Understanding the GST/HST Place of Supply Rules in Canada
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If you’re trying to navigate Canadian taxation, the place of supply rules are key. They dictate when to apply Goods and Services Tax (GST) and Harmonized Sales Tax (HST). For any business in Canada, grasping these rules is vital. In this article, we’ll explain their importance and how to apply them.
What Are The Place of Supply Rules?
The place of supply rules determines the GST/HST that a GST/HST registrant is required to collect on the goods or services that they sell to customers.
Provinces that collect HST are called participating provinces. They collect the federal and provincial portion of sales tax as one amount.
Provinces that collect GST separately from the provincial portion of sales tax are called non-participating provinces.
Below is a table showing the types and rates of sales tax that each province collects.
Taxable Supplies
Taxable supplies are supplies of goods and services that are subject to GST/HST tax when they are sold from a business to its customers. The GST/HST rate that is charged will depend on the province where the place of supply occurs.
Zero Rated Supplies
Zero-rated supplies are taxable supplies and are taxed at a rate of 0%. Although you don’t charge GST/HST on zero-rated supplies, you can still claim input tax credits (ITCs) on the costs of providing the supplies to customers.
Examples of zero-rated supplies are:
- Basic groceries such as milk, bread, and vegetables
- Prescription drugs and drug dispensing services
- Most goods and services that are exported outside of Canada
How To Determine The Place of Supply
If your business is registered for GST/HST, the place of supply rules will dictate what GST/HST rate to charge your customers.
General Place Of Supply Rules For Goods (Except For Specified Motor Vehicles)
If goods are delivered to the recipient’s province, then the place of supply is the recipient’s province, and the GST/HST rate would be used to charge and collect tax on the sale.
GST/HST on the sale of a specified motor vehicle has a separate set of rules to follow.
Example – Place Of Supply Rules for Goods
A computer store in British Columbia sells a laptop to a customer and ships it to the customer’s residence in New Brunswick.
Application of place of supply rules: Because legal delivery of the laptop occurs in New Brunswick, the place of supply is New Brunswick, and HST of 15% is charged on the laptop.
General Place Of Supply Rules For Services
Services have different place of supply rules than goods.
Some services have specific place of supply rules, so it’s important to identify which place of supply rules your goods or services are subject to.
Address In Canada Obtained
If the supplier obtains the customer’s address in the normal course of business, then the place of supply is the province of the customer’s address.
If there is more than one address provided by the customer, the place of supply is the address that is most closely connected to the goods or services being provided.
The supplier is not required to get the customer’s address if it is not a normal part of operating their business.
Example – Address in Canada Obtained (One Address)
A digital marketing agency in Montreal provides online marketing services to a customer in Vancouver, and the customer provides their address to the digital marketing agency.
Application of place of supply rules: Because the customer provided their address in British Columbia, the place of supply is based on their address. In this case, the 5% GST rate charged in British Columbia would be applied to the client’s invoice.
Example – Address in Canada Obtained (Two Addresses)
A web development company based in Ontario is hired by a client who provides two addresses: a head office address in British Columbia and a billing address in Quebec.
The web development company has been hired to create a new website for the client.
Application of place of supply rules: As the service is related to the whole company, the address most closely connected to the service is the British Columbia head office address. As a result, GST of 5% would apply to the client’s invoice.
Address In Canada Not Obtained
If the supplier does not obtain an address in Canada, then the place where the service is primarily performed is used as the place of supply to determine the GST/HST rate to use.
Non-Participating Provinces
When a service is primarily performed (50% or more) in a non-participating province, the place of supply is the non-participating province, and its GST rate is used.
Example – Non-Participating Province
A web design company provides a new website for a customer that does not provide their address in the normal course of business. The services are performed equally in the provinces of British Columbia (non-participating province) and Ontario (participating province).
Application of place of supply rules: Because 50% or more of the service was provided in British Columbia, the service will be subject to the 5% GST rate of British Columbia.
Participating Provinces
When a participating province provides the largest portion of the supply (more than 50%), the place of supply is the participating province, and its HST rate is used.
If two participating provinces equally provide the supply, then the province with the highest HST rate is used as the place of supply.
Example – Participating Province (More Than 50%)
An architectural design company provides design services to a customer who did not provide a Canadian address. The services are performed in Alberta and Ontario.
Application of place of supply rules: Since the majority of the service was performed in Ontario, the place of supply would be considered Ontario, resulting in 13% HST being charged on the architectural design services.
Example – Participating Province (50/50)
A copywriting company provides its services to a customer who did not provide a Canadian address. The services are performed in Ontario and Nova Scotia.
Application of place of supply rules: Since the service was performed equally in two participating provinces, the place of supply would be the province with the highest HST rate, which is Nova Scotia. The entire service would be charged an HST rate of 15%.
Do Foreign Customers Pay GST/HST?
If your business has foreign customers who purchase goods or services from it, they are generally taxed at a rate of 0%. Since exported goods and services are considered zero-rated taxable supplies, as discussed in the section above, there is no GST/HST charged on goods and services to foreign customers. However, your business may still be able to claim ITCs on business expenses that were incurred to provide the goods or services to the foreign customer.
Conclusion
As a business owner, it’s essential to understand the place of supply rules. These general and specific rules for collecting GST/HST can affect the GST/HST rates you charge out-of-province customers. Understanding these rules will help ensure your business collects the correct amount of GST/HST from customers and stays compliant with your GST/HST filings.
