use, or supply in a participating province.
2.
Imported specified motor
vehicles and commercial goods
3.
Tangible personal property
(TPP) brought into a participating province.
4.
Tangible personal property
supplied by non-registered non-resident suppliers.
The
need to self-assess the provincial portion of the HST for goods or services
brought into a participating province is subject to a number of exceptions. For
example, when a registrant brings property or services into a participating
province solely for consumption, use, or supply (i.e., 90% or more for
registrants other than financial institutions, and 100% for financial
institutions) as part of their commercial activities. Non-registrants and
specific organizations engaged with exempt activities, like public service
bodies (PSBs), would, therefore, be more subject to the self-assessment
requirements. An additional noteworthy exception typically occurs when the
provincial portion of the HST has already been paid for the good or service at
a provincial rate that is the same as or higher than the provincial rate for
the participating province into which it was brought into
2.3.1. Self-assessment on supplies made between-branches
Any transfer of personal property or provision of a service by one PE to another is considered a supply of the property or service when a person operates an international business through both a PE in Canada and another PE outside of Canada. Therefore, in the same way that when the property or service had been purchased outside of Canada from a different legal entity (LE) and brought into Canada for use, consumption, or supply, Canadian branches of international organizations must self-assess GST/HST on property or services, including labor performed by the organization's employees, that they receive from non-resident branches of the organization.
2.3.2. Self-assessment on transfers between provinces
Interprovincial
transfers and consumption necessitate their own set of regulations, even when
ETA Divisions III and IV capture the provincial portion of the HST with regard
to imports of TPP into, and consumption, usage, or supply of services and
intangibles in, a participating province from outside Canada. Additionally, a requirement to self-assess
the provincial component of HST must be enforced in cases where commercial
products imported without payment of the provincial component of HST under the
ETA, Division III, are not employed exclusively in commercial activities.
These
regulations are found in QSTA, section 18.0.1, which deals with taxable
consumption, use, or supply in Québec of intangibles or services obtained from
other parts of Canada, and in ETA, Division IV.1, which deals with the
importation of goods into, and consumption of intangibles and services in,
participating provinces. QSTA, section
17, covers the transfer of TPP into Québec (kindly refer to # 3, Division
III, above).
Division
IV.1 has some special regulations that are only applicable to HST. As with the
self-assessment of the provincial component of the HST on imported taxable
supplies (with two exceptions), Selected Listed Financial Institutions (SLFIs)
pay the provincial component of HST by formula and are often exempt from
self-assessment of tax under Division IV.1 regulations. When an institution
imports a taxable supply of property or a service that isn't intended for
consumption, use, or supply during an endeavor, or when insurers purchase
specific prescribed property or services for use in claims’ administration or
mitigation, however, self-assessment is required.
In order to account for the possibility that the rate of the provincial component of the HST may differ among the various participating provinces, a number of regulations pertaining to the self-assessment of the provincial component of the HST on goods, services, and intangibles brought into, or consumed in, a participating province were expanded at the same time that the HST was introduced in Ontario (and in British Columbia at the same time as well). The person who causes the property to be imported is held accountable for the self-assessment, rather than the physical importer who is typically an unaffiliated carrier. Furthermore, for the purposes of these regulations, a temporary stop in a province during the transportation of property through that province shall not be considered a taxable import.
2.3.3. Self assessment on purchased intangible properties and services
The
presence of varying HST rates among the Canadian provinces requires
self-assessment regulations for services and intangible personal properties.
These regulations must encompass not only services and intangible personal
properties obtained in a non-participating province, but also those acquired in
a participating province for consumption, use, or supply in another
participating province that has a higher HST rate. The existing regulations
necessitates that residents of a participating province must self-assess tax
when they acquire taxable intangibles or services for consumption, use, or
supply in another province, to the extent to which the intangible property or
service has been used in the resident’s province, with a minimum extent of at
least 10% required.
In
instances where these regulations are applicable, persons will be obligated to self-assess
the amount for each participating province where the service or intangible was
consumed, utilized, or supplied, provided that the provincial component of the
HST exceeds that of the province of acquisition. The tax amounts to be
self-assessed will be determined by calculating the difference between the
provincial component rates, multiplied by the consideration paid for the item,
and adjusted according to the degree to which the service or intangible was
obtained for consumption, use, or supply within a specific portion of the participating
province. It is important to note that, for these purposes, non-participating
provinces are considered to have an HST provincial component rate of 0%.
Self-assessment
of tax is not required under these regulations when less than 10% of the
intangible goods or services obtained for use in participating provinces have a
provincial component of the HST that exceeds the rate applicable in the
province of supply. Furthermore, a relief from the self-assessment is typically
granted when the tax amount due in a calendar month is below $25.00.
QST
is applicable when a resident of Québec purchases a taxable supply of
intangible personal property or a service that is made in Canada but outside of
Québec, intended for consumption, use, or supply within Québec. The QST is
calculated based on the portion of the payment made for the supply that
corresponds to the degree to which the property or service was intended for
consumption, use, or supply in Québec, with a minimum threshold of at least
10%. There are two exceptions for this
rule however. Those are the non-resident of Québec override rule and the
inbound freight transportation services deemed supplied outside Québec.
Works Cited
1. Canada Revenue Agency. GST/HST memorandum
2.1 “Required registration”. Canada Revenue Agency publications. [Online]
May 1999. [Cited: September 04, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/2-1/required-registration.html.
2. —. GST/HST
memorandum 4.5.1 "Exports - Determining Residence Status". Canada
Revenue Agency publications. [Online] January 1998. [Cited: September 05,
2024.]
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/4-5-1/exports-determining-residence-status.html.
3. —. GST/HST
memorandum 3.4 "Residence". Canada Revenue Agency publications. [Online]
April 2000. [Cited: September 05, 2024.]
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/3-4/residence.html#_10.
4. Ministère de
l'Emploi et de la Solidarité sociale. "Presumption of Residence in
Québec – Canadian Residents Who Have a Permanent Establishment in
Québec". Les Publications du Québec. [Online] June 27, 2024.
[Cited: September 05, 2024.]
https://www.publicationsduquebec.gouv.qc.ca/fileadmin/produits_en_ligne/Fiscalite/pdf/T0_1A11_1T1R2BULB.pdf.
5. Canada Revenue
Agency. RC4027(E) Rev.23 "Doing Business in Canada – GST/HST
Information for Non-Residents". Canada Revenue Agency publications. [Online]
January 16, 2024. [Cited: September 07, 2024.]
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4027/doing-business-canada-gst-hst-information-non-residents.html#P268_16988.
6. —. GST/HST Policy
Statement P-051R2 "Carrying on business in Canada". Canada
Revenue Agency publications. [Online] April 29, 2005. [Cited: September
07, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-051r2/p-051r2-carrying-on-business-canada.html#P73_7305.
7. Patrick McKinnon. Draft GST/HST Technical Information Bulletin, Harmonized Sales Tax – Self-assessment of the provincial part of the HST in respect of property and services brought into a participating province. Canada Revenue Agency publications. [Online] October 31, 2011. [Cited: September 09, 2024.]
https://www.ryan.com/contentassets/d218f2ce68fe4f7da2874c79848620a2/notice-266.pdf.
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