Doing Business In Canada

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Goods and Services Tax / Harmonized Sales Tax and Provincial Sales Tax

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5) Goods and  Service Tax ("GST") /Harmonized Sales Tax ("HST")  and Provincial Sales Taxes

The GST/HST is a value added tax that applies to most supplies of goods and services in Canada.  Registrants who make taxable supplies (other than zero-rated and exempt supplies) collect tax, from their customers,  at the applicable rate (see below).  Registrants will also have paid GST/HST on goods or services they acquired, imported into Canada, or brought into a participating province for use, consumption, or supply in the course of their commercial activities.  The GST/HST that a registrant pays on theses purchases is known as an Input Tax Credit ("ITC").  Registrants would then remit, or receive a refund, for the difference between the GST/HST collected and the ITCs paid.

A supply will be considered taxable unless it meets an exception to be either zero-rated or exempt.  Registrants may claim ITCs with respect to zero-rated supplies but may not claim ITCs with respect to exempt supplies.

Some examples of zero-rated supplies would include basic groceries such as milk, bread and vegetables, agricultural products such as wheat, grain, raw wool, prescription drugs, international passenger air travel.  Some examples of exempt supplies include most health, medical and dental services, long term rentals of residential accommodation, most services provided by financial institutions.

Rates

Canada imposes a 5% federal goods and services tax (GST) on taxable supplies made in Canada.  A registrant would be able to claim an Input Tax Credit (ITC) on the GST it has paid on its supplies.

Suppliers are liable to collect the tax from recipients of the supplies and remit such tax to the government. In some instances (notably certain imports), the recipient of supplies may have an obligation to self-assess and remit the tax.

Most provinces also have or had a provincial sales tax.  Four provinces eliminated their sales tax and harmonized it with the federal GST.  In those provinces, the GST is known as the HST.  The HST rates in those provinces are: New Brunswick (13%), Newfoundland and Labrador (13%), Nova Scotia (15%) and Ontario (13%).  The provincial portion of the HST is the amount in excess of the base GST rate of 5%.  The GST/HST is collected by the CRA on behalf of the federal government and those provinces who harmonized their sales tax.

The province of Quebec imposes its own VAT, in addition to the federal GST, called the Taxe de ventu du Quebec ("TVQ").  The current rate is 9.5% but the tax is applied to not only the taxable supply but on the GST as well.  As such, the effective rate is 9.75%.

Alberta, Nunavut, The Northwest Territories and the Yukon do not impose any provincial sales tax.

The retail sales tax rates for the remaining jurisdictions are: British Columbia (7%), Manitoba (7%), Prince Edward Island (10% - effective 10.5%), and Saskatchewan (5%)

Am I carrying on a business in Canada?

In general, an entity would be carrying on a business if the activity is done on a regular or continual basis.  Each particular case would be evaluated on its own particular history and intentions.   It is not, however, necessary that the activity be undertaken for profit.  An office or employment is not considered a business for GST/HST purposes.  For a U.K. entity expanding into Canada, the next question would be whether the entity is carrying on business in Canada and if so, whether that activity is done through a permanent establishment in Canada.

Whether an entity is carrying on business in Canada is a question of fact.  Some of the factors that the CRA will look at in making that determination are: the place where agents or employees are located; the place where deliveries are made; the place of payment; the place where purchases are made, the place from which transactions are solicited, the location of assets or an inventory of goods; the place where business contracts are made; the location of a bank account, the place where the non-resident's name and business are listed in a directory; the location of a branch or office; the place where the service is performed; and the place of manufacture or production (for a more detailed explanation see CRA Policy Statement P-051R2, Carrying on business in Canada).

Do I have to Register?

In general, a business is required to register if it provides taxable (including zero-rated) goods or services in Canada in the course of carrying on a commercial activity in Canada and the business is not a small supplier.   A business is a small supplier if the total revenues from taxable supplies (before expenses) are Cdn $30,000 or less in the last four consecutive calendar quarters.

In all cases, total revenues from taxable supplies means worldwide revenues from supplies of goods or services subject to GST/HST (including zero rated supplies) OR that would be subject to tax if supplied in Canada.

Where the business does not have a permanent establishment in Canada, the business would have to provide the CRA with a security deposit.  The initial amount of the security deposit is equal to 50% of the estimate net tax, whether positive or negative during the 12 month period after the business registers.  For subsequent years, the amount of the security deposit is equal to 50% of actual net tax for the previous 12-month period (whether negative or positive).  The maximum security deposit that the CRA currently requires is Cdn $ 1million and the minimum is Cdn $5,000.

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