Interprovincial supplies: What tax rate do I charge? - Segment 7
Host: Welcome to the segment called Interprovincial supplies: What tax rate do I charge?, part of the CRA’s GST/HST Information for a New Small Business video.
The information in this section is technical in nature. If you do not deal with interprovincial supplies, you might want to skip this segment.
We will explain the general place of supply rules that determine the tax rate to charge for interprovincial supplies.
And we will give you information for straightforward business interprovincial supplies.
With me is John Kelly.
Subject matter expert: Thank you Kathleen.
Host: Can you explain to me which tax rate to charge when doing business with clients who are in a different province?
Subject matter expert: That’s actually a very common question, especially as small businesses start to expand.
Some provinces, referred to as the participating provinces, harmonized their provincial sales tax with the GST to create the harmonized sales tax, or the HST.
A taxable supply, other than a zero-rated supply, made in a non-participating province is subject to the GST. When such a supply is made in a participating province, it is subject to the HST. The rate of tax to charge for a supply is determined by the province or territory in which the supply is made, which is referred to as the place of supply.
The place of supply is determined by the place of supply rules that vary and depend on the type of supply being made.
The two most common categories of supplies for new small businesses are goods and services.
Let’s take a look at goods first.
Host: What can you tell me about the supply of goods in other provinces?
Subject matter expert: Generally, the supply of a good by way of sale is deemed to have been made in a particular province or territory if legal delivery of the goods to the purchaser occurs in that province or territory.
For this rule, the goods are considered to be delivered in a particular province or territory and not in any other province, if the supplier either: ships the goods to a destination in the particular province or territory that is specified in the contract for carriage of the property; or transfers possession of the goods to a common carrier or consignee that the supplier has retained on behalf of the purchaser, to ship the goods to such a destination; or sends the goods by mail or courier, to an address in the particular province or territory.
Host: So if I’m in Alberta, I have a customer in Ontario, and I send them the product through the mail to Ontario, the sale takes place in Ontario?
Subject matter expert: That’s right, the place of supply is Ontario and you will be charging your customer the HST at the rate for Ontario.
Host: Does it make a difference if I use a courier company instead of Canada Post?
Subject matter expert: No, the rules are the same if you send the goods by courier. If you send goods by courier to a destination in a particular province, the supply is made in that province or territory.
Host: What if I mail a product to customers in another country?
Subject matter expert: In that case, an exported good is supplied, so it becomes a zero-rated supply and you do not charge your customer the GST or HST.
Host: But what if we agreed that the customer would send someone to pick up the goods for them at my location?
Subject matter expert: In that case, regardless of where the customer might be, the supply is made at your location because that is where the goods are considered to be delivered to your customer.
Host: What happens if I rent or lease goods, rather than buy or sell them?
Subject matter expert: There are different place of supply rules that can apply for these types of supplies. Generally, where a supply of a good is made by way of lease, license, or similar arrangement, the different supplies of the good that are deemed to be made for each lease interval that has a lease payment can be subject to different tax rates. This can occur where those supplies are deemed to be made in a different province or territory by the relevant place of supply rule, which is based on the ordinary location of the good that is agreed to by the parties.
Host: Let’s say my business in New Brunswick leases a photocopier, and lease payments are required each month for the next four years.
Although at first the photocopier is in my New Brunswick office, at the end of my second month, I get the lessor’s permission to move the photocopier to an office in Saskatchewan where it will stay until the end of the lease.
What happens in this case?
Subject matter expert: Since New Brunswick is a participating province, you would pay the HST on your first two monthly payments, while the photocopier is in the New Brunswick office.
Since the photocopier will stay in the non-participating province of Saskatchewan for the rest of the lease, the remaining payments would be subject to the GST.
For more information, go to the CRA webpage on place of supply rules for tangible personal property. The link is included in the Related links for this segment.
Host: That seems simple enough. How would the rule work for service-based businesses?
Subject matter expert: The general place of supply rules for supplies of services are generally based on the home or business address in Canada of the recipient of the supply of the service where that address is obtained by the supplier in the ordinary course of its business. The general rules are subject to other rules that can apply for specific types of services.
Host: Can you give me an example of a situation where the general place of supply rules for services would apply?
Subject matter expert: Let’s say a wedding planning company located in Ontario, makes a supply of a service of planning a wedding to take place in Quebec.
40% of the service will be performed in Quebec at the wedding location, and 60% of the service will be performed in Ontario at the service provider’s location.
The only home address in Canada of the recipient, in other words the customer, obtained by the supplier in the ordinary course of its business is in Manitoba.
Since the only home address in Canada of the recipient obtained by the supplier in the ordinary course of its business is in Manitoba, the supply of the service is considered to be made in the non-participating province of Manitoba and is subject to the GST. If instead, this exact same wedding service is planned for a recipient whose home address in Canada obtained by the supplier, is in Ontario, the supply of the service would be made in Ontario and subject to the Ontario HST rates.
Host: What happens if the supplier does not get an address of the recipient in the ordinary course of business?
Subject matter expert: In situations where an address of the recipient in Canada is not obtained by the supplier in the ordinary course of its business, the general rule is that the supply of the service and the tax rate will be determined based on the province or territory where the service is primarily performed.
Host: What are some of the specific place of supply rules for services that the general place of supply rules are subject to?
Subject matter expert: There are specific place of supply rules for freight transportation services and personal services such as hairdressing services, private dance instruction or massage services, telecommunication services, and services in relation to goods and other services.
Host: What’s a good resource for more information on Inter-provincial supplies?
Subject matter expert: More information is available in the following publication, GST/HST Technical Information Bulletin B-103 Harmonized Sales Tax - Place of supply rules for determining whether a supply is made in a province. The link is included in the Related links for this segment.
Host: Thank you John.
This concludes the segment called Interprovincial supplies: what tax do I charge?, part of the CRA’s GST/HST Information for a New Small Business video.
Thank you for watching.
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