Does a seller who is not a resident of Canada charge GST/HST to Canadian customers? What if the seller is a Canadian resident but the purchase takes place in another country? The answer depends on 3 factors: whether the non-resident is carrying on business in Canada, the type of property, and the location of the transaction.
If the seller is not a resident of Canada, GST/HST will not apply to the sale unless the seller is carrying on business in Canada, decides to voluntarily charge GST/HST or is supplying certain types of admissions. If the non-resident has established a physical location, such as a store in Canada, then the non-resident is carrying on business in Canada and must charge GST/HST on sales at that location. If the non-resident operates on-line, then there are several factors to be considered in determining whether the non-resident is carrying on business in Canada such as the actual presence of the non-resident in the country. For example, if the non-resident has a computer server in Canada, processes payments in Canada, and provides after-sales support by Canadian independent contractors, the non-resident is likely carrying on business in Canada.
Even if the seller is a resident of Canada, GST/HST may not apply depending upon the location of the transaction. Each type of property (good, service, real property, intangible property) has its own rules regarding how to determine the location of the transaction. For example, the supply of a service is deemed to be made outside of Canada if the service is performed solely outside Canada, and the supply of a good is deemed to be made outside of Canada if it is delivered or made available outside Canada.
To determine the place of delivery of goods, the Canada Revenue Agency (CRA) will first review any written contract. The CRA will also review the Incoterms® 2010 contractual terms utilized. For example, the term FOB (Free on Board) Chinese port will generally mean that delivery takes place in China. The CRA will also examine the relevant Sale of Goods Act provision.
In a recent matter, the CRA raised a Notice of Assessment on the basis that the sale of goods was made in Canada. Upon receiving an order from a Canadian buyer, the Canadian seller engaged a third-party manufacturer in China to produce the goods. We relied on subsection 31(1) of the Sale of Goods Act (Nova Scotia) to convince the CRA Appeals Division to vacate this Notice of Assessment. Under this provision, the goods were classified as ‘specific goods’ and since the Canadian buyer knew that these specific goods were manufactured in China, the supply was deemed to be made in China. It was also relevant that the Canadian buyer became the importer of record when the goods were imported into Canada, but the most important consideration for the CRA Appeals Division was the transfer of ownership under the Sale of Goods Act.
As a best practice, the seller and the buyer should state in writing whether the goods are delivered outside or inside Canada.
If you are interested in learning more about GST/HST and International Transactions, we have a skilled team of Tax lawyers who would be happy to help.