The second blog in our HST series ties in closely with our previous blog on Place of Supply Rules. While Place of Supply rules deal with the rate of tax that is applicable when doing business in different provinces, this blog will discuss the rate of tax that is applicable when you deal with non-residents of Canada.
Canadian businesses regularly sell their goods and services into other countries, as well as import goods and services from other countries. This keeps the economy happy but what happens to HST and when do you apply it. In this blog, we’ll focus on purchasing goods and services from a non-resident of Canada.
If a non-resident, whom you are buying goods or services from, is registered for HST, buying from them is no different than buying from anyone else here in Canada. If they deliver goods to you in Canada, you will be charged HST by them that you will later be able to claim as an ITC (assuming you’re engaged in “commercial activities”). However, if a non-resident is not registered, they won’t be collecting the HST that you would have paid if you’d bought the goods or services from a Canadian supplier. This is when the HST gets tricky.
If you are importing goods, those goods will be taxed at the border. The commercial imports tax rate is 5% (only the federal component of HST). It is important to note who is the ”importer of record”. The importer of record is the person against whom the HST is levied. If you are buying goods from a non-resident and you are not the importer of record, that means that someone else is and they are paying that tax. If HST is not showing up on your invoice from your supplier, you should talk to the supplier and make sure that the HST being paid at the border is not getting trapped in the system. Once you find out what is happening with the tax at the border, it is possible to restructure the import to claim some of it back.
Services or software rights, for example, that you might buy from a non-resident will not be subject to HST at the border because there is no way for Canada Revenue Agency to know when the purchase has been made.
Self assessment of HST is also important when you are dealing with non-residents. If you are importing goods or services from the U.S. and you are not paying tax to your supplier or to CRA at the border and you are not normally eligible to claim input tax credits (eg. If you are an NPO or a hospital), it is up to you to self assess the tax on that import .
As you can see, HST can get very complicated when you are dealing with non-residents but don’t let that stop you! We are here to help. Please feel free to myself, Garth Steele, CPA, CA, Indirect Tax Partner at [email protected]; or Mona Tessier, CPA, CA, Senior Manager at [email protected] , if you have any questions!
Garth Steele, CPA, CA
Indirect Tax Partner