Canada Revenue Agency Issues Form for Constructive Importer Arrangements

On January 9, 2014, the Canada Revenue Agency made available a form to be completed jointly by constructive importers and suppliers.  The GST532 Form "Agreement and Revocation of an Agreement Between Supplier and Constructive Importer" is a form that must be completed and executed by both the supplier and the constructive importer.

Who is entitled to claim input tax credits (ITCs) for the GST paid in respect of the importation of goods has been a never ending debate.  The GST532 Form helps limit the debate and make it easier for suppliers and constructive importers to prove to the CRA their intentions (and reduce the CRA's concern that both parties will attempt to recover the same GST).

If a GST/HST registered supplier and a constructive importer (also known as the de facto importer) complete the GST532 Form, they may agree the supplier should claim an ITC to recover the GST paid by the constructive importer at the border.  This form is needed when the constructive importer is not registered for GST/HST purposes and, therefore, cannot claim ITCs to recover GST paid at the border.  According to the general rule, persons who are not registrants cannot claim ITCs.  Also according to the general rule, most imports of goods into Canada are subject to GST payable to the Canada Border Services Agency prior to the release of the goods from customs.  These two general rules, created a problem.

Policy Statement P-125R, “Input Tax Credit Entitlement for Tax on Imported Goods” contains a number of examples where the constructive importer rules apply.

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If You Use Zapper Software, You May Shocked By New GST/HST AMPs

The March 21, 2013 Federal Budget in Canada announced new administrative monetary penalties (AMPs) and criminal offences under the Excise Tax Act (Canada) for:

(1) the use of  Electronic Suppression of Sales (ESS) software;

(2) the possession or acquisition of ESS software; and/or

(3) the manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software.

ESS software is also known as "zapper" software because it hides sales transactions, thereby allowing vendors to under-state sales and evade payment of GST/HST and income taxes. This has been a hot audit topic for a number of years and the Department of Finance is giving the Canada Revenue Agency (CRA) new tools to rid Canada of zapper software.

The AMPS penalties will shock the vendors who use ESS software or possess or acquire ESS software.  Vendors who use ESS software may be assessed an AMPs penalty in the amount of $5,000 for the first infraction and $50,000 on any subsequent infraction.  Vendors who possess or acquire ESS software may be assessed an AMPs penalty in the amount of $5,000 for the first infraction and $50,000 on any subsequent infraction.  These two AMPs penalties go hand-in-hand because a vendor who acquires or possesses ESS software is also likely to use it.  Both AMPs penalties can be imposed against the same vendor.  Also, if the CRA issues a first level AMPs penalty, it will also require the ESS software to be removed from the computer.  If ESS software is subsequently discovered in a new audit, it is likely second level AMPs will be imposed.  It may be possible that the CRA will interpret the AMPs penalties on a per transaction basis because the penalties may be imposed on a per infraction basis.

Businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale will receive higher voltage AMPs.  The AMPS penalty for a first infraction is $10,000 and $100,000 for any subsequent infraction.  This AMPs penalty aims to end the supply of ESS software in Canada.

There is a limited due diligence defense available for vendors who acquire and possess ESS software and businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale.  The due diligence defence will generally require a person to show that exercised the degree of care, diligence and skill to prevent the contravention with respect to ESS software that a reasonably prudent person would have used in comparable circumstances.  There may be cases where the person has attempted to ensure that they do not have ESS software and it has been installed on their computers. There may be a bug in a computer program that disrupts the sales records, but it was not intended.

In addition to the AMPs penalties, businesses that manufacture, develop, sell, possess for sale, offer for sale or otherwise make available ESS software for sale may also be subject to criminal sanctions.  The potential fines are as low as $10,000 (in addition to the AMPs penalties) and as high as $1,000,000 and/or imprisonment of up to 5 years or both.

These new AMPs penalties and criminal sanctions will take effect January 1, 2014.  Given the time before implementation, it may be prudent to spend money on an IT check-up (it will likely cost less than a first level AMP).

Canada Revenue Agency Issues Draft Policy On HST Self-Assessment & Seeks Comments

It is unusual for the Canada Revenue Agency (CRA) to seek public comments on a difficult harmonized sales tax ("HST") topic.  Take advantage of the opportunity to shape their future policy.

On September 9, 2011, the CRA released DRAFT GST/HST Notice 266 "Harmonized Sale Tax - Self-assessment of the provincial part of HST in respect of property and services brought into a participating province".  The deadline for filing comments is October 31, 2011.  This document is 77 pages in length, so it will take time to review and find what will not work in practice.

Financial services providers, financial institutions, multi-jurisdictional charities & non-profit organizations, universities & colleges with campuses in more than one province, long term care home providers operating in more than one province, residential real estate management companies operating in more than one province, doctors and medical professionals or management companies operating in more than one province and other exempt businesses would be affected by this draft policy.  Non-resident companies also should be mindful of the draft policy if they are active in Canada and make exempt supplies.

In addition, even though the HST provinces should realize that they import supplies, they may not think of the HST consequences.  Ontario, Nova Scotia, New Brunswick, Newfoundland/Labrador and British Columbia (until they stop being a participating province) should also consider how the policy will affect them.

While the policy is in draft, it will be applied going back to July 1, 2010.  Also, while it is draft now, it will be finalized in the future.  The CRA auditors will consider this policy to be an assessment road map.  Please take the time to make sure it reflects a workable solution.

While it is self-serving for me to say this: Ask a sales tax lawyer for help in reviewing the draft policy and writing your comments.  This is your chance to improve your future and you can save money in the long run if you fix the problems before the policy is engraved in stone.

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Non-Residents Can Get Their Border GST/HST Back If They Plan Ahead

I am asked regularly whether a non-resident person who does not wish to register for GST/HST purposes can get an input tax credit for the goods and services tax ("GST") and harmonized sales tax ("HST") (if charged and) paid at the border.  The answer is "no", the non-resident cannot claim an input tax credit if they do not get into the GST/HST system, post security and file GST/HST returns.

However, other options may be available depending on the facts (which can be arranged to permit recovery).  These options are available in a business transaction and are not available to a non-resident bringing goods to Canada for their own use (e.g. at a cottage in Muskoka). The two main options are:

1) use of a drop shipment certificate; and

2) structuring the importation in a way to permit another person to recover the money.

These options are not available in every situation.  They are complicated to describe and implement.  Often the assistance of a sales tax lawyer or accountant or consultant is requirement to make sure the transactions are structured perfectly.  Since the purpose of the structuring is to get money back from the Canadian government or accomplish tax relief, the Canada Revenue Agency may inquire about the facts to see if all "t"s are crossed and "i"s dotted.

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Amounts Paid To Canada Border Services Agency As Ascertained Forfeiture May Include GST

In the recent case of 208539 Alberta Ltd. v. The Queen, Justice D'Arcy of the Tax Court of Canada held that an importer of record may be entitled to claim an input tax credit (ITC) for GST imposed as a result of an ascertained forfeiture.  An ascertained forfeiture occurs when the Canada Border Services Agency (CBSA) issues a penalty with respect to imported goods after importation.  The CBSA is no longer in a position to seize the goods and charge a penalty to release the goods.  As a result, the CBSA sends the importer of record an assessment of a penalty.

In some cases, the ascertained forfeiture penalty may only include customs duties (or a multiple of the customs duties that would have been payable).  In these cases, the importer of record would not be entitled to claim an input tax credit.

In other cases, the ascertained forfeiture penalty states that an amount is being charged as GST that should have been paid with respect to the importation.  This was the situation in the case at hand.

Judge D'Arcy held that the importer of record was entitled to claim the ITC for the amount that was GST, but not the amount that was penalty or customs duties.

Another interesting aspect of the decision is the discussion on whether the documentary requirements for the ITC had been satisfied.  The CRA was arguing that the documentary requirements in subsection 169(4) of the Excise Tax Act  and Input Tax Credit Information (GST/HST) Regulations was not satisfied.  Judge D'Arcy was correct in holding:

The Appellant satisfied the paragraph 169(4)(a) documentary requirements once it provided the CRA with sufficient information to enable the amount of the input tax credit to be determined. As I noted previously, the First Customs Letter, the Second Customs Letter and Exhibit A2 together evidence the amount of Division III tax that Canada Customs collected from the Appellant ($17,039.93) and the fact that the Division III tax was paid by the Appellant in respect of the imported goods.
 

I would expect that there are a number of importers of record who are engaged in commercial activities who have not claimed their ITCs paid in respect of ascertained forfeitures and detentions penalties.  It will be important to ensure the correct person claims the ITC.  Time limits for claiming the ITC will also be a critical issue.  All that being said, there may be found money - if you have received a notice of ascertained forfeiture or retrieved goods from CBSA detention, it is time to review the documentation.

The Canada Revenue Agency Has Released A New Guide For Non-Residents Doing Business In Canada

Non-residents who are doing business in Canada and would like to comply with Canada's Goods and services tax (GST) and harmonized sales (HST) tax laws should review this new gide published by the Canada Revenue Ageny on June 15, 2011. "Doing Business in Canada - GST/HST Information for Non-Residents" is an important document to read.  It is over 38 pages on information that may or may not answer the questions that the non--resident may have about their GTS/HST obligations.

Whether or not a non-resident is actually doing business in Canada is a factual test.  There is no definition of "carrying on business in Canada" in the GST/HST laws.  Pages 7-8 of the CRA's document address the basics and a Canadian sales tax lawyer can help apply the CRA's test in a particular case.

The CRA document addresses many issues, including:

1. Should a non-resident register for GST/HST purposes?

2. How is GST/HST calculated?

3. What are the GTS/HST return filing requirements?

4. What are the place of supply rules for charging HST?

5. How is GST/HST applied on imported goods?

6. How is GST/HST applied on imported services and intangible property?

7. How is GST/HST applied on exported goods, services and intangible property?

8. What are drop shipments and how do the drop shipment rules work?

9. How do non-residents recover GTS/HST by way of a rebate?

The Long Ha Case Is Not That Funny, Except For The Tax Debtor's Name

Recently, on June 6, 2011, the Tax Court of Canada released its decision in Long Ha v. The Queen.  I will admit that I read the case because of the name of the appellant.  The case was actually very interesting (from a factual perspective).

This case involved a sole proprietorship that was assessed income tax and goods and services tax (GST) on a net worth assessment basis.  The main focus of the appeal was the GST assessment.  Interestingly, Mr. Ha was partially successful in showing that CRA's  net worth calculation was incorrect.

Most interesting is how the case began.  On June 8, 2002, Mr. Ha was returning to Canada and was sent to a secondary inspection by the Canada Border Services Agency.  In the secondary search, $40,000 in cash was discovered.  The matter was referred to the Royal Canadian Mounted Police (RCMP) who did not seize the cash.  However, the RCMP were not satisfied with Mr. Ha's explanations as to why he had such a large amount of cash in his possession, the RCMP sent a referral to the Canada Revenue Agency (CRA) who reviewed Mr. Ha's income tax returns.  The CRA found that the $40,000 was not explained by Mr. Ha's income tax returns.  The CRA took the position that Mr. Ha had unreported income from business (Mr. Ha was a salal picker and fisherman).  The CRA conducted a net worth assessment based on a bank deposit analysis, bank statements, mortgage applications and mortgage statements. The schedule for personal expenditures was calculated using Statistics Canada information to estimate the costs for a single individual.  The CRA assessed Mr. Ha income tax and GST.

Mr. Ha conceded that his income was under reported.  However, he disputed the CRA's net worth calculation as too high.  The CRA felt Mr. Ha's calculation of his unreported income was too low.  The Tax Court had to find the right answer.  The Tax Court found that Mr. Ha's evidence was not credible. His explanation concerning the $40,00 changed each time he told it. When he was stopped in the Vancouver International Airport, he told the authorities that the $40,000 in his possession was from his employment as a fisherman and from a restaurant business. On December 12, 2004, he told a CRA auditor that the $40,000 was from his savings, salal picking and a few hundred dollars from friends. At the hearing before the Tax Court, Mr. Ha testified that the $40,000 was a loan or gift given to him.

After determining that Mr. Ha's evidence was not credible, the Tax Court found that the evidence of a number of witnesses was credible.  As a result, the Tax Court reduced the net worth assessment by the certain amounts that, based on the evidence, were not attributable to business activities (e.g. were loans, insurance proceeds, transfer from spouse, a withdrawal from an RRSP, etc.).

The CBSA's 2011 Post-Release Verification Target List May Result in GST Assessments Too

The Canada Border Services Agency (CBSA) identifies categories of goods for post-release targeted verifications on an annual basis.  This list is important for importers of goods for customs purposes and also GST purposes.  If the valuation is too low, the CBSA will increase the value for customs duties purposes , which results in an increase in value for GST purposes.  Additional GST will be calculated and assessed and interest on that GST debt from the date of importation.

Post-release verifications occur after goods are released by the CBSA and are intended to verify the information provided by businesses when goods are reported for customs purposes (compliance with Canada's customs laws).  There are three main types of post-release verifications.

A) Random Post-Release Verifications: These verifications are random. The CBSA randomly selects importers from their records and conducts an verification to measure compliance with Canada's customs laws and revenue seepage. In other words, the importer's number just came up.

B) Targeted Post-Release Verifications: These verifications are not random. The importer is selected due information provided to the CBSA concerning non-compliance with Canada's customs laws.

C) Post-Release Verifications Based on National Priorities: These verifications occur as a result of the CBSA setting national priorities that are determined through a risk-based assessment and evergreen process. The CBSA picks H.S. tariff codes on an annual basis to target for verifications and semi-randomly picks importers of those goods for a targeted verification. Often the importers with significant volumes of the goods are selected for verification and importers who have not been audited recently. The CBSA is asking the question whether the importing community is making mistakes with respect to a particular type of goods.

The CBSA's Post-Release Verification list for 2011 are:

Type of Goods H.S. Codes Comments
Gloves Headings 40.15, 42.03, 61.16, 62.16,39.26, 42.03

On list previously and significant non-compliance identified

Focus of verification will be tariff classification & tariff treatment

Cotton Yarn Headings 52.05, 52.06, 52.07

Focus of verification will be tariff classification & tariff treatment

Furniture Parts Heading 94.03

Focus of verification will be tariff classification & tariff treatment

Organic surface-active agents - soap and other than soap Headings 34.01 and 34.02

Focus of verification will be tariff classification & tariff treatment

Copper and articles thereof Various goods under Chapter 74

Focus of verification will be tariff classification & tariff treatment

Stone vs. articles of stone 25.14, 25.15, 25.16, 68.01, 68.02, 6803.00.90, 6803.00.10.10

Focus of verification will be tariff classification & tariff treatment

Juice products Heading 20.09

On list previously and significant non-compliance identified

Focus of verification will be tariff classification & tariff treatment

Textile Bags 3923.29.90.90

Focus of verification will be tariff classification & tariff treatment

Ski apparel Various goods under chapters 39, 61 and 62 Focus of verification will be valuation of goods
Parts of gas turbines 8411.99.20.11, 8411.99.20.19, 8411.99.290.90 Focus of verification will be valuation of goods
Light-duty automotive goods Various god under chapter 87 Focus of verification will be valuation of goods
Bulk shipment of ore Chapter 36 Focus of verification will be valuation of goods
Plastic household goods Heading 39.24 Focus of verification will be valuation of goods
Motor car, bus and lorry tires Various goods under heading 40.11 Focus of verification will be valuation of goods
Video recording apparatus 8521.90.90.00 Focus of verification will be valuation of goods
Pumps for liquids 8413.11.10, 8413.19.10, 8413.70.99 Focus of verification will be valuation of goods
Article of jewelery and parts Heading 71.13 Focus of verification will be valuation of goods
Mattresses Heading 54.07, and Chapters 55 and 60 Focus of verification will be origin of goods
Electric generators Heading 85.01 Focus of verification will be origin of goods
Vegetable fats 1516.20.90.41, 157.90.99.00 Focus of verification will be origin of goods
Pumps for liquids 8413.11.10, 8413.19.10, 8413.70.99 Focus of verification will be origin of goods
Cocoa powder 1805.00.00, 1806.10.10, 1806.10.90 Focus of verification will be origin of goods

This does not mean that all importers who import the goods on the 2011 hit list will be audited. It does mean that some importers of the good on the list will be audited in 2011/2012. Importers of the goods on the list should conduct their own internal verifications and determine whether they are importing goods in compliance with previously issued ruling letters, case law, CBSA policy and other statements of the law. If an importer identifies errors prior to being contacted by the CBSA for a verification, that importer may be permitted to make a voluntary disclosure of its non-compliance and the CBSA may waive the penalties that would have been payable if the CBSA discovered the non-compliance during a verification.

For more information, please contact Cyndee Todgham Cherniak at 416-760-8999.

Categories of Ontario Retail Sales Tax Assessments

There are good assessments (being nil assessments) and bad assessments (you own money to the Ministry).  This blog post is going to list the most common types of Ontario retail sales tax (ORST) assessments.  It is not a complete list of every type, but I will hit the highlights:

1. Assessment of a vendor who has collected ORST and failed to remit the ORST;

2. Assessment of a vendor a penalty for failure to collect ORST from a purchaser as required (including innocent mistakes);

3. Assessment of a purchaser who did not pay ORST to a vendor as required (even when the vendor did not ask for the ORST or honestly thought the sale was exempt);

4. Assessment of a director for the ORST liability of the corporation;

5. Assessment of a person who imports taxable goods into Ontario;

6. Assessment of a person who hires a non-resident contractor (who has not coordinated with Ontario) who builds real property in Ontario and imports building materials; 

7. Assessment of a person who over claimed a rebate or refund;

8. Assessment of a buyer of a business to which the bulk sales tax applies in circumstances where the vendor owes Ontario ORST on past activities and the buyer did not get a clearance certificate; and

9. Assessment of an assignee, liquidator, administrator, receiver, receiver-manager, secured or unsecured creditor, agent of the creditor, trustee or other like persons who distribute property or proceeds from the sale without obtaining a clearance certificate from the province and there are outstanding ORST liabilities.

Another categorization of assessments that you should be aware of are:

A) interim assessment - meaning that the auditor has guessed the amount and not finished his/her work before issuing an assessment;

B) audit summary: this is not an assessment; 

C) final assessment: this is an assessment if it is in the form of a notice of assessment; and

D) revised assessment: if an auditor issues an assessment and subsequently revises the assessment, the new assessment generally replaces the previous assessment (if it relates to the same transactions) and restarts the limitation period for filing a notice of objection.

OECD Seeks Comments on "OECD International VAT/GST Guidelines: Draft Guidelines on Neutrality"

In December 2010, the Organization for Economic Co-Operation and Development (OECD) released for comment a document entitled "OECD International VAT/GST Guidelines: Draft Guidelines on Neutrality".  The deadline for filing comments is March 22, 2011.

Canada is a member of the OECD.  Canada imposes the goods and services tax (GST) and harmonized sales tax (HST), which are value-added taxes.  As a result, the OECD guideline may be incorporated into Canadian law in the future.  As a result, it will be important for Canadian businesses who operate multi-nationally and may be affected by the guideline to prepare thoughtful comments.

This document succinctly summarizes some of the important principles behind GST/HST style taxes and, therefore, may be VERY useful to litigants in explaining why an auditor's approach is incorrect.  I have considered its usefulness in the context of may GST/HST disputes. 

For example, proposed guideline No. 1 is "The burden of value added taxes themselves should not lie on taxable businesses except where explicitly provided for in legislation."  This is a basic principle and I can hear you saying "YES".  I can hear you saying "Why did the auditor assess me as a supplier when I am engaged in a taxable business?"

Read this document!

Would you like to register for GST/HST purposes?

If you would like to register for GST/HST purposes and do not have the forms, maybe I can help point you in the right direction:

1) Fill out the Business Consent Form (RC 59) if you are appointing someone to act on your behalf (like me)

2) Fill out the Request for a Business Number (RC1) if you would like more than just the GST/HST account number (e.g. income tax, payroll or import/export)

or

Fill out the Business Number (BN) - GST/HST Account Information if you have a business number (often provided automatically with a Canadian or provincial incorporation) and only need to set up a GST/HST account.

3) If you are a non-resident, you may need to post security.  More information about posting security is found in GST Memorandum Series 2-6 "Security Requirements for Non-Residents".

I should note that completing these documents is not a simple task and the answers provided to the questions may have serious consequences to you.

If You Are Assessed Customs Duties, Remember to Claim ITCs For Assessed GST

I see a lot of determinations by the Canada Border Services Agency (let's just call them assessments) relating to Harmonized System (H.S.) tariff classifications and valuations relating to imported goods.  When the CBSA decides you used the wrong H.S. tariff classification number and, therefore, the applicable duty rate is actually higher than the duty rate used at the time of importation, the CBSA assesses GST on the new customs duty included value for duty.  Similarly, if the CBSA disagrees with the valuation method that you used such that the value for duty was too low, the CBSA will assess GST on the new customs duty included value for duty. This often means that the GST portion of the assessment is equal to or greater than the customs assessment.

In many cases, importers do not realize that they are paying GST (instead of customs duties).  Some do not review the details.  Some just pay the bill of a customs broker without even receiving the CBSA documentation. In some cases, the documentation goes to the purchasing department and never gets to the person in charge of GST.

I have seen many cases where the importer of record does not claim input tax credits (ITCs) to recover the GST paid to the CBSA in respect of the imported goods.  If the importer of record in a business, they may be entitled to claim ITCs. If the goods are imported by a consumer, they are not entitled to recover the additional GST/HST paid to the CBSA.

Anyone who has been assessed by the CBSA in the past few years should determine whether they have claimed their ITCs.  I would be happy to help you determine what you are entitled to claim as an ITC.

Are You Doing Business In Canada or Doing Business With Canadians?

The most frequent question that I ask U.S. businesses is "Are you doing business in Canada or doing business with Canadians?"  It is an important GST/HST question.  If a business is merely doing business with Canadians, it is not required to register for GST/HST purposes.  If a non-resident business (also applies to resident businesses) are doing business in Canada, they may be making taxable supplies in Canada and may be required to register for GST/HST purposes.

The phrase "doing business in Canada" is a term of tax art.  The phrase "doing business in Canada"  is not defined in the Excise Tax Act (Canada). The phrase has been considered in many income tax and sales tax cases.  As a result, a determination is made on a case-by-case basis.  The Canada Revenue Agency has issued administrative statements to inform suppliers on factors they consider in making a determination.  In many cases, it is recommended that a non-resident supplier apply for an advance GST/HST ruling (usually in cases where they want a decision that they are not doing business in Canada).

I have been asked to look at this issue more than any other GST/HST issue.  I could give many examples that cross many forms of businesses.  I will give two of my more recent examples.

Example #1: A U.S. company provides specialized services to clients.  They design and develop custom computer programs and implement the program after completion.  Employees of the U.S. company spends months (sometimes over a few years) at the clients' premises.  In recent years, the U.S. company was retained by a few Canadian companies for big and small projects. The U.S. company has established a Canadian bank account in which it was paid for its services.

This company was doing business in Canada and needed to register for GST/HST purposes.  It did not matter that the U.S. company did not have its own offices in Canada and only worked at the premises of its clients.  Given the amount of time that the U.S. company spent in Canada performing services on Canadian soil, it was easy to determine that the company was carrying on business in Canada.

Example #2: A U.S. company with a business location in the United States very near the Canada/U.S.border sold goods.  While Canadians could cross the Canada-U.S. border, buy goods, and be responsible for taking the goods across the border, This was not what usually happened.  The U.S. company regularly delivered the goods f.o.b. Canadian customer's front door.

If the U.S. company delivered the goods infrequently f.o.b Canada, it may have been considered to be doing business with Canadians.  If the U.S. company delivered the goods f.o.b U.S. business and the customer arranged for shipment across the border, the U.S. company may have been considered to be doing business with Canadians.  However, the reality was very different. Based on the actual activities of the U.S. business, they would likely be considered to be carrying on business in Canada.

The facts are always very important.  Even if you have asked this question before and are attempting to NOT carry on business in Canada, it is important that non-residents of Canada ask what is the practical reality.  Based on my experience, non-resident businesses often get into difficulty because employees change the game plan without knowing why things are being done a certain way.

"Are you carrying on business in Canada" is an important question to ask. 

Should Companies/Partners Undertake GST/HST Inspections Before Buying a Business?

Most people hire a home inspector to inspect a home before buying a home.  They hire home inspectors to find the problems that they cannot see so that they do not experience large unexpected expenditures after the closing date.

Should businesses (corporations and partners/joint venturers) hire a GST/HST expert to conduct a GST/HST focused review prior to the closing date so that they do not buy GST/HST problems that a Canada Revenue Agency auditor may blame on the buyer?  What I am referring to is due diligence and a private audit of GST/HST books and records.

A GST/HST inspection is prudent if the buyer is buying the shares of a corporation.  The past errors (liabilities) are acquired in a share purchase transaction.  If you find a serious problem with the GST/HST compliance, then a purchase price reduction can be discussed.  The purchase price reduction for the shares may be quantified by way of a pre-closing voluntary disclosure - but that may delay the transaction.  If you do not want to delay the closing of the transaction, an amount of the purchase price may be put in a reserve or escrow account as the voluntary disclosure proceeds.  It is not necessary to conduct a a voluntary disclosure and reserves can be maintained depending what is found in and quantified during the GST/HST inspection.

Similarly, a GST/HST inspection is prudent if the buyer is purchasing a partnership unit or joint venture interest in an existing partnership or joint venture. As discussed with corporations, the buyer would be buying the GST/HST history and the existing problems.

Even if the acquisition is an asset transaction, a GST/HST inspection is prudent.  If the buyer is making offers of employment to existing employees, they will continue to make any mistakes they had been making in their record keeping and reportings. If you would like to stop bad practices, you need to know they exist and take positive steps to teach proper practices.

GST/HST inspections are not usual - yet.  With the implementation of GST/HST in Ontario and British Columbia, the cost of mistakes increased to 13% and 12% respectively, plus additional basis points for interest and penalties.  Depending on the value of the business that is being acquired, there is more money at stake than the cost of replacing a leaky roof or old furnace.

Bequested Goods Are Not Subject to HST on Importation

I was sent a question as to whether harmonized sales tax (HST) will be imposed on imported goods that have been the subject of a bequest to the importer.  I wanted to answer this question since my own Grandmother passed away this year --- so this one is for Alice (and the writer of the question).

Goods that are classified under H.S. tariff item 98.06 may be imported as a non-taxable importation (in other words, no HST on importation).  H.S. tariff item applies to:

(a) Personal and household effects of a resident of Canada who has died (on the condition that such goods were owned, possessed and used abroad by that resident);

(b) Personal and household effects received by a resident of Canada as a result of the death or in anticipation of death of a person who is not a resident of Canada (on condition that such goods were owned, possessed and used abroad by that non-resident), or

(c) ll the foregoing when bequeathed to a resident of Canada.

It will be important to communicate effectively on the import documentation that the goods are the subject of a bequest (or belonged to a resident of Canada who passed away while outside Canada).  Please use H.S. tariff code number 98.06 on the Customs invoice. It will be helpful to name the deceased person and/or the estate of the deceased person.  If the goods are the subject of a bequest, be prepare to provide to a Canada Border Services Agency officer a copy of the Will or the Receipt and Release that identifies the goods that are the subject of a bequest. 

If the goods belonged to a Canadian resident who passed away abroad, the goods should be listed by the coroner or an official in the foreign jurisdiction as belongings of the deceased person.  There will be many situations where such documentation is not possible.  In such cases, a reasonable attempt should be made to corroborate that the criteria of the H.S tariff code have been satisfied.

Please remember that this H.S. tariff code has been misused by some and that is why your difficult time is going to be the subject of an inquiry by CBSA officers. 

Appraisal/Valuation Issues Re Non-Commercial Jewelry Imports Can Lead to GST/HST Issues

I have many clients who are individuals and business owners who have had their jewelry seized and detained by the Canada Border Services Agency (CBSA) upon return to Canada. Such detentions have a GST and/or HST effect since GST and HST is calculated based on the value for customs duty purposes.  If the jewelry is a non-commercial importation by an individual (in other words, an individual acquired the jewelry outside Canada for personal use), then the GST/HST is an additional cost (if the goods exceed the exemption limit).

In many cases (too many cases) the client has a receipt in which a value is stated, but the secondary screening officer does not accept the sales documentation as valid. The CBSA officer believes (often without any probable grounds except the person did not answer questions satisfactorily or "they looked nervous about something") that the invoice understates the value.

In many cases, the CBSA charges the importer criminally with smuggling or providing a false document and a civil penalty. The CBSA officer often detains the jewelry and assesses a penalty of 30%-70% of a value to be determined. The CBSA then sends the seized jewelry to be appraised. As a result, the effect is serious --- and costly to resolve.

In every case that I have seen, the appraisal exceeds the amount of the invoice. This may be because appraisers are used to overstating the value for insurance purposes. This may be because the appraiser is asking the wrong questions - such as what would a willing buyer pay a willing seller in Canada at a retail (B2C) sale? This may be because the appraiser has not been told to include a trade level adjustment (in the case of a commercial importation). In every case, it is the interest of the CBSA to get as high an appraisal as possible in order to collect more duties (including excise duties), taxes (GST (commercial and non-commercial goods), HST (non-commercial goods) or PST (non-commercial goods)) and penalties. It may be because an appraisal is a guess an exact science.

Anyone in these circumstances should look at the Government of Canada auction web-site for surplus and seized goods. The relevant area to review are "What has sold". Look at (1) jewelry, collectors items, arts and crafts, etc. and (2) seized assets (excluding vehicles). If you look at specific items that have sold, you will find many examples of jewelry that was appraised at one high amount and that sold in the government auction for less than half that value. I recently purchased a jade necklace valued at $50 on the auction site and I paid only $25. You will likely find better examples that are closer to the type of goods that have been seized from you. This is good evidence to present that a government appraisal is incorrect.

If you anticipate in advance that the CBSA may question your documentation on the purchase price of a good outside Canada, then improve your evidence. For example, get an appraisal completed by a reputable firm. Bring any sales promotional documents, such as sales catalogers or store advertisements. If an item was purchased at an auction outside Canada, bring the promotional materials. If your jewelry is a family heirloom, take photos of the jewelry and work with a reputable Canadian appraiser before bringing the goods to Canada.

A Thought About GST and Imports

Since the implementation of harmonized sales tax ("HST") in Ontario and British Columbia, the Government of Canada should re-think the imposition of goods and services tax ("GST") on imports of commercial goods. In connection with the implementation of HST, the CITCAs include provisions such that HST is not imposed on imported commercial goods.  What is the logic of continuing to impose GST on commercial imports? Wouldn't it be better for Canadian businesses and, in particular manufacturers, if the GST cash flow cost on imported commercial goods is removed?  If the Canada Border Services Agency can live with the HST regime for imports, why can't they also live with no GST on commercial goods and GST on non-commercial goods?  Wouldn't it be a more efficient use of government resources if the Canada Border Services Agency is no longer responsible for collection of GST on imported commercial goods and is not longer shares verification/audit functions with the Canada Revenue Agency?  For that matter, wouldn't it be better for businesses if they did not have to be subject to GST audits/compliance verifications by two separate government agencies who do not adequately share information and interpretations?  I am just saying ...

Canada Border Services Agency Publishes Fact Sheet on HST & Imports

The Canada Border Services Agency has published a Fact Sheet entitled "The Canada Border Services Agency's Implementation of the Ontario and British Columbia Harmonized Sales Tax" (June 2010), which sets out some of information importers should know about HST.

In short, HST will be applied in respect of non-commercial goods (a.k.a things individuals import for personal use).  The "official definition of a "non-commercial good" is: "Non-commercial goods" means "all goods, other than goods imported into Canada for sale, or for any commercial, industrial, occupational, institutional, or other like use."

Beginning July 1, 2010, the importation into Canada of non-commercial goods by or for a consumer that is a resident of Ontario or British Columbia, will be subject to the HST. The HST will apply to non-commercial goods destined for Ontario and British Columbia, regardless of where the goods enter into Canada. NOTE: Goods destined for Nova Scotia, New Brunswick, and Newfoundland/Labrador are also subject to HST.

MORE IMPORTANTLY - As is the case today, the provincial component of the HST will not generally apply to commercial goods that are imported by an HST registrant for consumption, use or supply exclusively in the course of the commercial activities of the registrant.

For more information, please see the Fact Sheet.

Canada's Department of Finance Has Released Financial Institution Rules for the Harmonized Sales Tax (HST)

On May 19, 2010, the federal Department of Finance released "Financial Institution Rules for the Harmonized Sales Tax (HST)", which is a rather long and complicated document. The good news is that only financial institutions (including de minimis financial institutions) must figure out how this document changes their way of doing business and imposes new obligations.  The bad news is that financial institutions may charge higher service fees to cover their compliance costs / assessment risks.

The released document provides information on changes to rules for selected financial institutions (also known as SLFIs).  The changes include changes to the test for determining whether an entity is an SLFI.  As a result, it will be important for entities to apply the new test to see whether they are still SLFIs and whether they are now considered to be a SLFI.  The release states:

British Columbia and Ontario's decision to join the HST, effective July 1, 2010, will significantly increase the number of FIs that are SLFIs. For example, a bank with branches in Ontario and Manitoba and in no other provinces would become an SLFI only as a result of Ontario harmonization.

This statement suggests that some entities (were not considered to be SLFI before and are considered to be a SLFI now) now have a lot of work to do to prepare before July 1, 2010.

The released document also provides information to financial institutions about the "special attribution method" (friendly name "SAM") that they are required to use.  This complicated formula will likely appear in the coming weeks in regulations and, therefore, will not be subject to scrutiny by opposition MPs and the Canadian Senate.

The SAM attribution methods are briefly discussed for:

i. banks

ii. insurance corporations

iii. trust and loan corporations

iv. investment plans and segregated funds

v. other corporations, individuals and trusts

The publication also covers the following topics:

  • information requirements
  • penalties
  • MTFs that are ETFs
  • timing of PVAT (provincial HST component) determination under SAM
  • compliance rules
  • transitional rules for SLFIs re Ontario and BC
  • recapture of ITC rules for SLFIs
  • SLFI transition installment base
  • Imported supplies - non resident trusts
  • SLFI rules respecting deemed pension supplies and pension rebate
  •  

 

What Are The HST Place of Supply Rules For Customs Brokers?

On February 25, 2010, the Department of Finance released a News Release summarizing the proposed harmonized sales tax (“HST”) place of supply rules and shortly thereafter the Canada Revenue Agency released a GST/HST Technical Information Bulletin setting out its administrative position. On April 30, 2010, the Department of Finance released “Draft Regulations in respect of the Place of Supply of Property and Services” (the “Draft Regulations”). There is a separate HST place of supply rule for customs brokerage services.


Section 24 of the Draft Regulations sets out the HST place of supply rules for customs brokerage services:


24.(1) Where a supply of a service is made in respect of the importation of goods and the service is the arranging for their release (as defined in subsection 2(1) of the Customs Act) or the fulfilling, in respect of the importation, of any requirement under that Act or the Customs Tariff to account for the goods, to report, to provide information or to remit any amount,


(a) if the goods are accounted for as commercial goods (as defined in subsection 212.1(1) of the Act) under section 32 of the Customs Act, the supply is made in the province in which the goods are situated at the time of their release;
(b) if paragraph (a) does not apply and tax, calculated at the tax rate for a participating province, is imposed under subsection 212.1(2) of the Act, or would be so imposed if subsections 212.1(3) and (4) and section 213 of the Act did not apply, in respect of the importation, the supply is made in that participating province; and
(c) in any other case, the supply is made in a non-participating province.


(2) Subsection (1) does not apply to the supply of any service provided in relation to an objection, appeal, redetermination, re-appraisal, review, refund, abatement, remission or drawback, or in relation to a request for any of the foregoing.


This means that:


Rule 1: If commercial goods are imported into Canada, the place of supply of the customs brokerage and related services is in the province in which the goods are released. Therefore, if the goods are released at Toronto Pearson International Airport, the Ontario HST (13%) would apply. If the goods are released at the Vancouver Port, then British Columbia HST (12%) will apply. If the goods are released at the Halifax Port, the Nova Scotia HST (15%) will apply after July 1, 2010.

 

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Will HST Apply to Imports of Goods Into Ontario and British Columbia?

There is some misinformation about whether HST will apply to imports into the new HST provinces (Ontario and British Columbia) after July 1, 2010. I hope I can clear up some of the confusion.

The first place to look for the answer to the question of whether HST apply to imports into Ontario, you need to look at the Comprehensive Integrated Tax Coordination Agreement Between The Government of Canada and The Government of Ontario ("CITCA-O").  Part VIII of the CITCA-O addresses imports and provides as follows:

23. In this Part, unless otherwise defined for the purposes of Part IX of the Excise Tax Act, the term “non-commercial imported goods" means imported goods, other than goods imported into Canada for sale or for any commercial, industrial, occupational, institutional or other like use.

24. Unless otherwise provided in this Part, the importation into Canada of non-commercial imported goods by, or for, a consumer that is a resident (including a “seasonal resident" as defined for the purposes of the Seasonal Residents’ Remission Order, 1991) of the Province will be subject to the PVAT in respect of the Province in accordance with the rules generally applicable to the importation of goods into Canada under Part IX of the Excise Tax Act, and any other special rules under that Part developed for purposes of the PVAT in respect of the Province.

25. Canada will neither assess nor collect under this agreement any product-specific tax, levy or mark-up imposed by the Province in respect of the importation of goods subject to a specific tax collection agreement between Canada and the Province.

26. The PVAT in respect of the Province will not be applicable to the importation into Canada of any goods other than non-commercial imported goods in accordance with the rules under Part IX of the Excise Tax Act, and any other special rules under that Part developed for purposes of the PVAT in respect of the Province.

27. Goods, other than non-commercial imported goods, which are imported into Canada for consumption or use, or for supply in whole or in part, otherwise than in the course of commercial activities, in the Province by a person, will be subject to self-assessment of the PVAT in respect of the Province by the person in accordance with the rules under Part IX of the Excise Tax Act, and any other special rules under that Part developed for purposes of the PVAT in respect of the Province. PVAT in respect of the Province will also apply through the self-assessment provisions under Division IV of that Part.

28. The Province will assess and collect, at the time of vehicle registration in the Province, any PVAT in respect of the Province payable in respect of motor vehicles imported into Canada as non-commercial imported goods.

The BC CITCA has similar provisions.

What this all means is:

Rule 1. HST (called PVAT in the CITCA-O) is payable in respect of non-commercial imports of goods and will be collected by the Canada Border Services Agency (CBSA) at the border. For example, if an individual purchases a kindle from amazon.com for personal use, HST will be applicable. Generally speaking, if the importer does not have an import number (the RM extension on a business number), the CBSA will consider the importer to be bringing in non-commercial imports. Also, if the importer appears to be an individual and the "ship to" address is residential, the CBSA will consider the importer to be bringing in non-commercial imports. Please note that goods and services tax ("GST") will also be applicable.

Rule 2. There are exceptions to Rule 1. If an imported good is a non-taxable supply, an exempt supply or a zero-rated supply, HST will not be applicable. The import documentation (the B3 Customs Coding Form) will have to indicate the proper code in order to be relieved of HST.

Rule 3. Commercial importations of goods will not be subject to HST. That is, if a business imports goods, the CBSA will not impose HST at the border. The CBSA will still collect the GST.

Rule 4. In addition to Rule 3, Commercial importations of goods by businesses for consumption or use, or for supply in whole or in part, otherwise than in the course of commercial activities, in the Province by a person will be subject to HST and the importer will be required to self-assess any applicable HST on its GST/HST return. Depending on the place of supply rules, the HST rate applicable to the relevant province will apply.

Rule 5. Businesses that are residents in an HST province that are not engaged in commercial activities or import services and/or intangible property for consumption or use  or supply in whole or in part otherwise than in commercial activities (meaning in exempt activities) will be required to self-assess applicable HST on imported taxable supplies of services and/or intangible property.

If you require additional guidance, please refer to the old GST/HST Technical Information Bulletin for the Maritime HST provinces (Nova Scotia, New Brunswick & Newfoundland/Labrador) TIB-081 "Application of HST to Imports" Note: when reading TIB-081, please remember that the place of supply rules are changing and TIB-081 will have to be updated.

Please be mindful of the CBSA's D-Memo D13-3-13 "Post-Importation Payments or Fees: Subsequent Proceeds" which takes the position that certain management and administrative fees and amounts paid by the importer to the exporter (or subsidiary to parent) after importation must be added to the price paid or payable. This could result in additional GST and HST being payable in respect of imported taxable supplies or property and/services. You will also have to be careful to ensure that some services that are added to the price payable for goods (and reported on a B2 Adjustment) are not duplicated in a self-assessment of GST/HST on a GST/HST return.

HST Place of Supply Rules for Customs Brokers

On February 25, 2010, the Department of Finance released a News Release about what will be the HST place of supply rules after regulations are promulgated. Interestingly, the Department of Finance is going to create a separate rule for customs brokerage services. "Customs brokerage services" are currently understood to mean:

"a service of arranging for the release of imported goods, or fulfilling, in respect of the importation, (whether before, at the time of or after the release) any accounting,, reporting or information requirements imposed under the Customs Act or the Customs Tariff Act or any requirements under either of those Acts to remit any amount."

Since I wrote on March 17, 2010 about the HST rules for imports, I thought I should share the funny little place of supply rules for customs brokers services.

In the February 25, 2010 News Release, the Department of Finance wrote:

Under the current rules, the place of supply of a service of arranging for the release of imported goods, or fulfilling, in respect of the importation, (whether before, at the time of or after the release) any accounting,, reporting or information requirements imposed under the Customs Act or the Customs Tariff Act or any requirements under either of those Acts to remit any amount is in a province if the goods are situated in that province at the time of their release.

It is proposed that this rule continue to apply in respect of commercial goods. However, in the case of non-commercial goods, generally if the provincial component of HST for a participating province is imposed in respect of the importation of the goods, the supply of the customs brokerage service will be regarded as made in that participating province.

The above rules will not apply to the supply of any service provided in relation to an objection, appeal, re-determination, re-appraisal, review, refund, abatement, remission or drawback, or in relation to a request for any of the foregoing. These types of services will continue to be subject to the place of supply rules for services described in other parts of this document.

The changes to the Excise Tax Act or the Regulations still have to be made public and must undergo the applicable legislative steps to become law.

The CRA clarifies the place of supply rules in GST/HST Technical Information Bulletin B-103 "Harmonized Sales Tax: Place of suppy rules for determining whether a supply is made in a province" as follows:

Rule #1: If the importation is commercial goods (for which HST is not collected), the place of supply of the customs brokerage and related services is in the province in which the goods are released. Therefore, if the goods are released at Toronto Pearson Airport, the Ontario HST would apply. If the goods are released at the Vancouver Port, then British Columbia HST will apply.

However, if goods are placed in a bonded warehouse in Montreal, HST would not be applicable to the brokerage charges.

Rule #2: If the customs brokerage services relate to an objection, appeal, re-determination, re-appraisal, review, refund, abatement, remission or drawback, or in relation to a request for any of the foregoing (called herein "post-importation customs brokerage services"), Rule #1 does not apply. The general place of supply rules for services would be applicable.

The 5 main place of supply rules for services are applied in the following order:

(a) If the recipient's address or the address most closely connected with the supply in in the HST Zone, the applicable HST rate would be applied to the post-importation customs brokerage services;

(b) If the recipient does not have a Canadian address, the post-importation customs brokerage services will be considered to be supplied in the province in which the greatest proportion of the services is performed. For example, if the customs broker is located in Ontario and a customs broker in Ontario completes the B2 adjustments/appeals, then Ontario HST would apply.

(c) If 2 applies and the post-importation customs brokerage services are performed equally in two or more particular HST provinces, the HST province with the highest HST rate would be considered to be the place of supply.

(d) If 3 applies but a single HST province cannot be identified (same 13% rate in more than one province), the post-importation customs brokerage services will be subject to 13% HST.

(e) If the recipient does not have a Canadian address and the customs brokerage service is not performed primarily in an HST province or the HST Zone, then HST would not apply to the post-importation customs brokerage services.

Rule #3: If the importation relates to non-commercial goods, whether HST applies to the customs brokerage service will depend on whether the goods are subject to HST under the place of supply rules for goods. 

HST Place of Supply Rules for Goods: Suppliers Outside HST Zone Also Affected

On February 25, 2010, Canada's Department of Finance released its proposed harmonized sales tax (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. 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 proposed HST place of supply rules for tangible personal property (goods) may surprise sellers of goods located in Alberta, Saskatchewan, Manitoba, Quebec and Prince Edward Island. Based on the Canada Revenue Agency's (CRA) views, some suppliers located in non-HST provinces may be required to charge, collect and remit HST. All suppliers of goods in Canada may need to consider whether they want to continue to ship goods to recipients in the HST Zone (and in particular Ontario and British Columbia). Some sellers of goods need to start working quickly to update their computer systems and accounting systems to account for HST on supplies of goods.

The proposed HST Place of Supply Rules to be in effect after July 1, 2010 are:

Rule #1: A supply of goods by way of sale is deemed to be made in a province if the supplier (Seller) of the goods delivers the goods or makes the goods available to the recipient (Buyer) in the province. For example, if an individual goes into a store in Ontario and purchases goods (e.g., a television), the store would charge HST at the rate of 13% (5% GST and 8% Ontario HST). The key fact is the place of delivery.

CRA Example: A supplier in Ontario agrees to sell to a purchaser in British Columbia. Based on the terms of delivery in the agreement for the supply of goods, legal delivery of the goods to the purchaser occurs in British Columbia.

CRA Position: The CRA takes the position that because legal delivery of the goods to the purchaser occurs in British Columbia, the supply of the goods is made in British Columbia and the supply will be subject to HST a rate of 12%.

CRA Example: A retailer in Ontario sells goods to a purchaser that is a resident of British Columbia and is visiting Ontario. The purchaser picks up the goods at the retailer's premises in Ontario and then transports the goods to British Columbia.

CRA Position: The goods are delivered to the purchaser in Ontario. The supply of goods is therefore made in Ontario and is proposed to be subject to HST at a rate of 13%.

Rule #2: A supply of goods by way of sale is deemed to be made inside the HST Zone (British Columbia, Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) if the legal delivery of the goods is made in that province. For the purposes of this rule, goods are deemed to be delivered in the HST Zone, and not outside the HST Zone, if the supplier either:

  • (a) ships the property to a destination in the HST Zone that is specified in the contract for shipment of the goods;
  • (b) transfers possession of the goods to a common carrier or consignee that the supplier has retained on behalf of the recipient (Buyer) to ship the goods to a destination in the HST Zone; or
  • (c) sends the goods by mail or courier to an address in the HST Zone.

Pursuant to this rule, Incoterms, such as F.O.B. (freight or board) or C.I.F. (cost, insurance freight) are important if the location stated is within the HST Zone.

CRA Example: A supplier in Alberta agrees to sell goods to a purchaser in Ontario. Based on the terms in the agreement for the supply of the goods, legal delivery of the goods to the purchaser occurs in Alberta. However, the supplier agrees to have the goods shipped to the purchaser in Ontario.

CRA Position: Although legal delivery of the goods to the purchaser occurs in Alberta, delivery of the goods to the purchaser is deemed to occur in Ontario because the supplier ships the goods to Ontario. The supply of goods is therefore made in Ontario and is proposed to be subject to HST at a rate of 13%.

CRA Example: A mail-order company located in Nova Scotia sells greeting cards to customers across Canada. The company places the packages of greeting cards in the mail for delivery to customers in Ontario and British Columbia.

CRA Position: The supply of greeting cards mailed to Ontario is made in Ontario and is proposed to be subject to HST at a rate of 13%. The supply of greeting cards mailed to British Columbia is made in British Columbia and is proposed to be subject to HST at a rate of 12%.

Rule #3: Where a recipient of a supply of goods by way of lease, license or similar arrangement (Lessee) subsequently exercises an option to purchase the goods, the recipient lessee is deemed to take delivery by way of sale at the time and place at which the recipient lessee ceased to have possession of the property as a lessee and begins to have possession of the property as a purchaser. The key fact is the location of the goods at the time the option to purchase is exercised.

For example, if a person in Ontario leases a piece of manufacturing equipment from a lessor in Quebec and exercises an option to purchase the equipment at a late date when the equipment is in Ontario, HST will be applicable at a rate of 13% in respect of the option price.

The rate of HST will depend on which HST Zone province is the destination.

Rule #4: Where a supply of goods is made by way of lease, license or similar arrangement (other than a specified motor vehicle) (e.g. an equipment lease) for consideration that is attributed to a period (referred to as a "lease interval") and the lease, license or similar arrangement exceeds three months, the supply is deemed to be made in the HST Zone if the ordinary location of the property is within the HST Zone.

For the purposes of the place of supply rules, the ordinary location of the property is deemed to be the location where the supplier and the recipient mutually agree. This is a concession because the supplier may not be in the best position to know where the recipient has the goods. The CRA states that, "In other words, the mutual agreement of the supplier and the recipient will be determinative even where the property is actually located in a different place at the relevant time than what had been agreed upon."

The CRA will look to the contract and any subsequent amendments to agreements to determine the location of the leased goods.

A separate supply of the goods is deemed to be made for each lease interval of the earliest of the first day of the lease interval, the day on which the lease payment attributable to the lease interval becomes due and the day the payment is made.

Rule #5: Where a supply of goods is made by way of lease, license or similar arrangement (other than a specified motor vehicle) (e.g. an equipment lease) and the lease, license or similar arrangement does not exceed three months, the supply is deemed to be made in province in which the supplier delivers the goods or makes the goods available to the recipient. For the purposes of this rule, goods are deemed to be delivered in the HST Zone, and not outside the HST Zone, if the supplier either:

  • (a) ships the property to a destination in the HST Zone that is specified in the contract for shipment of the goods;
  • (b) transfers possession of the goods to a common carrier or consignee that the supplier has retained on behalf of the recipient (Buyer) to ship the goods to a destination in the HST Zone; or
  • (c) sends the goods by mail or courier to an address in the HST Zone.