A Canadian Tax Lawyer’s Perspective on the GST/HST Non-Resident Override Rule
General Rule for Non-Resident GST/HST Registration
GST/HST is sales tax charged on the provision of goods and services in Canada. Generally speaking, non-residents of Canada must become a GST/HST registrant in Canada when they carry on business in Canada and have annual worldwide taxable supplies valued at over $30,000 CAD. GST/HST registrants are obligated to collect and remit GST/HST chargeable on taxable supplies (sales) made in Canada.
Carrying on Business in Canada
“Carrying on business in Canada” is a common phrase when discussing tax law issues, but this term is not defined in the Excise Tax Act. Instead whether a non-resident is carrying on business in Canada is determined by examining a series of factors in relation to the non-resident’s business activities. These factors include:
- The place where services or manufacturing are performed, transactions are solicited and/or business contracts are made
- The location where employees are located, branch or offices are located, the bank account is located and/or inventory is located.
- The place where purchases and/or delivery are made.
The above list is non-exhaustive and the weight given to each factor will depend on the particular circumstances, such as the nature of the business being carried on. A taxpayer will be found to be carrying on business in Canada where the business has a significant presence in Canada.
Place of Supply
Generally, GST/HST must be paid on taxable supplies (sales) made in Canada. Whether a particular supply of goods or services is made in Canada is determined by the place of supply rules. The Excise Tax Act defines “Canada”, as well as enumerating specific rules for determining where a good or services is supplied that apply to certain types of goods and services. These rules can become complicated depending on the exact goods or services being supplied. However, the general rules are:
- Tangible personal property (goods) is considered supplied in Canada where they are, or will be, delivered or made available in Canada.
- Intangible personal property is considered supplied in Canada where it is used in whole or in part in Canada or relates to real property or tangible personal property ordinarily situated in Canada or a service which will be performed in Canada.
- Services are considered supplied in Canada where the whole or part of the service is performed in Canada.
Non-Resident Override Rule
Subsection 143(1) of the Excise Tax Act introduces the non-resident override rule. If the non-resident override rule applies to the taxpayer, the supply of goods or services by the taxpayer is deemed to have been made outside of Canada. As a result, the taxpayer is not obligated to register for, charge and remit GST/HST on taxable supplies which would be considered made in Canada had not they been otherwise deemed to have been made outside of Canada.
The non-resident override rule states:
A supply of personal property or a service made in Canada by a non-resident person shall be deemed to be made outside Canada, unless
- the supply is made in the course of a business carried on in Canada;
- at the time the supply is made, the person is [a GST/HST registrant in Canada]; or
- the supply is the supply of an admission in respect of a place of amusement, a seminar, an activity or an event where the non-resident person did not acquire the admission from another person.
Person in the above definition refers to both individual taxpayers and corporations.
Pro Tax Tips: Why Non-Residents May Still Register for GST/HST
A non-resident taxpayer who qualifies for the non-resident override may still want to register to collect and remit GST/HST in Canada. The reason for registering lies with being able to claim Input Tax Credits. Input Tax Credits, or ITCs, are tax credits GST/HST registrants can claim on any GST/HST paid or payable for expenses related to their commercial activities. Not claiming these tax credits could mean losing potential funds for the business.
For example, let’s assume the non-resident override rule applies to Manufacturing Corporation. Manufacturing Corporation sells a small batch of its products to a company operating in Canada. As part of providing these products, Corporation A pays a Canadian delivery company who charges GST/HST to Manufacturing Corporation. If Manufacturing Corporation registers for GST/HST, it can receive that GST/HST back as input tax credits. Manufacturing Corporation would need to become a GST/HST registrant before providing the taxable supply of its products to the Canadian company. Once Manufacturing Corporation registers, the non-resident override rule no longer applies to Manufacturing Corporation A.
To determine whether the non-resident override rule applies to your business, and whether to become a GST/HST registrant, contact one of our expert Canadian tax lawyers.