What Are The HST Place of Supply Rules For Services
Businesses in the HST Zone (Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland/Labrador) will have to use the newly released harmonized sales tax (HST) place of supply rules, some of which are different from the existing place of supply rules (for Nova Scotia, New Brunswick and Newfoundland/Labrador). The applicable HST rates are:
• Ontario: 13% (5% GST and 8% provincial HST component)
• British Columbia: 12% (5% GST and 7% provincial HST component)
• Nova Scotia: 15% (5% GST and 10% provincial HST component starting July 1)
• New Brunswick: 13% (5% GST and 8% provincial HST component)
• Newfoundland/Labrador: 13% (5% GST and 8% provincial HST component)
In addition, some businesses outside the HST Zone will be required to charge, collect, and remit HST to Canada’s federal government in accordance with the place of supply rules when the place of supply is within the HST Zone.
On February 25, 2010, Canada's Department of Finance released an administrative document containing its proposed HST place of supply rules which will be used to determine whether a supplier must charge, collect and remit HST in connection with a supply made in Canada and whether a recipient must pay HST in connection with an acquisition or importation and at what rate. The Canada Revenue Agency subsequently issued, simply put, the proposed HST place of supply rules will be used to determine in which province a supply is considered to have occurred for HST purposes.
The HST place of supply rules for services have evolved from the existing rules to reflect the addition of the larger economic provinces of Ontario and British Columbia to the HST Zone.
The first question to ask when applying the HST place of supply rules is: What is being supplied or sold? Is it property (tangible personal property, real property or intangible property) or a service? If the supplier is supplying or providing a service, then the HST place of supply rules for services should be used.
On April 30, 2010, the Department of Finance released Draft Regulations in relation to Place of Supply for Property and Services.
The next question is whether one of the specific place of supply rules applies or the general place of supply rules for services. Determine whether any of the following types of services are being provided and, if so, go to the specific place of supply rule:
• personal services (e.g., a hair cut)
• services in relation to real property (e.g., constructing a house);
• services in relation to intangible property (e.g., designing a trade mark)
• computer-related services and Internet access;
• telecommunication services;
• premium rate telephone services;
• services in relation to a location specific event (e.g., participation in a conference);
• passenger transportation services;
• services supplied on board conveyances;
• baggage charges;
• services of child supervision;
• services related to a ticket, voucher or reservation;
• freight transportation services;
• postage and delivery services;
• customs brokerage services;
• air navigation services;
• repairs, maintenance, cleaning, alterations and other services relating to goods;
• service of a trustee in respect of a trust governed by an RRSP, RRIF or RESP.
If the supplier is not providing any of the above listed specific services (and note the devil may be in the details), then the general place of supply rules for services will apply. There are 5 general place of supply rules for services, which must be applied in the following order. Rule 1, 2 and 5 are the fundamental rules. Rules 3 and Rule 4 are tie-breaker rules
Rule 1(a): A supply of a service is made in an HST province if, in the normal course of business, the supplier obtains a single address of the recipient in the HST province that is a home or business address in Canada of the recipient. A supply of a service is not made in an HST province if, in the normal course of business, the supplier obtains a single address of the recipient outside the HST Zone that is a home or business address in Canada of the recipient.
Rule 1(b): If a supply of a service is made in a province and if, in the normal course of business, the supplier obtains more than one business and/or home address of the recipient, the address for HST purposes is the address most closely connected with the supply of the service:
• If the address most closely connected to the supply of the service is in the HST Zone, then HST applies; or
• If the address most closely connected to the supply of the service is outside the HST Zone, then HST does not apply.
Rule 1(c): If a supply of a service is made in a province and if, in the normal course of business, the supplier does not obtain a business or home address of the recipient in Canada, the address for HST purposes is the address most closely connected with the supply of the service:
• If the address most closely connected to the supply of the service is in the HST Zone, then HST applies; or
• If the address most closely connected to the supply of the service is outside the HST Zone, then HST does not apply.
Rule 1(d): A supply of a service is made in an HST province if (a) the Canadian element of the service is performed by the supplier primarily (50% or more) in the HST Zone. The applicable HST rate is the rate of the HST province in which the greatest proportion of the services are performed.
Rule 2: If (i) any of Rules 1(a)-(d) applies (i.e., do not obtain address in Canada of the recipient AND the service performed in Canada is performed primarily in HST provinces), AND (ii) a single HST province cannot be determined as being the HST province in which the greatest proportion of the service is performed because the service is performed equally in two or more HST provinces, then the supply will be regarded as made in the HST province for which the rate of the provincial component of HST is highest. For example: 50% of services in BC and 50% in Ontario, then Ontario’s 13% HST rate apples.
Rule 3: If Rule 2 applies, but a single participating province still cannot be determined to be the place of supply because the particular rate of the provincial component of the HST in two or more of the particular participating provinces is the same (e.g., Ontario and Newfoundland), the supply is made in the HST province where the business address of the supplier is most closely connected is located.
Rule 4: If the supplier’s business address is not located in one of the HST provinces specified in the preceding rule, the default is the HST province in closest proximity to the supplier (determined in a reasonable manner) that is most closely connected to the supply.
Rule 5: A supply of a service is made outside the HST Zone (a non-participating province) if the Canadian element of the service is performed by the supplier primarily (50% or more) outside the HST Zone.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
